Hospitals responded to Medicare spending limits imposed by the Balanced Budget Act of 1997 by raising their prices for services last year at almost twice the rate of inflation.
New government figures show retail prices at the nation's hospitals rose 5.1% last year compared with a 2.7% inflation rate for all goods and services, according to the U.S. Labor Department's Consumer Price Index released Friday.
By comparison, hospital prices rose 3.2% in 1998 when the overall inflation rate was 1.6%.
The 1999 hospital price increase was the biggest since 1994 when prices rose 5.5%.
The figures support a trend that MODERN HEALTHCARE first disclosed last summer: that many hospitals were using the balanced-budget law to justify midyear price increases (July 12, 1999, p. 6).
Hospitals also collected more inpatient revenues from private payers as well as from two unlikely sources: Medicare and Medicaid.
According to the Labor Department's Producer Price Index, also released last week, hospitals' inpatient Medicare revenues rose 1.3% last year compared with 0.4% in 1998. Inpatient Medicaid revenues grew 0.5% last year compared with a 2.2% drop in 1998. And inpatient revenues from private payers rose 2.4% last year compared with 2.1% in 1998.
These price and revenue hikes come on the heels of a successful lobbying campaign by providers that resulted in $18.1 billion in concessions from the balanced-budget law. Hospitals have vowed to seek more relief this year.
But James Bentley, senior vice president for strategic policy planning at the American Hospital Association, said the new inflation and revenue data won't affect lobbying efforts for more relief.
"I think what Congress will want to look at is the financial performance of hospitals," he said.
Hospital revenue growth from outpatient services in 1999 varied by payer source, with Medicare leading the pack with a 2.5% increase (See chart). Overall, hospitals' net revenues grew 1.6% last year compared with a 1.1% hike in 1998.
Unlike the CPI, which measures changes in retail prices, the PPI measures changes in net revenues, or money actually collected by hospitals.
Bentley downplayed the significance of the new data, saying the PPI is not a complete representation of hospitals' finances.
"There is a big difference between what a price index tells you and what a financial statement tells you," Bentley said. "(The PPI) tells you something about revenues with no reference to expenses."