Cost Reduction

Hospitals Lead Healthcare Price Growth Plunge

November 20, 2018 2:33 pm

Hospitals’ annualized spending increased by just 3.8 percent in September—down from 4.9 percent in June.

Nov. 19—An unusual slump in hospital price increases—especially among commercial health plans—has pulled down overall healthcare price increases, according to a recent analysis.

Healthcare prices increased at an annual rate of 1.3 percent in October—the lowest growth rate in over a year. The slowed growth was primarily due to hospital prices also slowing to a 1.3 percent year-over-year increase in October, according to the latest set of health sector economic indicators by Altarum. Hospital prices had increased at a 2.5 percent annual rate in the previous month.

October saw the continuation of a year-long “anomaly,” according to Altarum, in which hospitals’ commercial health plan prices have increased at a lower annual rate than their Medicare prices. Annual hospital price growth in October was 2.9 percent for Medicare patients but only 1.2 percent for commercial plan patients—the lowest the Bureau of Labor Statistics found since it started reporting the statistic in June 2014. Medicaid patient prices fell by 0.6 percent. For “other payers” (such as veterans, Tricare, and self-pay), prices increased at an annual rate of 2.4 percent.

“Even with the Medicare anomaly, which was partially resolved with October Medicare payment updates, there remains a large cumulative gap when public prices are compared to private ones,” the Altarum report stated.

Since June 2014, cumulative price increases for hospitals have been 5 percent in Medicare, -0.4 percent in Medicaid, and 10.3 percent among commercial health plans. 

Altarum noted that economy-wide inflation is steady or trending higher, yet healthcare inflation has plummeted.

“We are firmly in uncharted historical waters with healthcare prices consistently growing more slowly than economy-wide prices,” the Altarum authors wrote. “And, as we note each month, healthcare inflation is surprisingly low for this stage of the economic recovery.”

October was the 112th month of recovery since the last recession, yet the Health Care Price Index (HCPI) was substantially below 2 percent, which was previously more of floor than a ceiling. Economy-wide price inflation has increased at a faster rate than the HCPI since August 2017.

The annual price increases for October ranged from a high of 3.8 percent for nursing home care to a low of -0.2 percent for “other professional services.”

Utilization also has been fairly flat in recent years. For instance, hospital utilization increased by 1.1 percent in the most recent 12-month average basis.  

A possibly related note is that during the recent for-profit company earnings season, insurers touted their controlled medical cost trends, while hospitals reported solid cost control, stable volumes, and moderate pricing strength.

“This seems to point to a new era of cost constraint in health care compared to traditionally rapid increases in volume and prices,” the Altarum report stated.

Stable Spending Growth

Hospitals’ annualized spending increased by just 3.8 percent in September, down from 4.9 percent in June. The slowdown was enough to offset the 5.5 percent annual rate increase in physician and clinical services. The overall national health spending growth rate was 4.8 percent in September—down from 5.1 percent in June.

“These contrary growth rates in the two largest spending categories have contributed to the stability in overall spending growth,” Altarum researchers noted in another report.

The rate of hospital spending growth is a sharp comedown from that of previous years, such as annual rates of 5.4 percent in September 2017 and 5.2 percent in 2016.

Hospitals had the slowest annual spending growth rate among healthcare categories, while nursing home care had the highest, 5.7 percent.

Employment Accelerates

The hospital price and spending slowdowns came as hiring at those organizations surged. Hospitals added 13,000 positions in October, far more than the 12-month average of 8,900. Hospitals increased employment by 2.1 percent over the last 12 months, translating to 106,900 new jobs.

The other big surge in healthcare hiring came in nursing and residential care facilities, which added 8,400 positions in October. That amount was far above the 12-month average of 2,300 for that segment.

“A measure of momentum based on three-month moving averages has been rising over the past four months for hospitals, nursing and residential care, and healthcare employment overall,” stated an Altarum report on hiring.

The overall healthcare sector, which added 35,600 positions, was on track to add 15 percent more jobs in 2018 than it did in 2017, according to Altarum.    

Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare


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