It's been an unusual stretch of inflation for healthcare.
Medical inflation tends to outpace inflation in the rest of the economy. But in 2023, medical prices are growing at a similar rate as in past years, while prices in other parts of the economy continue to rise more rapidly than in the past, according to a new analysis from KFF.
From 2001 to 2020, prices for medical care increased between 1 percent and 5 percent annually. The price of medical care — including services, insurance, drugs and medical equipment — has increased by 114.3 percent since 2000 compared to an 80.8 percent increase for prices for all consumer goods and services in the same period.
These historic patterns make the past year unusual. Between June 2022 and June 2023, medical care prices increased by 0.1 percent as the prices of all goods and services across the economy increased by 3.0 percent.
The consumer price index for medical care accounts for total price changes, including the costs consumers pay out-of-pocket and those that public and private insurers pay to providers and pharmacies. Since many health prices are set in advance, there is a delay in observable price increases and the medical CPI is based on data with greater lag than other CPI categories.
The lag raises questions about how inflation and its direct and secondary effects will come home to healthcare over the next several years. For instance, as inflation pushes wages upward, pay raises among healthcare workers put upward pressure on medical prices — unless hospitals find ways to operate with fewer staff or eliminate other expenses.
Marvin O'Quinn, president and COO of Chicago-based CommonSpirit, told Becker's the most significant effect of inflation has been the rapidly increasing salary and benefit structures across the healthcare industry.
"The ultimate impact here is it will drive up the overall cost of care. There's no avoiding that," Mr. O'Quinn said. "As the unit cost goes up, that cost at some point is going to have to be passed on. The organization can't survive if you aren't able to create enough revenue to sustain the organization financially, meet its capital needs, and pay all of its debts. Eventually the cost of care, I think, is going to go up."
Even with the inflation rate at its lowest point in about two years, 3 in 5 Americans pointed to price increases as the cause of financial hardship for their household, according to a Gallup poll conducted in April. Inflation weighed most heavily on respondents' minds, with 35 percent citing it as the most important financial problem facing their family — far exceeding healthcare costs (4 percent) at the time.
"For now, inflation in the broader economy continues to outpace medical price increases," KFF concluded at the end of its brief. "It remains to be seen whether, or to what extent, these recent trends will hold moving forward."