A week after a new report indicated that hospitals were driving healthcare spending growth in 2002, data released last week showed hospital price inflation reached its highest level in at least a decade in 2003, with private health plans bearing the brunt of the price increases.
But premium increases are beginning to slow, a sign that hospital inflation, which grew amid cost pressures and the decline of managed care, may be moderating.
"2002 was the peak of the latest underwriting cycle," said Lawton Burns, professor of healthcare systems at the University of Pennsylvania's Wharton School. "The data suggest that the deceleration in the rate of premium increases has already started."
For example, Milliman USA's annual HMO survey showed premiums grew as much as 16% in 2003, compared with increases of up to 22% in 2002.
Hospital prices outpaced those for all finished goods for the third year in a row, rising 5.7%, the fifth consecutive annual increase and largest since the bureau began collecting hospital price data in December 1992, according to the U.S. Bureau of Labor Statistics' Producer Price Index, released last week.
The PPI news came on the heels of a CMS report that said overall healthcare spending rose to $1.6 trillion in 2002, with hospital spending accounting for 31% of the total bill and 32% of the increase from the previous year (Jan. 12, p. 8).
Preliminary PPI data show prices paid by private payers grew at an average rate of 8% in 2003. Government also drove prices higher, including Medicare's 3.4% inpatient payment update, which took effect Oct. 1, 2003. Medicare prices grew an average 5.1% and Medicaid prices rose an average 3.7%. Last week, the Medicare Payment Advisory Commission, which advises lawmakers on Medicare policy, urged Congress to give hospitals a full-inflation payment update for 2005.
Some experts expect Medicare increases to ease pressure for hospitals to increase rates to commercial payers. On the other hand, an anticipated slowdown in Medicaid spending by states could have the reverse effect.
"A lot of actions states took to curtail spending will take effect this year," said Caroline Steinberg, vice president of trends analysis at the American Hospital Association.
Physician prices rose 1.4% in 2003, compared with a flat showing the previous year and a 2.8% increase in 2001.
In December 2003, wholesale hospital and physician prices lagged behind U.S. producer prices overall. Prices for general medical and surgical hospitals rose 0.1% from the previous month and prices for physician services rose 0.2%, compared with a 0.3% rise in prices paid for all finished goods. However, some economists caution that monthly changes may not indicate a trend.
Figures for 2003 are preliminary and subject to change.
Paul Ginsburg, president of the Center for Studying Health System Change, Washington, said a slowdown in nursing wage increases beginning in 2003 could signal an inpatient inflation slowdown. The center reported last December that healthcare spending growth per privately insured American slowed in the first half of 2003, increasing 8.5% compared with 10% in the second half of 2002, the largest six-month drop since the early 1990s. Hospital spending grew 7.6%, compared with 8.3% in the second half of 2002.
Growth in nurse compensation slowed during the first six months of 2003, but it remained high by historical standards, according to the center, which analyzed the Bureau of Labor Statistics' National Compensation Survey data.
"The shortages have eased, and as a result wage increases haven't been as sharp. Hospital actual costs are not going up as rapidly," Ginsburg said.
But Steinberg said higher demand for services could exacerbate labor shortages, pushing costs higher. She said introduction of expensive new technologies could also nudge prices up.
More inflationary pressure is coming from growing capital spending for hospital expansion and renovation. "Some of the money hospitals are extracting in managed-care negotiations might be paying for (construction). I thought that hospitals had pretty much tapped themselves out in terms of borrowing," Burns said.
The government's Consumer Price Index, also released last week, recorded a 5.6% increase for inpatient retail hospital prices for the 12 months ended in December, compared with 1.9% for all consumer prices.
The CPI, which unlike the PPI does not include Medicare Part A or rural hospitals, peaked in 2002 at 9.4%, and has outpaced general consumer prices annually for six straight years, since data collection began in 1998.