Hospital Pricing Falling, Analyst Says

Armen Hareyan's picture
Hospital Care

According to Longbow Research analyst David Bachman, an analysis of January Producer Price Index (PPI) for healthcare reveals a weakening pricing environment for hospitals.

Mr. Bachman said that growth Acute Care Hospital PPI Index and the Insurance PPI fell below their 12 month averages. In addition both specialty hospital and psychiatric hospital pricing fell sequentially in January, noting the latter is below the 12 month average for the third month in a row. “We expect healthcare providers to experience slower pricing growth in 2009 if these trends continue,” Mr. Bachman said.

Early Indications of Hospital Price Weakening in 2009

The January CPI and PPI healthcare pricing data continues to demonstrate declines for a number of important indicators with slower growth or overall declines. We expect healthcare providers to experience slower pricing growth in 2009 if this trend continues.


Insurance PPI growth slows. The 3.6% YoY increase in January's Insurance Carrier PPI Index represents the fifth consecutive month in which the index fell below the trailing 12-month average. A strong relationship exists between the Insurance PPI and Hospital pricing growth (R2 = .85 over the past four quarters). Median pricing growth in
4Q08 was just 4.0%, and we expect no change in 1Q09 in hospital pricing growth.

Acute Care Hospital pricing remains weak. The Acute Care Hospital PPI Index rose 30 bps sequentially to a 1.8% YoY increase in January, although this growth is still far below the trailing 12-month average of 2.9%.

Other facilities' price growth falling. Specialty Hospitals pricing fell 90 bps sequentially to just 0.8% YoY growth in January. The Psychiatric Hospitals PPI Index rose 2.0% YoY, a 70 bps decrease sequentially. This index is below the trailing 12-month average for the third month in a row.

Medicare and Medicaid pricing recover slightly. The Medicare PPI Index rose 1.1% YoY in January, an 80 bps sequential increase. The Medicaid PPI Index rose 1.8% YoY, up 30 bps since December. The All Other Patients PPI Index, an indicator of hospital managed care pricing, rose 2.4% YoY, up 30 bps sequentially.

Change in consumer costs are mixed. The Health Insurance CPI Index posted its seventh consecutive quarter of YoY declines, falling 3.7% in January. The Inpatient CPI Index was down 40 bps sequentially, with a 5.3% YoY increase. The Outpatient CPI Index rose 100 bps sequentially, growing 6.6% YoY, although this index is still below its trailing 12-month average.

Temporary Healthcare Staffing pricing remains flat. The PPI Index for Temporary Healthcare Personnel rose 2.0% YoY, flat sequentially. The index is below the trailing 12-month average for the seventh consecutive month.