More competition should lead to lower prices and lower healthcare costs. That’s been the thinking behind the federal regulations promoting increased competition through price transparency. Following these regulations, healthcare prices are starting to show signs of slowing down. These are promising trends for price transparency fans, yet we keep hearing about increasing healthcare costs for patients. How can both be true?
In this blog, we'll explore this healthcare expense conundrum by looking at how different data sources and methodologies drive these discrepancies. More importantly, we'll discuss what we think these trends mean for the future of healthcare expenses.
Pick a number, any number
If you’ve been keeping tabs on healthcare expenses, you’ve likely come across a range of reports with conflicting numbers. Let’s start with reports released by the biggest players over the past few months:
- National Health Expenditure (NHE): reports healthcare spending is up 5.2% for the current year
- Health Care Cost Institute (HCCI): reports a recent 4.2% increase in healthcare spending
- Kaiser Family Foundation (KFF): finds that premiums are up 7%
Not only are these numbers quite different from one another, but they also stand in contrast with our own recent analysis, which found that high-cost providers have dropped prices by 6.3%, middle-cost provider prices are down 1.1%, and low-cost providers have increased prices by 3.4%.
So who’s right? The reality is that each report is measuring different aspects of healthcare expenses, using various data sources and applying different methodologies. These distinctions help explain how prices can be stabilizing while overall costs appear to be rising.
The math behind the madness
The inconsistency in reported healthcare prices and expenses might seem confusing, but the discrepancy comes down to three key differences: data recency, scope, and methodology.
Data Recency
One of the clearest reasons for variation across reports is data recency. Although these reports were all released recently, the data they rely on can be several years old. For example, the NHE data includes actual spend numbers only up to 2022, with everything after that being projections. Similarly, HCCI’s data also only runs through 2022. On the other hand, KFF uses survey data that was collected beginning in January 2024. In contrast, our analysis uses hospital price transparency data through June 2024. That’s a big difference, especially when it comes to measuring the response to price transparency regulations, which have only been in effect since 2021. The more recent the data, the better we can track price trends in real-time and see if transparency is actually working as intended.
Scope
Another key factor is the scope of what’s being measured. NHE takes a broad approach, looking at total U.S. healthcare spending across multiple payer types—Medicare, Medicaid, private insurance, and out-of-pocket spending. It covers a comprehensive range of spending categories like hospital care, prescription drugs, and dental services, but also includes non-patient revenues like grants and even gift shop sales. In contrast, HCCI has a much narrower focus, analyzing medical claims for roughly 55 million privately insured Americans under 65. KFF narrows the scope even further, concentrating on premiums based on a survey of 2,142 employers. Our analysis uses federally mandated price transparency data to zero in on commercially negotiated rates for common services across hospitals in major metros.
While broad reports like NHE provide a comprehensive look at national healthcare spending, they mix patient revenue with non-patient revenue streams, making it harder to identify what is actually driving expenses. On the other hand, more targeted reports like HCCI, KFF, and our own analysis are less representative of overall healthcare expenses, covering only specific segments of the U.S. population and specific healthcare services.
Methodology
Finally, these reports also differ in how they break down and adjust healthcare expenses. Healthcare expenses are primarily made up of two main components: price (how much is charged for each service) and utilization (how much healthcare people use). Each reports these components differently and also handles inflation differently, which causes further divergence in numbers.
For example, NHE combines both price* and utilization together, making it difficult to separate the effects of rising prices from the increased usage of healthcare services. While their headline numbers aren’t adjusted for inflation, the NHE report does contain real, inflation-adjusted numbers as well. HCCI separates price and utilization in their analysis but does not adjust for inflation. Meanwhile, KFF reports on premiums based on survey data but doesn’t distinguish between the effects of rising prices, increased utilization, or administrative expense, nor does it adjust for inflation.
In contrast, our analysis focuses strictly on prices, annualizes across multiple years, and adjusts for inflation, which we believe offers a more precise view of real price trends. However, since we focus only on prices, we don’t capture the full change in expense, particularly how much is driven by changes in healthcare utilization.
These methodological differences mean each report presents a different picture of healthcare expenses. Reports that don’t separate price from utilization, like NHE and KFF, obscure the distinction between price hikes and increased healthcare usage. Similarly, without inflation adjustments, HCCI and KFF reports miss the economic context needed to fully understand expense trends. Our inflation-adjusted price analysis clarifies price trends but doesn’t capture total healthcare expenses, which can still rise due to other factors like increased utilization.
*Note that they do include a price index, but this is based on proxies
Adding it all up
As we’ve seen, measuring healthcare expenses is complicated. The variety of numbers we see reflects this complexity. Different reports capture different parts of the equation—whether it’s prices, utilization, or even gift shop spending—so it’s no surprise that they sometimes seem to tell conflicting stories.
That said, there’s reason for optimism. Prices are a major driver of healthcare spending, and our findings suggest that prices for many major services are stabilizing, with some even falling below inflation. This is an encouraging sign that markets are beginning to respond to price transparency, fostering competition and driving prices down.
However, much of the expense data we’re seeing today is outdated, often by multiple years. In the meantime, our analysis provides an important piece of the puzzle. Prices appear to be leveling off, and that’s a promising step in the right direction. But to fully understand the impact on total healthcare costs, we’ll need more time, more data, and a closer look at how these price changes interact with broader utilization trends. What do you think?