Healthcare prices typically rise faster than inflation, but 2023 may have bucked that trend.
The cost of shoppable medical services at hospitals increased 2% in the first three quarters of the year, according to new data from Turquoise Health released Tuesday. That’s in line with the 1.9% overall growth of the economy.
The findings — some of the first from new price transparency data disclosing the once-secret negotiated rates between health insurers and providers — illustrate how overall economic inflation could be catching up to faster health cost growth.
Coming out of the COVID-19 pandemic, the U.S. economy has been stressed by supply chain disruptions, ongoing labor shortages and sustained consumer demand for products.
And in healthcare, wage increases as hospitals struggle to attract and retain staff has been pushing medical prices up.
Turquoise’s report also found dramatic variation in health cost growth by service, and notably different service costs even within the same market.
Turquoise — one of a handful of startups that emerged in the health cost transparency industry after the government made pricing data accessible — said it hopes increasing price transparency will bring healthcare prices down, as American families continue to be stressed by sky-high medical bills.
“Healthcare hasn’t really had an opportunity to have economic forces come into it the way you see in other markets. That was largely because folks didn’t know the prices. Even hospital organizations didn’t know the prices of their competitors, or of other payers, or of any of that,” said Marcus Dorstel, Turquoise’s vice president of operations. “The price transparency really shines a light on all that and opens the door, that all this pricing is now out there.”
Health costs and inflation
Before 2021, payers and providers negotiated rates in a black box with little outside knowledge. But early that year, hospitals were required to disclose certain negotiated rates under a controversial CMS regulation. Health insurers had to follow suit in 2022.
Hospital compliance with the regulations is still spotty, with much of the data incomplete or illegible. Insurers have been compliant, though parsing that data can still be difficult, research has found.
For the report, Turquoise — which maintains a massive cache of the price transparency data — analyzed insurer data on healthcare costs for 500 medical services that can be planned in advance.
Researchers zeroed in on aggregate prices for four national payers — Blues plans, UnitedHealthcare, Cigna and CVS-owned Aetna — at large hospitals in their provider networks to see how prices shifted throughout the year.
From the first quarter through the end of the third this year, prices increased 2%, in line with overall U.S. inflation as measured by the Personal Consumption Expenditures Price Index, and the 1.9% healthcare services inflation measured by the PCE.
Healthcare costs grew slightly slower than overall U.S. inflation as measured by the Consumer Price Index, but significantly faster than the -0.5% medical care component of the CPI.
Forrest Xiao, Director of Quantitative Research at Turquoise Health, said it’s difficult to directly compare the figures due to the different methodologies used to calculate them.
But, Turquoise’s measure of health cost inflation could be more accurate, Xiao said.
“The opportunity here is that we have all this payer data, finally, and there’s so much of it. And we’re able to actually use that to track this more in real time, which some of the other data sources that the CPI uses aren’t,” Xiao said.
Turquoise’s finding that health costs grew generally in line with overall inflation was “a little surprising,” said Dorstel.
That’s because — though negotiated rates can change during the year through renegotiations or auto-escalation clauses in contracts — medical prices are generally set in advance through contracting and remain relatively fixed.
As such, the effects of inflation this year could be more evident in 2024’s medical prices. Payers have said they’re girding themselves for steep healthcare cost increases next year as inflation drives providers to seek rate increases.
Fluctuating prices
Inflation across the 500 services tracked by Turquoise was been moderate overall, but there was a ton of variation service-by-service.
Some services, like a chickenpox or measles vaccines, have seen large price increases, while others, like off-hours medical services or allergy tests, have seen prices drop nationally, Turquoise found.
Yet, service prices can have whopping variations by market. For a vaginal delivery with post-acute care, prices differed by as much as 27 times in the Los Angeles metropolitan area, Turquoise found.
The cost of childbirth varies dramatically between and even within the same markets
Price differences can be an example of quality or supply and demand dynamics in a specific market. But Turquoise executives said they’re not sure that’s reponsible for the gaps.
“Contract negotiations between payers and providers happen in siloes where the price of that service in other markets and across other payers or providers isn’t known,” said Dorstel. “You end up having just kind of scattershot prices. That leads to a big variation even within one hospital across payers, even within the same payer across hospitals. We’ve seen variation to the tune of thousands of dollars.”
A number of studies have outlined how the price of services can change based on location. A study conducted by insurer giant UnitedHealthcare in 2019 found significant variation in the prices paid for seven common diagnostic tests including echocardiograms, mammograms and ultrasounds. The insurer said price variations weren’t due to market or quality, but just differences in what providers were charging.
Other studies suggest geographic location does play a factor. Another single-payer study of Humana data this year suggests insurers reimburse physicians significantly different rates depending on where providers operate in the U.S.
Other research has found large variations in cost for the same service within one care site. The price tag for a joint replacement at one Sutter Health facility varied from $23,000 to $102,000, according to one analysis conducted by Healthcare Dive in 2021.
Price transparency ramifications
The swing in prices reflect differences in negotiated rates between providers and health insurers, and are rarely what a patient actually pays.
But either way, varying prices can make it difficult for patients to know how high the tab might run when they seek out care.
Congress is currently considering the Lower Costs, More Transparency Act, which would require hospitals and insurers to disclose even more information about their prices to help consumers choose between sites of care.
Proponents of price transparency say publishing data about negotiated rates will result in prices being standardized as market forces take effect, driving costs down overall.
Yet, some are concerned price transparency could have the opposite effect, as some providers potentially raise their prices to match higher rates set by their peers.
“When prices go into a market equilibrium, that necessitates that some prices will go up while other prices come down. There is a definite possibility. But I think you still have the two sides — the payer who wants to pay low prices and the providers who want to get high prices that kind of balance that out,” Dorstel said. “Our hypothesis is that with price transparency over time you’ll start to see that variation decrease.”
