New federal data shows that the price of hospital care in the United States fell between this January and a year prior — the first time the government has seen a year-over-year drop since it started keeping track in 1998.
The price of hospital care fell 0.1 percent between January 2014 and January 2015, Modern Healthcare reported Thursday morning. When you focus on Medicare prices, the decline gets steeper: prices there fell 2.9 percent over the same time period.
Medical prices getting smaller rather than larger is a big deal. Health wonks typically get excited by something more modest: when health-care prices rise more slowly than they used to. But this new federal data (which is preliminary and could be revised) suggests something even more meaningful: not just slower growth in medical price-tags from one year to the next, but an actual drop in how much care costs.
This isn't the first sign of a hospital price slowdown
The most recent Medicare Trustees' report showed per person spending on Medicare Part A (the program that covers inpatient care) falling over the past few years.
Medicare Part A paid $266.8 billion to cover 50.3 million people in 2012. In 2013, the the same program spent $266.2 billion to cover 51.9 million people. Part of this is due to a shift away from hospital care (things that used to require a stay in a hospital bed can now sometimes be done as an outpatient procedure). But the new data suggests that prices may be another important element here.
Why is this happening now?
There are two big trends that could be at play: a rise in narrow-network, private health-insurance plans and reductions in what the Medicare program pays for care.
Obamacare included a number of cuts to the money that Medicare reimburses hospitals with — as a way to pay for the law's expansion of insurance coverage. When Medicare cuts its reimbursements, you'd expect hospital prices to go down.
The more surprising trend might be in the private insurance market.
Over the past few years, and especially under Obamacare, insurers have gravitated towards cheaper premium plans to offer access to a smaller number of doctors. The smaller networks often include hospitals that charge lower prices — those that want really high reimbursements get cut out.
If insurers really are funneling more patients to lower-priced hospitals, that could help bring down the average price of a hospital visit.
"This appears to be a combination of the public-sector pressure, but an even more fierce change on behalf of the private payers," said Paul Hughes-Cromwick, a senior health economist at the Altarum Institute's Center for Sustainable Health Spending, told Modern Healthcare.