Hospital price inflation, as expected, outpaced other goods and services in 2005, but the rate has slowed from previous years. More unexpectedly, physicians' contribution to healthcare price inflation appears to be lagging significantly behind hospitals.
Prices received by doctors even dipped below the overall Consumer Price Index last year, perhaps buttressing the argument that despite hospitals' concerns to the contrary, physicians don't really wield the same kind of price negotiating power that hospitals do.
Prices received by hospitals climbed 0.3% in December 2005 for a 12-month change of 3.5%, according to the preliminary Producer Price Index from the Bureau of Labor Statistics, released earlier this month. But prices remained unchanged for physician offices for the second consecutive month, closing out the year at 1.8%. Meanwhile, seasonally adjusted prices paid by consumers for hospital services climbed 0.1% in December for a 12-month change of 5.2%-the same rise as in 2004, according to the bureau's second measure of price inflation, the Consumer Price Index, also released earlier this month.
That rise was nearly half the 10% increase for hospital services in 2002, its peak since data collection began in 1998. The physician Consumer Price Index rose 0.2% in December 2005, the same as in November 2005. Physician prices rose 3.1% in the 12 months ended in December, compared with 3.9% in the year-ago period and below the 3.4% increase in the overall Consumer Price Index in 2005.
The two gauges of price inflation followed the CMS' Office of the Actuary annual report showing that healthcare spending growth of 7.9% in 2004 was slightly down from the 8.2% growth rate in 2003 (Jan. 16, p. 8). While the Consumer Price Index tracks the average change in prices for products and services purchased by consumers, the Producer Price Index tracks the average change in prices received by the producers of goods and services.
For the producer index, bureau statisticians track the net revenue collected by hospitals and physicians, including Medicare reimbursement, but it's an index that is not readily comparable to other industries, said Joseph Kowal, an economist for the index. In tracking the Consumer Price Index, Medicare reimbursement is treated as an entitlement program as it pertains to hospitals, so the federal program is only included in calculating the index for physicians, said Daniel Ginsburg, supervisory economist for Consumer Price Index services at the Bureau of Labor Statistics.
Although hospital prices are rising significantly faster "in a low-inflation year" than prices doctors are charging and receiving, comparing hospital expenditures with doctor expenditures might be more relevant, said Joseph Antos, a health policy expert at the American Enterprise Institute, a think tank.
Antos said it was "remarkable" that the overall Consumer Price Index outstripped the index for physicians in 2005. Perhaps, he said, "The downward pressure from insurance companies and government health programs has been effective at slowing the rise of physician prices."
The large discrepancy between hospital and physician pricing "must indicate, as we have seen in recent years, that the ability of hospitals to negotiate better deals seems to be there," he said.
"It says something about managed care and the effectiveness of insurers at being able to direct (pricing). Clearly, they no longer have the upper hand when it comes to negotiating prices with hospitals, but the question is: How long is that going to last?"