What do these medical cost trends mean for your business?

Employers considering only high-deductible health plans44%

Employer engagement and individual consumers are powerful and growing forces in the health ecosystem. To succeed, healthcare organizations should fashion strategies around new demands for value.


“Healthcare cost increases continue to exceed overall growth in wages but the gap is shrinking. While we appear to be making progress in breaking the long term cycle of runaway cost increases, employers can be expected to continue to step up efforts to engage employees more directly in value-based healthcare decision making.”

—Mike Thompson, PwC Principal

Employers remain concerned about their long-term ability to provide comprehensive health benefits. Despite a slowdown in medical inflation, costs continue to rise faster than GDP. In answer to the rising costs, businesses continue to shift more of the financial burden on to workers, are reducing retiree benefits and pursuing more aggressive strategies to promote measureable health outcomes. Employers still describe health insurance as a valuable tool for recruitment and retention, and tax advantages are expected to keep employer coverage at high levels in 2014.

  • Explore high-performance networks even if they are not local. Employers should find health plans that offer a high-performance network for medical care or contract directly with these health systems.
  • Encourage use of new care venues. Onsite work clinics, retail clinics, and mobile health options are convenient and typically less expensive than traditionally delivered care.
  • Educate employees and families about their options and responsibilities. As high-deductible plans become more of the norm, employers should ensure that employees understand their benefits and responsibilities.
  • Embrace the data. Employers need to evaluate program results to determine what works and then continuously modify strategies to improve the value of the programs they offer and the care that their employees receive.


Reducing costs has been the focus for hospitals for the past few years. Many have addressed simple reductions in labor force and supply chain management. Now other factors are coming into play. As the federal government continues to shrink reimbursement, hospitals and doctors are focused on full-scale transformation that shifts incentives away from fee-for-service medicine toward outcomes-based payment. Additionally, hospitals have been forming partnerships with urgent care centers and retail clinics that offer less expensive and more convenient options and that also expand their referral network for complex cases.

  • Apply predictive analytics to target high-cost patients. Health information technology will be critical to achieve care integration and to reduce costs associated with redundant testing and delays in follow-up care.
  • Forge new alliances. As accountable care and readmission penalties become the norm, hospitals should partner with long-term and home care to ensure sustainable results.
  • Invest in the human side of HIT. Hospitals should not only continue to focus on building their technology infrastructure, they should also develop the resources necessary to implement and run these systems.
  • Align individual incentives with organizational incentives. As organizations switch to different payment models, clinicians and staff need incentives such as performance metrics that link to compensation to quality.

Outlook for 2014 medical cost trends and how uncertainty will lead to conservatism in the industry.
Mark D. Birdwhistell,
VP Admisistration & External Affairs,
UK HealthCare

Health Insurers

Preparing for the uncertainty of 2014 has been a major challenge for health insurers. The health insurance business model is fundamentally shifting from a wholesale approach primarily focused on group insurance to a retail approach focused on serving the growing individual market. New rules related to the ACA have prompted insurers to develop plans to meet the requirements for operating in health insurance exchanges, which will serve the 27 million individuals expected to gain insurance over the next decade.

  • Form strong partnerships with providers. As health insurers shift to payment models rewarding quality and efficiency, they should work closely with providers to hit ambitious new targets.
  • Empower consumers to make cost-efficient choices. Team up with employers to give employees information on lower-cost options. Encourage the transparency of quality measures, and provide information comparing different treatment options.
  • Focus on high-cost specialty drugs. A top concern of government and private purchasers is the growing use of expensive specialty drugs. Insurers can help push for data to manage this growing cost.
  • Provide access to high-performance networks. Offer companies new solutions to bend the cost curve. Identify and promote high-performing hospitals for complicated and costly procedures.

Pharmaceutical and Life Sciences

Pharmaceutical and life sciences companies have been realigning business strategies to address the new environment of constrained growth. One recent HRI survey found that 35% of life sciences companies have revamped their R&D models in the past three years. Those models are now focused more on partnerships, alliances, and even outsourcing. The need to demonstrate cost-effectiveness has prompted companies to invest in clinical informatics and health economics analytics teams. 

  • Get closer to insurers and providers. Collaborative relationships that demonstrate effective outcomes enable drug makers to address challenges early in the development process and adapt drug design and payment methods to make them attractive to purchasers.
  • Follow pharmacy benefit decisions. Which drugs are covered will vary significantly from state to state and plan to plan. Drug makers will need to assess how the pharmacy benefit differs in each exchange and develop an appropriate strategy to get their products covered.
  • Evaluate data and apply to R&D processes. The push for cost-effective medications continues. Drug makers must continually demonstrate the value of their products with compelling cost and quality studies.
  • Understand how companion diagnostics affect drug treatment decisions. Companion diagnostics offer the promise of targeted therapies and reduced spending on treatments that may not be effective for certain individuals.