While business leaders and consumers celebrated last month's drop in wholesale prices as a sign of welcome deflation, an unusual jump in hospital prices went largely unnoticed.
January's 0.5% rise in hospital prices was the highest monthly increase in more than two years and could be a sign that hospital inflation might be poised for a comeback -- particularly for private-sector payers.
"This absolutely should be a concern for employers," said Peter Reilly, a healthcare actuary in the Philadelphia office of Milliman & Robertson, an actuarial and consulting firm with ties to the managed-care industry.
Last week Milliman released a report that said healthcare inflation is on the rise, continuing a trend the company said began in the fourth quarter of 1996.
"The low inflationary environment in the economy and the impact of managed care are providing moderating influences on costs but are not enough to keep costs from escalating," the report said.
The top spokesman for the American Hospital Association, however, described the January price increase as a "blip" and not as a precursor to an inflationary period for hospitals.
"We do not foresee any spike upward for hospital prices," said Richard Wade, the AHA's senior vice president for communications. "We think hospital price increases will continue to be moderate."
For all of 1997, wholesale prices for general acute-care hospital services, as measured by the government's Producer Price Index, rose 0.4%, down from 1.4% in 1996.
Wade also said the January figure might reflect the fact that many hospital service contracts with insurers and employers kicked in Jan. 1.
Yet, last month's 0.5% jump also was the largest January rise in wholesale hospital prices since 1995 and the second-largest January increase since the U.S. Labor Department began tracking hospital net revenues in 1993 (See chart).
The January increase also was the highest of any month since October 1995, when wholesale hospital prices rose a full 1%.
While hospital prices jumped last month, the overall PPI for all industries dropped 0.7% -- the largest drop in wholesale prices since a 1% decline in August 1993.
Unlike the Consumer Price Index, which measures changes in retail prices charged to consumers, the PPI measures changes in net revenues collected by the producers of goods and services. The U.S. Labor Department calculates both indexes.
Reilly speculated that the January price hike reflects the one-year freeze on Medicare inpatient hospital rates that took effect last Oct. 1. He said hospitals might be raising their prices to private payers to offset frozen Medicare payment rates.
The AHA's Wade rebutted that theory, saying it would be difficult for hospitals to pass along any Medicare shortfalls to private payers because of fixed-rate managed-care contracts.
"Maybe that was true two or three years ago but not now," Wade said.
The Labor Department's figures suggest otherwise.
Reflecting the Medicare rate freeze, hospitals' net revenues from Medicare were unchanged in January, but net revenues from private-pay patients jumped 0.9%, the department said last week.
In December, hospitals' net revenues from private-pay patients were up just 0.3% and 1.9% for the year.