Hospital price increases since 2000 outpaced inflation by more than double, Baker Institute report says

Hospital service prices surged more than 220% between 2000 and 2022, according to a report from Rice University’s Baker Institute for Public Policy. While hospitals attribute rising prices to increased operating costs — particularly due to labor shortages from the pandemic — evidence shows that hospital prices have consistently risen faster than other medical services since 2006, according to the authors.

This surge in prices has outpaced other medical services (130%) and overall inflation (74.4%), according to the report. The authors used data from the National Academy for State Health Policy and Turquoise Health to analyze the relationship between hospital prices, operating costs and profits — particularly in light of the 2024 No Surprises Act, which requires hospitals to disclose their negotiated rates with insurers.

“Price variations for outpatient and inpatient procedures are substantial with commercial prices often significantly higher than Medicare prices,” said lead author Vivian Ho, the James A. Baker III Institute Chair in Health Economics.

The report compares the commercial operating costs, net patient revenue from commercial patients and commercial operating profits of hospitals with different price levels to examine if higher prices are charged to cover higher costs or to generate higher profits. It examines both outpatient and inpatient services across 1,715 hospitals.

“We found that higher inpatient prices are linked to increased revenues and profits, while there’s no significant difference in operating costs between high- and low-price hospitals,” said Derek Jenkins, postdoctoral scholar in health economics.

The analysis highlights that while higher inpatient prices may reflect marginally higher costs, they predominantly lead to substantially higher profits. This emphasizes the need for policymakers to focus on negotiated rates to enhance affordability in health care, Ho argued.

Written by Avery Ruxer Franklin for Rice News.