Since the late 2000s Great Recession, historically low increasesin health-care prices have helped hold down inflation. That may be about tochange.

Hospital prices increased 2.2 percent inDecember, the fastest rate in four years, according to an analysisby Altarum, a nonprofit health-care research organization. Thegroup analyzes data from the Bureau of Labor Statistics andother sources to estimate the underlying prices that health plans andconsumers pay for medical goods and services.

While overall medical inflation was restrained last year, thereport warns that “we could very well be at the cusp” of a returnto a more typical pattern where increases in health-care pricesoutpace the broader inflation rate.

“We have lots and lots of experience where health-care pricesgrow more quickly than economy-wide prices,” said PaulHughes-Cromwick, co-director of sustainable health spendingstrategies at Altarum. The reversal in recent years “is notnormal,” he said, and he doesn’t expect it to last.

In recent days, financial markets have become more concernedabout the potential for a faster-than-expected increase in pricesthroughout the economy. A report showing strong wage gains by U.S.workers last month helped briefly push stocks into a correction, aretreat of more than 10 percent from their recent peak.

Rising prescription-drug prices have made headlines, but drugsaccount for only 10 percent of total health spending in the U.S.The bulk of outlays goes to hospitals, doctors, and otherprofessional services. Price increases in those sectors have beenrestrained, partly because of limits on how much Medicare payshospitals and physicians under the Affordable Care Act and otherlegislation.

Price hikes slow

Until the Great Recession, medical prices usually outpacedinflation

Slow growth in health-care prices has been dragging down thecore price index for personal consumption expenditures, the FederalReserve’s preferred measure of inflation, economists at the FederalReserve Bank of San Francisco estimated in November.If health inflation matched its pace in the mid-2000s, it would add0.3 percentage points to the current rate of inflation.

Though health-care inflation is expected to accelerate, “itappears unlikely to return to its prerecession level,” which couldmoderate overall inflation, the Fed economists wrote. Some of thechanges that held down Medicare payments are permanent, andcommercial insurers often base their reimbursement rates onMedicare, said Adam Shapiro, a research adviser at the SanFrancisco Fed.

Like the government, employers have tried to hold down theirhealth costs. They’ve shifted more of the burden onto workersthrough higher deductibles and cost-sharing. Both the U.S.government and private health plans are experimenting with payingproviders based on how well they take care of patients, rather thanthe volume of services they provide.

At the same time, hospitals and doctors groups are increasinglycombining their businesses, giving them greater power to commandhigher prices.

Prices are just one determinant of overall health-care spending,along with the amount and intensity of care. Health spendingaccounts for roughly 18 percent of overall U.S. economic activity,the highest in thedeveloped world.

“We’re already devoting too much of our overall economic productto the health sector and not getting a great value for it,”Hughes-Cromwick, the Altarum official, said. Any increase inmedical prices will further strain the budgets of governments,employers, and households that pay for it, he said.

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