Health care inflation is low – but that could soon change

Medicare’s forecast for the current fiscal year assumed that hospital costs would increase by about 2.7%, when in reality those costs were expected to increase by more than 5%. While this problem is not unique to Medicare, the massive program follows a fixed timeline with long lead times and has been slow to adapt.

The latest monthly consumer price index update released on Wednesday continues to show headline inflation near 40-year highs, with prices up 8.5% over the past 12 months. This high level is driven by double-digit growth for items like gasoline, food and vehicles.

In contrast, consumer prices for medical care services rose more slowly, at 5.1%, with much of the increase attributed to higher profits by private insurers. Prices for medical care products – a category that includes items like prescription drugs and wheelchairs – have risen even more slowly at just 3.7% over the past 12 months. And because of the way the widely tracked CPI is calculated, there’s a lag of at least 10 months when drug and device price increases show up.

“If you looked at the best measures of health care inflation, you wouldn’t really know that anything unusual is going on right now, which is obviously a stark contrast to the economy as a whole,” he said. said Matthew Fiedler, principal investigator at USC. -Brookings Schaeffer Initiative for Health Policy, told POLITICO.

As lower medical prices benefit consumers in the short term, many healthcare providers are seeing their balance sheets pressured by rising costs.

“We are facing very large rates of increase in input prices directly related to inflation, and a large part of this is due to work,” said the president and CEO of the American Hospital Association, Richard Pollack, in an interview. “Hospitals are seeing pretty big reductions in their operating margins, if you look at the numbers we’re struggling with.”

Acute staff shortages linked to the Covid-19 pandemic have driven up wages, but providers are now also facing a tighter job market overall that has forced all sectors to compete for workers. rare.

In addition to staff, which accounts for more than half of the average hospital budget, facilities are also feeling the impact of inflation on supplies, drugs, food and energy, according to Pollack.

Providers are also grappling with the return of budget sequestration cuts that were temporarily halted during the pandemic, cutting Medicare rates by an additional 2 percentage points.

The supplier’s losses are the consumer’s gain, for now. When Medicare pays less for health services, it can mean lower premiums and cost sharing for program beneficiaries. And the private sector often follows in the footsteps of what Medicare, the nation’s largest health service provider, does.

“I think it’s entirely possible that this will end up being a good thing. I understand why hospitals might not like it, but from a tax perspective and from a patient perspective, it certainly has a lot of features,” Fiedler said.

On the other hand, provider groups say low payment rates and staffing shortages reduce access to care when facilities are forced to limit operations or close.

The inflationary disconnect may soon end, at least for Medicare.

The newly updated payment rule released last week by CMS assumes a 4.1 percentage point increase in input costs next year, a significant increase that will result in higher payments.

The American Health Care Association and the National Center for Assisted Living, which represent nursing homes and other long-term care facilities, welcomed the increase but warned that state Medicaid programs should follow suit.

The AHA also welcomed the increase, but said it fell short of the group’s estimates of the rising cost of providing hospital care.

“It’s totally insufficient,” Pollack said. “Of course it’s an improvement from where they started and we certainly appreciate that, but there’s still a big gap.”

And because Medicare rates are only based on forward projections, there is no mechanism to “catch up” price growth and last year’s understatement will not be corrected. As a result, hospitals, nursing homes and other providers linked to the payment system will feel the void for years to come.

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