By JEFF GOLDSMITH
When I first appeared in The Health Care Blog fourteen long years ago, it was to decry the policy community’s obsessive search for bad news about the health system: https://thehealthcareblog.com/blog/2007/10/03/the-perpetual-health-care-crisis-by-jeff-goldsmith/. So while we struggled with the COVID pandemic, we continued hearing regularly about pharmaceutical price gouging, anti-competitive hospital mergers, bad labor relations, and provider burnout. Thus, we can expect to hear nothing whatsoever about the failure of the health system to participate in the current outburst of inflation in the US economy.
The Washington think tank Altarum Institute tracks such things, and in its November 16 report https://altarum.org/sites/default/files/uploaded-publication-files/SHSS-Price-Brief_November_2021.pdf, we learn that healthcare prices rose by an annualized rate of just 2% in October 2021 compared to the Consumer Price Index’s 6.2% and the Producer Price Index’s 8.6%. Altarum commented that this was “surprising given that many of the same factors impacting economywide prices (labor shortages, supply chain issues, and increased demand for economywide services) would be expected to impact health care as well.”
And the moderation isn’t just price-related. Overall health spending has only risen by 4.4% since January of 2020, and the percentage of GDP devoted to health has fallen by more than half a percent, from 18.1% pre-pandemic to 17.5% in October. This is despite four surges of COVID hospitalizations, overflowing ICUs and ERs, labor shortages, and other COVID-related stresses. Health system staffing levels are still nearly a half-million lower than they were pre-pandemic. Had the federal government not stepped in through the CARES Act, FEMA funding, and temporary suspensions of Medicare rate cuts, the nations’ hospitals would have been seriously damaged by COVID-related financial stresses, which are far from being over.
This moderation in healthcare prices and spending has come at a terrible price: an exhausted and demoralized cadre of direct care workers across the system, plummeting operating margins, and increasing queues for many forms of elective care. Yet, as colleague Ian Morrison and I argued in Health Affairs Blog earlier this year, the nation’s hospital systems in particular really stepped up during the pandemic and were one of the only parts of our national infrastructure that exceeded expectations during COVID, likely saving hundreds of thousands of lives: https://www.healthaffairs.org/do/10.1377/hblog20210308.673278/full/
Health insurers profited from this pause because they built higher rates of cost escalation into their rates for 2020-2021. Will moderation be taken into account when hospitals and physician groups begin demanding of commercial insurers some rate relief in the next round of contract negotiations both for employers and public programs like managed Medicaid and Medicare Advantage? Not bloody likely! Nor is the press and policy community likely to cease flogging its list of health system whipping boys.
The fact is that there are powerful economic and political interests served by keeping the $4 trillion health system on the defensive. Yet think about how much worse off our society would be if this care system had not risen to the immense societal challenge of COVID. Neither that heroism nor the sustained cost moderation fit the masochistic health policy narrative of the past forty-plus years. Maybe it’s time for a reality check and a more balanced narrative.