For many years, certainly since health care became a domestic policy priority, personal consumption expenditure price indices have moved in a range between zero and about 2-3%. In the period leading up the the passage of the Affordable Care Act, prices were running at the top end of that range and fell to nearly zero after implementation. By 2018, the industry had adjusted to things like mandatory MLRs and nearly universal health care coverage. The PCE Index and Expenditures began to move closer together as price more so than volume have defined the spend trend. (Sorry, value-based purchasing people)
With volumes limited by labor cost and supply, price has and is keeping the wolf from the door. In April the PCE index for hospitals climbed 3.3% and health care overall rose 2.90% YoY. Some that price has been achieved through increased acuity, of course. There is no denying America is less healthy post-COVID and health care coders have a lot of discretion when making a diagnosis.
However, as network contracts roll over, costs of labor and supplies are putting upward pressure on rates. As we have noted the system still has a lot of flexibility in it from the COVID years. Benefit expense lines have reserved billions that argue against being too hard on network providers. (Agreed, no investor wants to reward an MCO just because they can reverse the flow of cash but if the choice is losing key network providers and reduction in the quality of earnings, the long game probably wins. Prior Authorization and payment denial are always available to mute the impact when appropriate.)
It appears that we may be entering this goldilocks moment when providers get their price, payers are reasonably accommodating and there is plenty of demand from people who have waited six months or more to see a doctor. In those cases where that doesn't work, consolidation is the emerging answer.
Let me know what you think.
Emily Evans
Managing Director – Health Policy
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