Surging inflation has set the table for heated negotiations between providers and insurers.

In May, year-over-year price increases of consumer goods and services outpaced healthcare inflation, bucking the historical trend. The consumer price index rose 8.6%, the steepest gain since December 1981. Medical expenditures grew 3.7% in May, the biggest year-over-year jump since September 2020, according to the most recent data from the Bureau of Labor Statistics.

The inflation spike will ripple throughout the healthcare industry. It may push more providers to cut services or seek merger partners as supply costs rise, wages grow and access to capital drops. The Federal Reserve raised interest rates by 0.75 of a percentage point to curb consumer spending, increasing health systems’ borrowing costs and likely slowing capital projects— and a similar increase could come in July.

Despite doctors’ arguments citing rising cost pressures, physician practices have been offered only slight increases in rates negotiated with insurance companies, nowhere near matching the increase in inflation, said Andrew McDonald, the practice leader of physician business solutions at the consultancy LBMC. Physician groups are threatening to pull their practices out of the networks, he said.

“To date there hasn’t been many (of those threats), but we’re starting to see more movement in that direction,” McDonald said. “Physicians have in essence taken a cut in pay because of inflation and the cost of managing their practice going up.”

The American Medical Association approved a policy at its recent annual House of Delegates meeting to push federal and state governments to incorporate inflation adjustments in minimum-wage laws. The 6.2% inflation rate in 2021 outpaced the 3.8% bump in physician pay last year, according to a 2021 survey of 160,000 physicians by Doximity, a digital health tool for providers.

Read the full article in Modern Healthcare.