Healthcare price increases are stabilizing, while utilization increases as COVID-19 wanes

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Healthcare utilization is on the rebound as the COVID-19 pandemic begins to recede, and personal healthcare spending is on the rise. But the price of care, by contrast, is showing signs of stabilizing after months of growth.

According to data from Altarum, Health Care Price Index (HCPI) growth was mostly steady for the month of May, with prices 2% higher than they were a year ago. That's similar to the 1.9% increase in April, and both are below the average posted during the depths of the pandemic, indicating healthcare prices are beginning to moderate.

Hospital and physician-service prices were the two fastest-growing categories, increasing 3.6% and 3.1% respectively. Nursing home facility and home healthcare price growth has slowed significantly, up just 2.1% and 1.5% respectively in May.

Beyond healthcare, economy-wide price growth, measured by both the consumer price index (CPI) and producer price index (PPI), continued to accelerate at rates of 5% and 6.6% respectively. That's the fastest CPI growth since 2008, and the fastest ever for PPI.

The GDP Deflator (GDPD), which lags a month behind other price data, was 3.7% higher in April, marking the first time it exceeded healthcare price growth since September 2019.

WHAT'S THE IMPACT?

Compared to the growth in prices seen during the thick of the pandemic, the growth in May is a noticeable deceleration in overall healthcare price growth. 

This moderation is especially notable since it appears against the backdrop of rapidly accelerating economy-wide prices, which jumped from a 2.4% year-over-year rate in March to 3.7% in April. Accelerating economy-wide prices is consistent with historical economic recoveries after a recession, but the current overall pace of price inflation is unusual. That may be explained in part by the fact that economy-wide prices hit bottom in May of last year, so the comparison in price growth from last year to this year looks unusually extreme.

Many of the factors accounting for economy-wide price increases were expected to affect the healthcare sector. These include a recovering demand for goods and services, a continued easing in the Federal Reserve's monetary policy decisions, and persistent supply constraints for things like computer chips and raw materials. Factoring in significant increases in healthcare utilization, it's somewhat surprising to see healthcare prices moderate.

This is likely due to a couple of different factors, found Altarum. For one, many of the supply chain constraints for the healthcare sector are less significant this year than they were at the start of the pandemic, when critical supplies such as personal protective equipment and ventilators were hard to come by. 

Second, while the demand for healthcare services is increasing, price is less likely to change in the short term since prices are set annually either by governments or in longer-term contracts, as in private insurance. These factors could still impact prices, but how they'll do so remains to be seen.

THE LARGER TREND

Regulating hospital prices by setting what private health plans pay would have the most impact as a policy option for reducing annual hospital spending, according to February research from RAND Corporation.

If the prices that commercial payers paid to hospitals were set as high as 150% and as low as 100% of what Medicare pays, hospital spending could be reduced annually by $61.9 billion to $236.6 billion. That change would create a 1.7% to 6.5% reduction in national health spending, RAND found.

Improving healthcare price transparency could reduce U.S. spending by $8.7 billion to $26.6 billion per year, while increasing competition could reduce spending by $6.2 billion to $68.9 billion annually.
 

Twitter: @JELagasse
Email the writer: jeff.lagasse@himssmedia.com