Health care price data says industry’s influence is waning

If you’re betting on health care stocks for big portfolio gains, you may want to hedge those bets.

A detailed look at healthcare spending indicators from the Altarum Institute suggests that price increases are really slowing down and that, overall, the health care sector may be losing steam as a contributor to the gross national product.

Altarum looked at price data for prescription drugs, hospital services, clinician and physician services, and other healthcare products and services. It also revised its data on the contributions of the health care sector to the GNP in light of new federal benchmarks.

Big picture, the data showed that healthcare’s GNP portion since the end of the recession was actually 17.5 percent, not 18 percent as previously calculated. That’s not a huge downward slide. But viewed in terms of both total dollars and the assumption that healthcare was becoming an ever-greater economic engine, it represents a significant step backward. Altarum called it “a dramatic drop in the health share of the economy.”

The pricing information was good news for consumers of healthcare products and services, bad news for investors.

“Health care prices grew 1.1 percent in July 2013 relative to July 2012, only a tenth above the May rate, which was the lowest in our data series extending back to January 1990,” Altarum reported. “The 12-month moving average, at 1.6 percent, represents a new low for our data.”

Altarum said healthcare prices, while mostly still growing, are doing so “at historically low rates.” Examples of year-to-year price data: 

  • Hospital price growth fell to 1.7 percent, its lowest rate since the 1.6 percent seen in January 2011.
  • Physician price growth rate was just 0.3 percent.
  • Clinical prices also grew less than 1 percent.
  • Prescription drugs prices actually fell (-0.1 percent).
  • Only dental care prices rose, at 3.9 percent (its highest rate since November 2008).
  • The Medical CPI (reflect­ing out-of-pocket costs) growth of 1.9 percent was the lowest historical Medical CPI reading in Altarum’s database.

“We see very little likelihood of significantly higher healthcare prices in the near term,” the report's researchers wrote.

Paul Hughes-Cromwick, senior health economist for the Altarum Institute’s Center for Sustainable Health Spending, projected that hospital-price growth rates would continue to hover around 2 percent, reflecting the impact from sequestration and the Patient Protection and Affordable Care Act.

Elsewhere, Hughes-Cromwick attributed the drop in drug prices to the trend toward generic drugs. “There’s been all this talk of personalized medicine and expensive cancer drugs,” he said. “There are some of those, but certainly not enough to move the overall meter on drug prices.”


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