For physicians, 2006 was a forgettable year in terms of pricing, judging by the two federal gauges of price inflation: the Consumer Price Index and the Producer Price Index.
However, hospital price inflation to no one’s surprise continued to outpace all other goods and services in 2006, giving sway to CMS projections that U.S. healthcare spending will double and hit the $4.1 trillion mark over the next decade.
Still, the CMS projections represent merely gradual growth in prices for all healthcare services in some small and odd part because of declining oil prices, said John Poisal, deputy director of the National Health Statistics Group at the CMS. “There are lots of components as to why prices go up,” including labor and supply costs, Poisal said. “We are examining every possible thing that goes into hospital services, including the cost of cleaning fluid.”
The preliminary annual PPI, which measures wholesale prices (or the prices received by producers of goods and services), rose a mere 1% for physician offices in 2006, down from 2005 when wholesale prices increased 1.8%. The nonseasonally adjusted CPI, which measures the prices paid by consumers (or retail inflation), increased a meager 1.5% for physician services in 2006, down more than half from the 3.3% increase in 2005.
Prices for hospitals in 2006 rose 6.5% compared with a 5.3% rise in the nonseasonally adjusted CPI in 2005. That rate represented more than double the overall 3.2% rise in the CPI for urban consumers in 2006. Meanwhile, the preliminary PPI for hospitals increased 4.1% in 2006, up from the 3.8% rise in wholesale prices in 2005.
In terms of the CPI, prices for physician services saw their smallest change since the 1950s, said Steve Reed, an economist for the Bureau of Labor Statistics, which publishes both indexes. “Hospital services behaved more typically,” he said, averaging 5.8% annual increases over the past 10 years. That’s compared with the overall CPI, which averaged half of that—2.4% over the same period.
“It’s not anything surprising,” Reed said. “It’s pretty widely known that medical prices have been rising faster than general inflation for quite some time.”
But inflation has been outpacing physician services “for a variety of reasons we don’t even know,” said Frankie Velez, also an economist at the bureau. One theory is that commercial payers have been “mimicking” the CMS, which much to doctors’ chagrin has not offered any rate hikes in some time. The trend reflects static pricing rather than prices increasing and decreasing and netting down to zero, he said. “We’re seeing a lot of nothing—a lot of inactivity,” Velez said.
Similarly, physician price changes “were quite flat” in the PPI, probably in large part because Medicare reimbursement stayed flat for physicians, said Bonnie Murphy, PPI services section chief for the bureau. Medicare and Medicaid increases have been comparatively better for hospitals. Since hospital services were introduced into the PPI calculation in December 1991, the Medicaid and Medicare “rate of increase is a little less than half of the rate of increase in all other patient reimbursements,” she said.
A Medicare outpatient fee schedule change was no doubt reflected in the 0.8% spike in January 2006 after no change in the index in December 2005, she noted. Wholesale prices for hospitals typically climb for all other patients as well in January because managed-care contracts are usually renegotiated in the beginning of the year, when hospitals list their chargemaster prices, Murphy said.
