Category: Health Care Costs

PPI: Pharmaceutical Prices Up Amid Deflation

BLSDeflation in the Producer Price Index (PPI) continued last month, as the PPI for final demand dropped 0.1 percent from February. Prices for final demand goods, less volatile food and energy, increased 0.2 percent. Most prices for health goods for final demand were flat. The exception – again – was pharmaceutical preparations, for which prices increased 0.4 percent.

With respect to final demand services, for which prices dropped 0.2 percent (or increased just 0.1 percent, less trade, transportation, and warehousing), prices of medical services changed little. Even the price of health insurance remained flat, after an increase in February.

With respect to goods for intermediate demand, prices for chemicals (which go into pharmaceutical preparations) increased by just 0.1 percent, while prices of biologic products (including diagnostics) dropped the same percentage. With respect to services for intermediate demand, prices for health insurance remained flat, although prices for other intermediate services declined.

Looking back over the 12-month period, the price increase of 9.8 percent in pharmaceutical preparations continues to stand out like a sore thumb. Political agitation against drug prices is unlikely to go away soon. (See Table I below the fold.)

Chicken & Egg in Consumer-Driven Health Care

debtAn advocate of consumer-driven health care will often be challenged by this question: “So, when I am hit by a bus, or have a heart attack or stroke, or am suffering from dementia, you want me to go shopping around for medical care?”

Obviously not. Nevertheless, this is a serious challenge and invites the question: How much of our health spending can be meaningfully controlled by discriminating patients? Researchers at the Health Care Cost Institute (HCCI) recently addressed this. The HCCI has a unique advantage in producing such research, because has access to a database of claims for employer-based plans run by a number of insurers.

The research categorized “shoppable” versus “non-shoppable” services. It found:

  • At most, 43 percent of the $524.2 billion spent on health care by individuals with employer-sponsored insurance in 2011 was spent on shoppable services.
  • About 15 percent of total spending in 2011 was spent by consumers out-of-pocket.
  • $37.7 billion (7 percent of total spending) of the out-of-pocket spending in 2011 was on shoppable services.

So, it looks like only 7 percent of health spending is subject to price-conscious patients spending their dollars wisely. The researchers concluded that “Overall, the potential gains from the consumer price shopping aspect of price transparency efforts are modest.” That would be true if we were talking about just forcing price transparency on the current benefit design. However, that is a distraction.

Health Jobs Grow Over Two Thirds Faster Than Other Jobs

BLSHealth jobs grew more than two thirds faster than non-health jobs in March. Health jobs comprised 37,000 (17 percent) of nonfarm civilian jobs added (215,000). The rate of growth from February was 0.24 percent for health jobs versus only 0.14 percent for non-health jobs (Table I).

20160401 TI

All-Payer Claims Databases And Price Transparency

Hand Holding CashMost observers agree that it is very, very difficult for patients to choose health services wisely based on prices, because prices in U.S. health care are generally not transparent. The primary reason for this is that it has been many decades since health providers have relied on patients to pay their bills directly.

Instead, their business models rely on submitting claims to health insurers. Of course, there are convenient clinics and a few doctors and ambulatory clinics which post prices up front. However, the patient who enters the hospital – where most health costs are incurred – enters a maze of opaque and incomprehensible prices.

Some people believe price transparency can be commanded by government: Enter the “all-payer claims database,” which an increasing number of states are embracing. Every payer in the state reports its claims to this government-run database and the government can then publicly disclose what actual health prices are.

The momentum for all-payer claims databases just hit a road-block at the U.S. Supreme Court, in the case Gobeille v. Liberty Mutual. This concerned a new Vermont law that compels payers to report their claims to the state’s all-payer claims database. The Supreme Court struck down the mandate, based on the doctrine of ERISA pre-emption. Whether that finding is right or not, I’ll leave to others to decide. This post challenges the very idea of all-payer claims databases.

2015 GDP: Health Services Spending Grew More Than Twice As Fast as Non-Health GDP

BEALast Friday’s release of the third estimate of Q4 Gross Domestic Product and annual GDP confirmed spending on health services grew at more than twice the rate of growth in non-health GDP in 2015.

For Q4, the third estimate significantly reduced the share of GDP allocated to health services from the previous second estimate (Table I). At $18.7 billion (annualized), growth in health services spending accounted for almost one fifth of GDP growth. This was sa much faster rate of growth (3.6 percent) than for non-health GDP (2.1 percent). Almost all Q4 GDP growth was in services, not goods. Personal consumption expenditure on goods actually dropped.

2016 GDP TI

When You Need Care Now But aren’t Likely to Die, Urgent Care is the Answer

According to a Wall Street Journal article, urgent care centers are becoming Americans medical home away from home – mainly evenings and weekends when their primary care providers are not available.  About two-thirds of patients at urgent care centers have a family physician.

There are an estimated 10,000 urgent care centers in the United States and another 1,400 are expected by 2020. Increasingly, traditional providers are getting in on the act. Hospitals are building, acquiring or partnering with urgent care providers. Walk-in patients are welcome, although many allow patients to make an appointment. Wait times are 30 minutes or less whereas a wait in the emergency room can run eight times that length. The average cost at an urgent care center is about $150, compared to $1,354 for an emergency room visit. Centers are usually open evenings and weekends when doctors’ offices are closed.

When a retail clinic won’t do, this sounds like a much better solution that non-emergent ER visits or waiting a week for a physician visit.  It would be even better if these facilities were integrated so you could choose the level of provider (and price level) you need. As one of the commenters said in the WSJ article, why doesn’t every hospital have one of these next to the emergency room?  I’d go even farther; why doesn’t every hospital have one of these with a retail clinic inside next to the ER?

CPI: Health Insurance Premiums Jump Amid General Deflation

BLSThis morning’s Consumer Price Index corroborates yesterday’s Producer Price Index, which indicated health insurance and certain other health prices increased in a generally deflationary environment. While the CPI for all items dropped 0.2 percent in February, health insurance increased 1.3 percent. Over the last twelve months, CPI has increased just 1.0 percent, while health insurance has increased 6.0 percent.

Prescription drugs continue to stand out, as well, having increased 0.9 percent last month and 3.4 percent over twelve months. However, the increase in prescription prices alone cannot explain the health insurance premium hikes.

Inpatient hospitals services also stand out, having increased 0.6 percent last month and 4.8 percent in the last twelve months. Outpatient services are only slightly better.

February’s CPI confirms that, while nominal increases in health prices are moderate, real price increases are quite high, because we are in a generally deflationary environment.

(See Table I below the fold.)

PPI: Health Insurance Jumps, Deflation Returns

BLSDeflation returned to the Producer Price Index (PPI) last month, as the PPI for final demand dropped 0.2 percent from January. Prices for final demand goods, less volatile food and energy, increased 0.1 percent. Most prices for health goods for final demand were flat. The exception – again – was pharmaceutical preparations, for which prices increased 1.2 percent.

With respect to final demand services, for which inflation was flat (or up 0.3 percent less trade, transportation, and warehousing), the increase in the price of health insurance stands out at 0.9 percent. This is the first jump in health insurance for a while. (Home health prices also increased 1 percent, but such increases have been common.)

With respect to goods for intermediate demand, prices for chemicals (which go into pharmaceutical preparations) decreased, but not by nearly as much as prices for other intermediate goods declined. With respect to services for intermediate demand, prices for health insurance increased by 0.9 percent, significantly more than prices for other intermediate services.

Looking back over the 12-month period, the price increase of 10.1 percent in pharmaceutical preparations continues to stand out like a sore thumb. However prices for services delivered in residential settings have also increased more than other services.

What is new for February is the increase in health insurance. Increasing health costs are finally being passed on through premiums. (See Table I below the fold.)

QSS: Revenue Growth Strong in Health Services, Hospital Profitability Recovered

Census2This morning’s Quarterly Services Survey (QSS) from the Census Bureau showed 2015 was a good year for revenue growth in health services. Overall, fourth quarter revenue grew 1.8 percent on the quarter, 3.7 percent from Q4 2014, and 5.5 percent year on year (Table I).

20160310 T1

Revenue growth in psychiatric and substance abuse hospitals really blew the doors off in Q4, increasing 8.2 percent. However, this looks idiosyncratic. Q4 2014 to Q4 2015 growth was only 1.6 percent, and year on year growth was 4.0 percent.

Health Jobs Still Grow Faster Than Other Jobs

BLSThe latest jobs report was greeted as good news, with nonfarm payroll increasing by 242,000 jobs in February. Health services jobs accounted for 38,000 (16 percent) of the growth. Health services jobs accounted for a smaller share of job growth than in previous months. Nevertheless, they grew faster (0.25 percent) than other nonfarm jobs (0.16 percent) (Table I).

20160304 TI