Dear John,

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Inflation’s Challenge to Health Care Operations

Welcome to my newsletter! My goal is to provide you with ongoing commentary on the economy and its intersections with the health care industry. 

I will be taking big picture looks at economic trends, data, and forces; shedding light on how they forecast and shape the provision of health care services as well as the overall affordability, and quality of our health care systems.  

When possible, I intend to introduce concepts from economic theory and findings from cutting-edge research to provide readers with a deeper understanding of the issues.  

I am a health economist at the University of Connecticut, where I teach both undergraduate and graduate courses in health economics, train PhD students in econometric methodology, and do research with a focus on child health.

This month’s topic explores inflation. 

In February inflation came in hot, and the Federal reserve has continued to hit pause on lowering interest rates: signaling that they are unlikely to decrease before September.

For those readers who don’t know, the federal fund rate is the cost of borrowing money from the government. The lower the rates, the easier it is for banks to get money.

As you might guess: easy money is what keeps our economy moving.  

But this money comes with its own price: inflation– which has been a headache for America over the past few years. 

The Causes of Inflation

Re-emergent inflation and high interest rates affect the entire economy, including health care.

Inflation raises the cost of medical care and service delivery, while high rates make it harder for health providers to secure funding. 

Let’s take a deeper look at the causes of inflation and what it means for the future.  

The Fed puts health care inflation into two sub-categories: commodity prices and service prices. 

The commodity index tracks the costs of things like pharmaceuticals, medical supplies, and hospital equipment. Service prices, on the other hand, include what we pay medical providers, such as doctors and therapists, for their time. 

The graph below shows the trends for medical inflation overall and separately by commodity, and service prices last year.

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