Growth in healthcare prices slows to near-historic low

Healthcare prices rose just 1.1% year-over-year through September, representing the lowest price growth rate in roughly two years, according to a new report from Altarum.

That growth rate was just slightly higher than the all-time low growth rate of 0.9% in December 2015. The figure has fluctuated between 1.2% and 2.3% over the past year.

The small increase in healthcare prices was likely due in large part to a decline in prescription drug prices, according to the report. Price growth for prescription drugs dropped to 1.4% in September from 2.7% in August.

It's difficult to understand why prescription prices dropped, but generic drug usage could be a factor if it increased, according to Paul Hughes-Cromwick, a co-author of the report and co-director of sustainable health spending strategies at Altarum's Center for Value in Health Care.

Another contributor to the 1.1% price growth rate could be that Medicare has maintained low payments for hospital admissions. "It is fair to say that Medicare has done a better job at controlling prices than the private sector," Hughes-Cromwick said. "Hospital prices have been very low for quite a while."

In addition, the report found total healthcare spending was 4.3% higher in September compared with the same period last year. Healthcare spending is expected to grow by 4.5% for 2017.

The rise in spending is "modest" for a sector notorious for high spending patterns, Hughes-Cromwick said. "We'd like it to be lower, but by historic standards it's on the low side," he added.

In the early 2000s, the healthcare spending growth rate hovered around 10%, declining significantly in recent years.

A major reason for the drop is likely due to the movement from inpatient care at hospitals to outpatient settings, said Ani Turner, another author of the report and co-director of sustainable health spending strategies at Altarum's Center for Value in Health Care.

"If you look at hospital revenue over a number of years, it's moving away from inpatient care to outpatient care, and when you look at labor, over the past few years, the labor force in healthcare has shifted more to the outpatient setting," she said.

Employment numbers show that hospitals have slowed hiring this year compared with the past few years. Hospitals are expected to add 5,000 new jobs on average per month in 2017, which is roughly half the hospital hires seen in the previous two years, according to the report.

The slowdown in hospital hiring could also just be a "natural return" to previous patterns after a few years of strong hiring shortly after coverage gains as a result of the Affordable Care Act, Turner said.

Hughes-Cromwick said the slowdown in hiring could help drive a decrease in overall spending in healthcare.

"Ultimately people want a magic wand to control healthcare spending, but for it to happen it mostly means a slowdown in hiring, because that is where the majority of the money goes," he said. "It has to be less utilization and fewer providers."

An edited version of this story can also be found in Modern Healthcare's Nov. 13 print edition.