Healthcare Cost Growth Slows but Easily Outpaces Inflation

All nine S&P Healthcare Economic Indices posted decelerating annual growth rates in September. Professional Service Medicare and the Hospital Index posted their lowest annual rates since January 2005. The Hospital Commercial Index hit a new recent low with an annual growth rate of 5.12%—its lowest since May 2010. The Professional Services Index annual growth rate was 6.13% in September 2012, down from the 6.67% August 2012 level. The Hospital Index's growth rate fell to its seven-and-a-half year historic low of 3.84% in September, from 4.54% recorded in August 2012.

Blitzer says that, given the peculiarities of healthcare today, it is unlikely that the sector's cost growth will be brought in line with the CPI anytime soon.

"On a grand scale kind of thing, there are two difficulties that healthcare faces," he says. "One is [that] most people, when they go to the doctor, are not informed customers with easy freedom to go buy another product. You don't have the option to go across the street, and most of us don't know the difference."

"The other problem is that delivering healthcare is tied to labor, and that is very hard to reduce," he says. "We tried to do that a little with healthcare, where physicians' assistants replace physicians and nurses replace physicians' assistants, and so forth. But it is very difficult to squeeze down the labor component or to raise the labor productivity enough."

View All Comments Make a Comment

Comments are moderated. Please be patient.