(This article has been updated with a correction.)
The prices that health insurers paid to acute-care hospitals declined in January compared with the same month a year ago, a first since federal officials began to collect such data. Public sector and private payer efforts to push down costs could explain the drop, experts said.
In aggregate, the price of acute-care hospital care for Medicare, Medicaid, private insurers and other payers—including the uninsured—declined 0.1% last month from January 2014. The new federal data, which is preliminary and may be revised, reported a 2.9% drop in Medicare rates for hospital care during the period. Medicaid prices were nearly flat, declining 0.1%. Meanwhile, prices paid by private health plans and other payers grew 1.6%, the slowest growth rate for any 12-month period since the year that ended in July 1998.
“This appears to be a combination of the public sector pressure, but an even more fierce change on behalf of the private payers,” said Paul Hughes-Cromwick, a senior health economist at the Altarum Institute Center for Sustainable Health Spending.
“Insurers are trying to figure out how they can save healthcare cost by lowering the hospital bill, so they are more aggressively bargaining with hospitals and more aggressively investing in programs that lower hospital utilization rates,” said Neraj Sood, director of research and associate professor in health policy and economics at the University of Southern California.
Weak hospital inflation is one factor that has contributed to slow growth in U.S. healthcare spending. Spending weakness grew pronounced during and after the Great Recession and has been a welcome source of fiscal relief for states and the federal government. Hospitals' prices factor significantly into overall healthcare inflation because the sector accounts for roughly one-third of the nation's $2.9 trillion medical bill.
Soft hospital price growth has continued to drag on overall healthcare inflation even as prices for home care, prescription drugs and nursing homes have risen, according to an analysis by the Altarum Institute that includes data from two federal measures of healthcare inflation. Healthcare inflation remained historically low through the end of last year, the analysis shows, though it did increase slightly as 2014 ended.
Weak hospital prices could suggest greater competition for patients after years of stagnant or declining hospital admissions, economists said. The slump in hospital admissions has been attributed to several sources including the lengthy economic recovery, growth of high-deductible health plans and new incentives and strategies to reduce avoidable hospital visits. Some hospitals have closed units to address the weaker demand, which has also contributed to the U.S. health spending slowdown.
Health and public policy makers have debated the potential for price hikes as a wave of hospital mergers and acquisitions continue. Regional systems have gained clout and market share while national health systems, such as Catholic Health Initiatives, have sought to bolster their position in markets.
But the pressure to compete on price in newly created Affordable Care Act health insurance exchanges may have better positioned insurers to wring price concessions from hospitals, Hughes-Cromwick said.
Federal officials also started to collect more detailed data last June, which breaks out prices paid from private insurers from the prices paid by those not covered by Medicare, Medicaid or commercial health plans.
For private health plans, the prices paid to hospitals in January increased 0.3% compared with the prior month. Annual data is not yet available.
Hospital analysts, however, report mixed pressure from health plans to lower hospital rates.
“The average rate increase is definitely down,” said Moody's Investors Service analyst Mark Pascaris, who tracks not-for-profit hospitals. “We regularly see 2% to 3% or even lower,” he said. That's compared with the 4% to 7% in recent years. Some commercial health plans are seeking rate decreases, he said, though that does not mean they will get them.
For-profit hospitals often operate as lower-cost alternatives to competitors and therefore may not face pressure on prices that more pricey rivals face, said Megan Neuburger, an analyst of the for-profit hospital sector for Fitch Ratings. “The pricing environment has been pretty benign,” she said among hospital system she tracks.
The data released Wednesday is a monthly look at inflation produced by the U.S. Bureau of Labor Statistics, the Producer Price Index.
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(This article has been updated to indicate that the new federal data showed a 2.9% drop in Medicare rates for hospital care in the period from January 2014 to January 2015.)