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Private insurers likely will increase the rates they pay physicians in 2023 more than public programs like Medicare will, Corey Rhyan, MPP, said at a on healthcare inflation sponsored by the Kaiser Family Foundation (KFF).

"Typically, prices paid by private insurance for both hospital and physician care have increased more rapidly than the public payers have," Rhyan, senior analyst of health economics and policy at Altarum, said at Wednesday's event. "And that's a trend that we're expecting to continue through the rest of 2022 and into 2023."

On the other hand, "when we look at what Medicare is proposing for the increased rates for calendar year 2023, we're talking about increases somewhere between 2.5% and 4%, depending on the kind of hospital or physician ... and actually, physician prices are on the low end of that scale," he said.

The increases are coming because payment negotiations "really are favoring the providers right now," he continued. "They are seeing increased cost pressures and so they have a greater incentive to negotiate for those higher price increases, [while] insurers are still coming up to a period when utilization has been somewhat suppressed as a result of the COVID-19 pandemic ... An ongoing question is how much of a rebound there will be in that utilization."

What seems to be occurring, said Rhyan, "is more of a return to the level of care that was being received before, and not necessarily an additional, much higher rate of utilization over the coming period ... Providers are going to have to negotiate higher prices because they haven't recovered from their increasing costs, so I expect private prices to lead in 2023 and then we'll see what happens with Medicare and Medicaid rates as those get set for future years."

Perhaps not surprisingly, health insurance premiums will be going up as well. Cynthia Cox, MPH, vice president and director of KFF's Program on the Affordable Care Act, said her office reviewed rate filings for 75 health insurance companies, "and they were raising their rates by about 10% going into next year, which is much higher than we've seen in the last few years in this market, because premiums have been pretty flat the last few years."

Most of that increase, she says, "is what's called 'medical trend,' which includes both inflation and utilization -- rising prices and rising utilization. So insurers are expecting healthcare prices to continue to rise, and that's part of what's driving premiums higher next year."

Meanwhile, hospitals are facing a lot of cost pressures, especially when it comes to labor costs, said Suzie Desai, MBA, senior director and sector lead of the U.S. Not-for-Profit Healthcare Group at S&P Global Ratings. Because labor negotiations usually result in multi-year contracts, "sometimes you're not looking for rate increases even this year for some of your payers, because the contracts have been set for 3 to 5 years," she said.

Overall, the salary and wage increases are in the range of 8% to 10%, "but could be higher, could be a little bit lower, but it's kind of outrageous what we're seeing overall, and that doesn't include the agency costs, which have been significantly higher for some in the country," said Desai, noting that agency fees are starting to come down a bit, but aren't nearly as low as they were in 2019 before the pandemic.

There is also inflation in hospital supply costs, but "that's a little bit more muted, because like the payer contracts, those are sometimes negotiated upfront." For those hospitals that are managing construction projects, those costs are going up as well, she added.

What about the role of accountable care organizations (ACOs) when it comes to costs? Right now, providers are more focused on getting labor costs under control, Desai said. "That's not to say that the other strategic initiatives like building out ACOs or working on different kinds of strategies to reduce expenses and improve the cost of care or the care delivery system are necessarily completely on the back burner, but there is a lot of focus on getting things in order, getting things into a manageable situation from a labor perspective."

Those who have already invested in ACOs will be better positioned to continue than providers who are starting something new in that area, she added.

And when it comes to the price of prescription drugs, "price growth in the recent period in 2021 and 2022 has come back to about average with the rest of healthcare price inflation -- somewhere between 2.5% and 3%," said Rhyan. "Year over year, and that's something we're probably expecting to continue into the future."

What about the drug provisions in the recently enacted Inflation Reduction Act? Some of the rebates required of manufacturers will phase in slowly, so "in the near term, we're not going to see very large impacts on prescription drug price growth as a result of that, given the limited number of drugs and also the ability of manufacturers to adjust and compensate for those," he said. Although prices may go down farther down the road, price increases overall are expected to continue, he added.

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