August 12, 2019
Health care spending in the United States is expected to reach $6 trillion by 2027, up from $3.5 trillion in 2017, according to the Centers for Medicare & Medicaid Services. However, there are three areas where major savings are achievable:
- Avoidable hospital emergency department visits
- High-value physicians
- Hospital prices
This article focuses on the price of hospital inpatient services. Emergency room visits were covered in a previous article, while an article about high-value physicians in Medicare will publish soon.
What’s Behind Hospital Price Increases?
The annual cost of hospital inpatient services for privately insured individuals surpassed $200 billion in 2018 and is projected to exceed $350 billion in 2029, according to UnitedHealth Group. Price increases are the key driver of hospital inpatient spending growth, and prices charged by hospital facilities (hospital prices) are increasing faster than prices charged by physicians practicing within these hospitals (physician prices).
Between 2013 and 2017, a period when inpatient utilization declined:
- Hospital prices grew 19 percent – 4.5 percent per year
- Physician prices grew 10 percent – 2.5 percent per year
The Savings Opportunity
Consumers and employers could save an estimated $250 billion between 2020 and 2029 if hospital price increases simply slowed to physician price increase levels. In other words, if hospital price increases for all inpatient services dropped by just two percentage points per year between 2020 and 2029, hospital inpatient spending for privately insured individuals would be reduced by over $50 billion in 2029 alone.
As an example, between 2013 and 2017 the average annual increase for inpatient hypertension treatment was 6.5 percent for hospital prices versus 1 percent for physician prices.
Two more savings opportunities based on average 2013 to 2017 annual increases:
- Coronary bypass surgery – 6.0 percent for hospital prices versus 1.5 percent for physician prices
- Appendectomy – 7.5 percent for hospital prices versus no increase for physician prices