Health Care Price Trends

It has been apparent for many years, if you read the research, that the health spending problem in the US is predominantly a price issue.  This week we summarize several recent works on price and US health costs.  The first comes from the collaboration between the Kaiser Family Foundation and the Peterson Foundation and describes trends in US health prices over recent decades.   (KFF Article)  Much of the information is from a large private insurer database of actual paid prices.  Price growth has actually slowed in the last decade but since 2007 they have risen 21.6% while general inflation is up 17.3%.  These price increases are disproportionately affecting people with private insurance, in the period between 2014 and 2018, private inpatient hospital prices rose 13%, while Medicare and Medicaid prices rose only 3%.  Similarly, on a per hospital stay basis, from 1997 to 2015, inflation-adjusted prices were basically flat for Medicare and Medicaid, while rising 68% for private insurers.  Note again, that is after inflation.  Prices for common health procedures in the private insurance world are also growing much faster than inflation–knee replacement prices from 2003 to 2016 grew by 74% compared to 28% general inflation and laparoscopic appendectomy prices 136%.  There is very substantial price variation as well (a topic visited further in Wednesday’s post), both within markets and across them.  Large employer plans paid an average of about $34,000 for a knee replacement in 2016, but 25% of the procedures cost less than $24,700 and 25% cost more than $39,800.  A knee replacement costs more than twice as much in New York City as it does in Louisville.  Can you say medical tourism.

Outpatient office visit costs also rose at a rate far greater than inflation; 69% from 2003 to 2016, compared again to the general inflation of 28%.  In addition to price rises, more outpatient visits were coded at a higher level of complexity, giving a double whammy.  With the focus on coding to improve revenue, this isn’t surprising.  Geographic variation shows up in these outpatient visits as well; while the national average is $101, in my home town of Minneapolis the cost is $158, more than twice what it is in St. Louis, $78.  MRI prices are one success, although still high, they actually rose at a lower rate than inflation, but once again also reflect enormous variation across geographic markets.  Just another study that validates the notion that health care prices are indeed rising much faster that general inflation.  Someone is paying those higher prices and it is generally those of us in the private health insurance market.  More on why this is happening later in the week.