But health care charges? Not so much.
While consumer prices are rising faster than they have in more than 40 years, health care inflation has remained rather muted.
By contrast, health care inflation has generally hovered around its historical trend of around 2%, said Corey Rhyan, senior analyst for health economics and policy at Altarum, a nonprofit research and consulting group.
Medicare care commodities and services indexes in the CPI rose 2.7% and 2.9%, respectively, for the year ending in March — the lowest of any items.
Other federal measures of inflation show a similar split.
Why health care inflation remains time
While the cost of gas and food that consumers pay can adjust quickly to national and global economic forces, health care operates differently — Payment rates are typically set in advance and last a year.
“There’s just not a lot of flexibility for those prices to change in the near term,” Rhyan said.
Medicare, which has a big influence on health care prices, determines its annual payment rates using projections of inflation for the year ahead, said Matthew Fiedler, a fellow at the USC-Brookings Schaeffer Initiative for Health Policy. The 2022 projections were finalized in the first half of 2021, before general inflation really took off. Also, many forecasters at the time felt the price increases would be temporary.
Private insurers also negotiate rates with doctors, hospitals and other providers in advance and sign contracts that typically set reimbursements in place for a year.
“For most people, health care prices are not rising at an unusually fast rate right now,” Fiedler said. “It is possible if inflation remains high that will change.”
Hospitals are likely facing a structural reset in their cost of labor, not a temporary bump, said Eric Jordahl, managing director at Kaufman Hall, a health care consulting firm. They are hiring more nurses from agencies, which are commanding higher wages, and contending with shortages of less-skilled workers, such as those who feed patients workers and clean rooms. And like many employers, they must raise their pay to attract staff and to prevent them from leaving for higher-paying jobs elsewhere.
Labor typically accounts for a little more than half of a hospital’s total expenses.
Hospitals’ labor expense per adjusted discharge in February rose 32% from the same month in 2020, according to the most recent Kaufman Hall National Hospital Flash Report.
Meanwhile, hospitals are paying more for supplies too. Non-labor expense per adjusted discharge rose nearly 26% compared with February 2020.
“The pressure on the expense side is there,” Jordahl said. “It’s real.”
How much of these increased costs hospitals and other providers will be able to pass along to health insurers and patients remains to be seen. But pricing pressure is sure to be part of the contract negotiations for 2023, Jordahl said.
Since pricing in health care is not that straightforward, experts aren’t certain that inflation in the industry will pick up next year.
“In other economic sectors, I’d be confident it would ultimately change if overall inflation stayed high,” Fiedler said. “There are some peculiarities in how prices get set in the health care sector that means that’s not guaranteed to be the case.”