The Drop In Health Care Cost Inflation Is Striking

health care inflation

Much has been made about what has appeared to be runaway inflation in health care costs.

Although prices continue to be rising, the pace of increase appears to slowing substantially.

From UBS’s Drew Matus:

Medical goods prices — pharmaceuticals — are another important source of core PCE disinflation. Here, the CPI measure agrees with the PCE measure, and in both the deceleration since about a year ago has been striking. It may be that the move toward centralized health care is indeed “bending the cost curve”. Prices for health care services may be benefiting from the same reductions. As with financial services, spending on medical care products is hardly  elective — it seems unlikely that price declines would cause consumers to delay needed spending.

Matus notes points made on medical care inflation from the Economic Report of the President.  We paraphrase some of Matus (emphasis added):

“Hospitals may have improved efficiency “in response to evidence showing their potential for cost savings”.”

“Substitution of generic drugs may have contributed.”

“Early responses to Obamacare are credited as perhaps having encouraged more efficient coordination of medical care for particular patients.”

“The Report also points to reduced hospital readmission rates as a sign of the success of earlier regulatory changes and as a source of cost savings.”

This will surely be a metric that everyone will continue to follow closely.

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