Medical cost trend

Behind the numbers 2018

PwC projects 2018 medical costs will grow at a slightly faster rate than 2017. Future reductions in cost trend will require more focus on price.

PwC’s Health Research Institute (HRI) annually projects the growth of medical costs in the employer insurance market for the coming year and identifies the leading factors expected to impact the trend.

Heading into 2018, the healthcare industry appears to be settling into a “new normal” marked by more moderate fluctuations in a single-digit medical cost trend.  

  • HRI projects 2018’s medical cost trend to be 6.5%—the first uptick in growth in three years.
  • Price continues to be a major driver of healthcare costs.
  • Businesses will have to tackle the price of services as well as the rate of utilization to reduce medical cost trend in the future.

Medical cost trend over the years

As healthcare continues to take up a larger part of the overall economy, structural changes-such as the push toward paying for value, greater emphasis on care management and increased cost sharing with consumers-are taking a stronger hold, pulling back against rapid healthcare spending growth. Still, with medical cost trend hovering between 6 and 7 percent for several years, health spending continues to outpace the economy. Even the "new normal" is not sustainable.

Future reductions in cost trend will require more focus on price

In recent years, low utilization growth—largely driven by increased cost-sharing with American consumers—has helped counteract prices that have continued to rise. However, further cost shifting to consumers is getting more difficult, so annual utilization growth could start to rise in the future. Without low utilization serving as a counterbalance, rising prices likely will put upward pressure on overall healthcare costs. 

To slow healthcare spending growth moving forward, employers will consider supply-side management strategies—such as narrower provider networks and value-based purchasing—that focus on bringing price, rather than utilization, down.

Inflator: Rising general inflation impacts healthcare

An upswing in the US economy, now in its third-longest expansion in American history, is gaining strength, and higher general inflation rates will affect the labor-intensive health sector, driving up wages and medical prices.

Inflator: Movement to high-deductible health plans loses steam

After shifting healthcare costs to employees for years, employers are starting to ease off. Growth in high-deductible employer-based health plans is slowing, leaving less opportunity to stem increases in the use of healthcare services.

Inflator: Fewer branded drugs come off patent

With fewer branded, small molecule drugs coming off patent, employers will have fewer opportunities to encourage employees to buy cost-saving generics in 2018.

Deflator: Political and public scrutiny puts pressure on drug prices

Heightened political and public attention could encourage drug companies to moderate price increases. Similar scrutiny in the early 1990s resulted in a dramatic decrease in the drug price growth rate. The industry is already seeing some pharmaceutical companies take action, limiting price increases, offering cheaper alternatives and proactively addressing questions of value.

Deflator: Employers target right people with right treatments to minimize waste

Employers are looking to maintain access to care for their employees, but in more efficient ways, lowering costs by minimizing waste and targeting spending where it’s most effective. They are doubling down on tactics such as prescription quantity limits and exploring new technologies such as artificial intelligence to match people with the best treatment.


What this means for your business

Employers

In a competitive labor market, employers are looking for new cost containment strategies beyond shifting more costs to employees. They are pursuing new contract arrangements with providers to help them tackle healthcare prices.

Actions to consider:

  • Target work site health promotion programs to the right people.
  • Evaluate the value of drug spending.
  • Focus more on provider arrangements to tackle price.

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Healthcare providers

Healthcare providers, with opportunities to take on more risk and work with employers directly, are focusing on improving care management and optimizing their use of physician extenders and nonclinical staff to keep costs down and optimize patient care.

Actions to consider:

  • Assess skills mix.
  • Look for new opportunities to manage drug costs.
  • Demonstrate value to employers.
  • Invest in care management.

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Health insurers

Health insurers, in an effort to prove their value to employers, must work to steer patients to the most effective treatments and help providers accelerate pricing transparency efforts.

Actions to consider:

  • Look for ways to automate processes.
  • Consider alternative therapies.
  • Explore value-based purchasing with biopharmaceutical companies.
  • Take ownership of collaborating with pharmaceutical companies and providers to manage high-risk patients.
  • Be providers' partner in reducing medical costs.

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Pharmaceutical and life sciences

Drug companies are focusing on increasing collaboration across the industry, giving stakeholders greater insight into their pricing and the role they play in keeping patients healthy and out of high-cost delivery settings.

Actions to consider:

  • Re-evaluate sales and marketing needs.
  • Model drug pricing policy impacts.
  • Collaborate on pricing decisions upfront.
  • Educate providers on personalized medicine's benefits.

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Contact us

Kelly Barnes
US Health industries and Global Health industries Consulting Leader
Tel: +1 (214) 754 5172
Email

Rick Judy
Principal, Health Industries, PwC
Tel: +1 (415) 498-5218
Email

Benjamin Isgur
Health Research Institute leader
Tel: +1 (214) 754 5091
Email

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