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May 10, 2022

Health care salaries are climbing. Are prices next?

Daily Briefing

    Although health care prices have so far been mostly unaffected by broader U.S. inflation, many hospitals are now looking to raise their prices to offset growing supply, labor, and drug expenses, Melanie Evans reports for the Wall Street Journal.

    Charted: The 4 factors increasing hospital expenses

    Inflation begins to hit the health care industry

    Even as the Bureau of Labor Statistics reported that the Consumer Price Index rose 8.5% in the 12 months ending in March, health care inflation remained around its historical trend of roughly 2% during that time.

    However, experts say health care prices are likely to increase soon, particularly as the industry contends with rising supply, labor, and drug costs. According to a report from Kaufman Hall, non-labor expenses per adjusted discharge rose 26% in February compared with the same month in 2020 and labor expenses in hospitals rose 32%.

    Nurse salaries, overtime, and bonuses have increased during the pandemic. The cost of travel nurses used to fill gaps in hospitals has also grown significantly. According to Premier Inc., a consulting, contracting, and data and analytics company, that surveyed 116,000 nurses, nurse base pay is up 9% since June 2021.

    Because of these rising expenses, particularly for labor, some hospitals, including HCA Healthcare and Universal Health Services, are now looking to raise their prices for services by between 7.5% and 15% as they negotiate new contracts with payers, Evans reports.

    According to employers and insurers, hospitals typically request price increases between 4% and 6%, and Altratum, a nonprofit that performs health care research, said hospitals have usually received a 3% increase in recent years.

    "If payers are unable to give us sufficient rate increases at a minimum to sort of absorb at least a portion of this inflation, and particularly the labor inflation, [then] I think we're willing to cancel contracts,” said Universal CFO Steve Filton.

    In addition, a spokesperson for HCA defended the company's pricing increase, arguing that wage inflation is now higher than it has been in the past five years. "We believe our pricing is competitive in the markets we serve, and transparency helps demonstrate that," the spokesperson said. HCA experienced $500 million in higher-than-expected labor costs this year.

    However, some contract negotiations won't open until 2024, so the delay will buffer health-spending increases for some insurers and employers next year.

    Insurers push back on price increase requests

    Many insurers and employer groups that negotiate hospital contracts on behalf of businesses are rejecting hospitals' price increase requests, arguing that the priciest hospitals can afford to handle higher labor costs without increasing their rates, Evans reports.

    As hospitals negotiate new price contracts, employer groups and insurers say they plan to use public hospital pricing data, which was made public by federal law last year, to reinforce their positions.

    But if hospitals win the price increases they are seeking, it would likely result in higher premiums for employers and workers.

    "Most of the employers have been unable to increase the wages of their workers for years primarily because of the increasing cost of healthcare," said Karen van Caulil, CEO of the Florida Alliance for Healthcare Value.

    Cheryl DeMars, CEO of Alliance, which provides insurance to 105,000 people in Illinois, Iowa, and Wisconsin, said she has so far rejected hospitals' requests for pricing increases as a way to recoup their labor costs.

    "It looks to us like we're overpaying to begin with," she said. "We're not inclined to just roll with requests for higher prices because of current inflationary pressure." (Evans, Wall Street Journal, 5/8)

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