The rise in health care prices lags behind inflation

Medical prices have risen more slowly than economy-wide prices since mid-summer, economists describe the trend in a new report as “very unusual.”

The rise in health care prices, as measured by the health care price index, was 2% higher in September than a year earlier. For comparison, the consumer price index, which measures all purchased goods and services, was 5.4% in September, according to data new reportage from Altarum… The nonprofit research firm also found that healthcare accounted for a slightly smaller share of the overall economy in August than it did a year earlier.

“This is the first time that Altarum has noted that economy-wide prices are rising faster than health care prices,” said Corey Ryan, senior analyst at Altarum.

Not surprisingly, economy-wide prices are rising. Prices tend to rise during economic recovery. In addition, labor shortages increase costs for companies, prompting them to raise prices. Supply chain constraints make it more difficult for producers to provide services, making them more expensive. Government stimulus dollars in circulation increase people’s willingness to spend.

“All of these things, I think, will have a similar impact on health care prices,” Ryan said. “The reason health care prices are not rising as fast as economy-wide prices is a bit of a mystery now.”

There are several hypotheses. First, health care prices are tighter than in other industries. Hospitals cannot simply raise prices in a particular month, they are bound by contracts with insurers.

Another possibility is that prices are rising more slowly now because they rose sharply at the start of the pandemic when the federal government raised Medicare rates and state Medicaid reimbursements, Ryan said. In some cases, private insurers’ rates also increased in late 2020 – early 2021.

“The lower rate of growth in health care prices over this period is partly due to what you are comparing with the period of the year when the rise in health care prices was very high,” he said.

Another ongoing mystery that Altarum is tracking is the year-on-year negative growth in prescription drug prices, which peaked for 12 consecutive months in September. The report notes that negative growth rates of 1.6% are less severe than in the previous month, and the prescription drug index is higher on a monthly basis than in August, indicating a possible price increase in the near future.

It is important to note that Altarum’s data only includes retail medicines purchased from pharmacies or by mail order, not the more expensive specialty medicines taken by doctors or hospitals. Ryan also noted that drug prices are influenced by the combination of drugs sold, whether generics or brand names, and the underlying prices paid. Altarum data does not include any discounts that may have an effect.

Healthcare accounted for 17.5% of the country’s gross domestic product in August, up from 18% in January 2020 and 17.9% in August 2020.

This is in part because GDP growth has been very robust since it bottomed out in April 2020, when it was 15% below the January 2020 level. According to Altarum, by August 2021, GDP growth exceeded January 2020 by 6.6%.

Healthcare spending could rise at a slower pace because the delta variant of the coronavirus prevents patients from receiving medical services while cutting costs, said George Miller, a research associate at Altarum. Hospitals in some areas hit hard by this option have re-imposed restrictions on elective services. The labor shortages that health care suffers from and that are now exacerbated by burnout is likely to contribute as well. According to the latest federal data, the number of healthcare workers fell sharply in September, as it fell for the third time this year.

Another theory put forward is that health care costs will remain lower than in the past indefinitely, Miller said.

In the healthcare sector, spending in some areas has paid off more than others in the past 12 months. For example, the 12-month hospital care growth rate was 9.8% in August 2021 after falling just 2.8% in August 2020. Physician and clinical services accounted for 9.5% in August 2021 after falling 4.9% in August 2020.

Dental services, by contrast, posted a 12-month growth rate in August 2021 of 13%, which means it has not fully recovered from a negative growth rate of 18.6% in August 2020. Likewise, nursing home care was 5.3% in August 2021, below the negative growth rate in August 2020 of 9.5%.

“There are some sectors of health spending that have not yet reached their pre-pandemic levels, despite the current growth potential of more than 18 months,” Ryan said.

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