Hospital price growth hit 4-year high in Dec. 2017

An era of low inflation in healthcare prices may be winding down, judging by the results of Altarum’s latest health sector economic indicator reports, which said hospital prices grew by 2.2 percent in December 2017, the fastest growth rate in four years.

The overall growth was driven by a 3.2 percent jump in the growth rate for hospital prices for Medicare patients—a seven-year high and the first time Altarum has recorded a public program’s price growth outpacing the privately insured.

“Clearly this needs to be monitored in the coming months to see if it is revised and to determine whether this is an anomaly,” the report said.

Despite the growth in hospital prices seen in December, overall growth was still low at an average 1.5 percent throughout 2017. With evidence that wages are rising, however, inflation may not be far behind, ending the eight-year-long period of low price growth throughout the economy “affecting healthcare price behavior and vice versa.”

“We could very well be at the cusp whereby this dynamic ends with the result being rising economy-wide inflation coupled with even higher healthcare price growth, thus returning us to long-standing historical patterns,” the report said.

Among the findings from Altarum’s other economic reports on labor and spending:

• For the year, healthcare spending grew by 4.7 percent, outpacing the 4.1 percent growth in gross domestic product (GDP).
• Year-over-year spending in December 2017 increased in all major categories, led by 5.3 percent growth in spending on physician and clinical services.
• The healthcare sector added 20,600 new jobs in January 2018, below the 2017 average of 24,000 new jobs per month.
• More than half of the job growth was in hospitals, which added 12,700 jobs, double the 2017 average of 6,000 per month.

“This represents a continuation of the relentless increase of the health care share of our economy,” said Altarum fellow Charles Roehrig. “It is important because a large, and growing, share of health care is publicly funded and the tax revenues required to fund these public expenditures are linked to GDP growth which lags health spending growth. Thus, we are continuing on an unsustainable path of faster growth in government spending commitments than in the taxes being collected to fund those commitments.”