Health Prices Continue to Rise Faster Than Others

October’s Producer Price Index declined 0.4 percent, month on month, and dropped 1.6 percent, year on year. Mild deflation continues to take hold in the general economy. However, it is not so in health care. Of the 14 sub-indices for health-related goods and services, only three declined month on month. Only six declined year on year (see Table I).

Outside health care, producer prices for both final and intermediate demand goods have declined precipitously since September 2014. This makes the increases in producer prices of health-related goods especially disturbing. Pharmaceutical preparations increased in price by 8.4 percent year on year, versus a 4.8 percent decline in prices of final demand goods. That is, using final demand goods as a baseline, prices for pharmaceutical preparations increased 13.2 percent! Price increases for other health-related goods have not been so dramatic.

Producer prices for health services are broadly moving in line with prices for other services. As I noted last month, what is interesting is the difference in the rate of inflation for hospital inpatient versus outpatient services. Outpatient prices are declining, while inpatient prices are rising, resulting in a gap.

I’d like to believe the outpatient prices are under pressure from ambulatory clinics. As for inpatient prices – well, this data gibes well with the Quarterly Services Survey, which showed an increase in hospital profits.

John R. Graham is a Senior Fellow at the Independent Institute.
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