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Healthcare affordability continues to be one of the defining challenges facing the industry. With US healthcare spending approaching $6 trillion and medical cost trends projected to approach 9% in 2027, healthcare leaders are under increasing pressure to improve affordability while continuing to drive innovation.
Drawing on insights from chief actuaries and medical leaders representing more than 110 million covered lives, PwC's Behind the Numbers 2027 report examines the forces driving medical cost inflation and what they mean for employers, health plans, providers, and consumers.
In this episode of PwC's Next in Health, Glenn Hunzinger is joined by Thom Bales, Derek Skoog, and Philip Sclafani to explore the report's findings, discussing how AI, provider economics, specialty drugs, behavioral health, and policy are reshaping healthcare costs—and where the industry goes from here.
Prefer to read instead of listen?
We’ve summarized the full discussion in a short Q&A format so you can get the highlights in minutes.
How is the Behind the Numbers report developed?
Q. Glenn Hunzinger
Before we dive into the findings, tell us a little about the research behind the report.
A. Derek Skoog
For nearly two decades, PwC has surveyed and interviewed chief actuaries and medical leaders from more than two dozen US health plans to estimate medical cost trends for the coming year. Together, those organizations represent more than 110 million covered lives across employer-sponsored and Affordable Care Act marketplace plans.
That breadth of data provides a comprehensive view of the forces shaping medical costs and helps identify emerging trends before they fully materialize across the healthcare system.
Why are medical costs continuing to rise?
Q. Glenn Hunzinger
The report projects medical cost trends approaching 9% in 2027. What are the biggest forces driving those increases?
A. Derek Skoog
Medical costs continue to be influenced by several converging factors, including rising labor expenses, inflation, increased utilization, and continued investment in new therapies.
At the same time, chronic and behavioral health conditions continue to account for the vast majority of healthcare spending, placing sustained pressure on providers, employers, and health plans. Organizations must balance growing demand with higher operating costs, workforce shortages, and the need to improve patient outcomes.
Provider consolidation has added another layer of complexity. While consolidation can improve care coordination and investment in infrastructure, it can also strengthen negotiating leverage in many markets, making affordability an ongoing challenge for employers and health plans.
How is AI changing the cost equation?
Q. Glenn Hunzinger
AI is becoming part of nearly every healthcare conversation. How is it affecting medical costs today?
A. Thom Bales
AI is helping providers more accurately document care, capture patient complexity, and improve clinical coding. In many cases, these tools are ensuring physicians receive appropriate reimbursement for the care they already provide while reducing administrative burden.
Health plans are also using AI to strengthen payment integrity and validate claims. As both providers and payers continue to adopt these technologies, the industry is experiencing an evolution in how care is documented, reviewed, and reimbursed.
Over time, these capabilities should create greater consistency and efficiency. In the near term, however, they are contributing to increased complexity as organizations adapt to new technologies and evolving reimbursement dynamics.
Can innovation improve outcomes without making healthcare less affordable?
Q. Glenn Hunzinger
Healthcare innovation has never been stronger, but it also comes with significant cost. How should leaders think about that balance?
A. Philip Sclafani
Innovation is transforming healthcare in remarkable ways. New treatments for obesity, cancer, neurological disorders, and rare diseases are improving outcomes for patients who previously had limited or no treatment options.
GLP-1 therapies illustrate this challenge well. While prices have declined, utilization continues to rise rapidly as more patients seek treatment. Employers and health plans increasingly face difficult decisions about balancing today's costs against the promise of improved long-term health outcomes.
Specialty drugs, cell and gene therapies, and expanded behavioral health services present similar opportunities and challenges. They are improving lives, but they also require organizations to carefully balance innovation, affordability, and sustainability.
Where are healthcare leaders finding opportunities to manage costs?
Q. Glenn Hunzinger
If costs continue to rise, where can organizations make meaningful progress?
A. Derek Skoog
Many organizations are becoming more precise in how they manage costs rather than relying on broad utilization controls.
Health plans continue to strengthen payment integrity programs, modernize pharmacy strategies, and refine utilization management to focus on areas where clinical variation is greatest. Employers are also taking a more active role in pharmacy benefit management and network design as they look for opportunities to improve affordability.
A. Thom Bales
Organizations are also evaluating how reimbursement dynamics—including the implementation of the No Surprises Act—are influencing medical costs. While the legislation was designed to protect consumers, evolving arbitration outcomes are creating new cost pressures that healthcare organizations continue to monitor closely.
Ultimately, the goal isn't simply reducing costs—it's reducing friction while ensuring patients receive the right care at the right time.
What does this year's report mean for employers and consumers?
Q. Glenn Hunzinger
As healthcare costs continue to rise, what should employers and consumers take away from this year's report?
A. Thom Bales
Healthcare affordability is becoming one of the defining challenges facing the industry. Employers will continue to evaluate benefit design, invest in employee health, and look for new ways to balance access, quality, and long-term sustainability.
Consumers will also play a larger role in the future of healthcare through healthier lifestyles, earlier intervention, and more informed decisions about how and where they receive care.
Addressing rising medical costs will require shared responsibility across the healthcare ecosystem, with innovation, prevention, and collaboration serving as the foundation for long-term change.
Is healthcare reaching a tipping point?
Q. Glenn Hunzinger
Medical costs continue to rise, yet innovation continues to accelerate. Are we reaching a turning point for healthcare?
A. Thom Bales
Healthcare is entering a period of significant transformation. Rising costs are creating real affordability challenges, but they are also accelerating innovation across the industry.
Employers, providers, payers, policymakers, and technology companies are becoming more engaged in finding sustainable solutions. Better data, AI, APIs, and more connected care models are creating opportunities to reduce administrative burden, improve coordination, and make healthcare more efficient.
Ultimately, the opportunity isn't simply to slow medical cost growth—it's to build a healthcare system that is healthier, more connected, less friction-filled, and delivers better outcomes for every patient.
Speakers
Episode transcript
Find episode transcript below.
00:00:03:18 Welcome to PwC’s Next in Health. I'm Glenn Hunzinger, PwC’s U.S. Health Industries Leader. Today, we're discussing our 2027 Behind the Numbers report on medical cost trends, what it means, and where do we go from here as an industry. Joining me today are three esteemed colleagues — Thom Bales, Derek Skoog and Phil Sclafani. Thanks for being here, gentlemen.
THOM BALES:
00:00:26:05 Hey, Glenn, thanks so much for having me today.
DEREK SKOOG:
00:00:29:08 Thanks for having me, Glenn. Great to be back on again this year.
PHIL SCLAFANI:
00:00:31:10 Thanks for having me, Glenn.
GLENN HUNZINGER:
00:00:34:01 Listen, before we dive into the numbers, maybe a little bit of level setting, and I'll also kick it to Derek to talk a little bit more. Listen, the macro theme is that the cost trend continues to go up and rise, close to the eight-and-a-half, 9% expectation in 2027.
00:00:50:00 I think a couple of stats and we have spoken about it before on this podcast and published on it. But, as the cost in the US approached almost $6 trillion. We talked about these combining and accelerating forces around innovation and technology, the understanding of biology and obviously the economics and the unattainability of the cost trend.
00:01:12:14 There's no doubt the cost to continue to go up. But level setting a little bit of the baseline, I think is important. When we think about that 6 trillion, we have almost 55% of those costs are labor-related costs. So physicians, nurses, administrators, which is an important data point as we go through all of it. As you think about inflation, 90% of the total costs relate to patients with chronic and mental illness.
00:01:34:21 And when you unpack that, the chronic piece and the co-morbidities, almost 70% of it. So again, when we think about the drain on the health system, important data point and we'll talk about this. And then obviously, you need to think about this. 60% of the costs relate to hospitals and physicians. So those are good baselines as we think about why the trends are going up year over year, from an inflationary standpoint, from a volume standpoint, and really from an innovation standpoint.
00:02:03:18 And that's sort of the buckets in which we think about it. Right. There are some general inflationary things that are happening from labor costs and from the broader global market. There's volume increasing on utilization. And also the world of innovation, I think in a great way, we've got sort of great innovation that's happening. And the affordability of it is something which is continuing to tug at the heart of the patient and of Americans.
00:02:29:14 And so my colleagues today are going to talk a little bit about that and the trends. And ultimately, at the end of the day, what does it mean for our world of health? So, Derek and team led all of the analysis of this as actuaries and backgrounds. And I want to sort of kick it to Derek to maybe give a little bit of level setting on the report and the work that was undertaken.
DEREK SKOOG:
00:02:47:21 Thanks Glenn. Quick background on exactly how the report is produced each year. So, our team of health researchers and actuaries have surveyed and interviewed chief actuaries and medi con and leaders at more than two dozen US health plans to reduce our estimate of medical cost trend for 2027. Those plans covered more than 100 million employer-sponsored members and more than 8 million individual Affordable Care Act marketplace members as well.
00:03:16:08 We didn't include a view of trends in Medicare and Medicaid, but many of the same underlying drivers that are true for the commercial insurance market are also true in those markets as well. But the more than 110 million lives that we surveyed in this report really gives us a bird's eye view into what the underlying drivers are of medical costs year to year here.
00:03:38:20 So really excited to share the results.
GLENN HUNZINGER:
00:03:41:03 And how many years we've been doing this Derek?
DEREK SKOOG:
00:03:42:05 Boy, about 20 years roughly. It's been quite a while.
GLENN HUNZINGER:
00:03:45:07 And folks listening, I mean, in general, the team has done an outstanding job being pretty right on the trends. So as we think about this year, while it's a study and research and we run a bunch of analysis in general, I think the actuals have turned out to be pretty close.
00:03:58:19 So with that as sort of the background and profile, let's kind of jump right in, right. First question for Thom. Thom looks after the broader health services practice. Thirty plus years of experience, Thom, when we think about the impact of AI, right? We can't have a conversation unless we talk about this. But now we're seeing it pop up as an impact on cost.
00:04:18:11 Right. And part of that is sort of billing and coding. What does that mean? Just maybe demystify that a little bit because people think it's a result of maybe bad behavior, but it's not, right. Demystify that and then talk about how you see this trend sort of playing out.
THOM BALES:
00:04:32:03 Yeah. Thanks, Glenn. And it is a complex question, I would say. It's not necessarily a new question, but what's new about it is the extent to which payers are seeing it and commenting on it, which is what they reflect on in our survey. And it's really brought AI to the center of this discussion between this relationship between payers and providers.
00:04:53:04 To unpack it a bit, it's really about accurately capturing what happens during the course of an encounter with the physician and what actually is happening with a patient, and what AI has allowed for is, more accurate documentation, coding tools that just plain get it right, but also to some extent are surfacing and coding for work that just historically may have been under
00:05:19:00 coded. And there's real truth to that. Some of the physicians have under coded out of time pressure, just fatigue and documentation, concerns about auditing some of their own risk and what they have now are ambient scribes, coding assistants that are helping all physicians, but in particular the primary care ones, properly document what happens during the course of a routine visit.
00:05:43:08 Now, things that are also happening is what may have been a 15-minute routine visit could through that accurate documentation, become a 25 minute more complex visit. At the same time that we have this what is a version of the accurate coding, there is also the opportunity for folks and whether it be the physicians themselves or some of the companies they work with, to think about bias in that coding.
00:06:08:20 And if bias is balanced on both sides, it's fine. If you only look at bias on the one side, that can lead to what we call as up coding. And at times that could be surfacing in what was previously under documented complexity, with corrections only on one side of that curb overall, which systemically could push towards higher acuity codes or documentation.
00:06:29:08 What that looks like when it plays out across payers and providers is the reality is an arms race, because you've got this happening on the one side within the physician setting, the hospital setting, and on the other side you've got payers that are doubling down on payment integrity AI. That it just becomes a bit of AI facing off on AI, validating benefits, medical policies, what was needed, all with this intent of actually speeding processing and optimizing payments.
00:06:53:19 It is a sort of a catch up that we're in right now. In the near term, we could expect this probably to intensify for a bit. And then there's this question will it level off or not? And I think that folks think that there could be some moderation. But for a period of time here, it's likely to continue to accelerate as we even get better at AI, we learn how to use it.
00:07:13:13 We learn the questions to ask. It actually discovers. I mean, there's the chance that through this efficiency, it actually discovers more complexity in care that needs to be resolved for an individual patient. And so, the net of that is sort of to be determined and the timing of it. And I think that the other thing to think about, we sometimes think about this is just this sort of payer versus provider.
00:07:31:09 Well, there's a whole cast of folks that also sit in the middle of this that also have an interest in the sort of ongoing tension between this. And we can think about some of the revenue cycle providers that are looking to demonstrate their return for their clients. In some cases, it can be on the payer side, on the provider side, but they're in a real business, too, and they have an incentive to continue to optimize for this.
00:07:53:06 So it surfaced as one of our leading inflators this year. For a period of time here, it probably will continue to surface as that.
GLENN HUNZINGER:
00:08:01:04 Thanks Thom. It's super helpful. And you're right. At the end of the day, things will normalize and it'll really get to the truth of the matter with both sides being able to leverage technology to get to sort of that common ground and truth, but certainly a pretty dynamic situation.
00:08:17:14 Derek, to that point, obviously the biggest thing we see holistically is the idea of inflation, right? Not just in the world of health, but much beyond, as I mentioned in some of the preamble, this idea of labor costs almost 55%. And naturally, with every year people are going to expect increases. That's going to drive up inflation, obviously, on the medtech side.
00:08:39:19 And even in the input on the pharma side, you can have inflation increases on all the inputs to all those drugs and otherwise. And so that results in just costs going up. But maybe Derek, as we think about reimbursement and reimbursement pressure, the bubble up is the inflation. But the output is this reimbursement increases and some of that pressure.
00:08:58:15 Maybe just hit a little bit on the dynamics we see on consolidation or otherwise, and the strength of some of those provider networks and how that sort of plays in.
DEREK SKOOG:
00:09:09:04 I think about this is really two forces happening at the same time. The first is that providers are facing real input cost pressure. So think labor supplies, drugs, capital compliance and so on.
00:09:20:19 Those costs are real, those costs are growing. And they frankly need to get reimbursed for that. That's real. I think that the issue or maybe the biggest challenge is when you have those costs paired with that second force, which is market leverage. And so in many markets, that consolidation that we've seen means that payers and employers have fewer credible alternatives.
00:09:43:23 And so those costs, those input cost pressures are more or less passed through. And that creates real inflationary challenges without obvious off ramps there. And so that consolidation that creates and kind of emphasizes some of that pressure. I think that continues for some time here, though not necessarily in terms of large headline-making hospital mergers. Probably shows up more in the form of physician employment and specialty roll ups and affiliations.
00:10:10:22 And so from a collaboration perspective, I think the implication there is a bit nuanced. I think consolidation can truly support better coordination and collaboration between payers and providers, more tuned capital investment, better data sharing, and so on. But we really need to make sure that we're getting measurable value out of that collaboration, either seeing reduced utilization, better site of care usage and so on.
00:10:35:14 That the key is that this has to be more than just marketing here, and it has to get to better outcomes for the patient and consumer here. And with a key focus on affordability.
GLENN HUNZINGER:
00:10:44:05 Yeah Derek there's no doubt. There's just broader external dynamics at play. There's just the legacy of our health system here. And to some extent the need for transformation. And then you're right, within the world of health, there's just dynamics, let's call it some level of capitalism or scale that kind of plays into this. So I appreciate calling out some of these nuances here, which are very important to understand. The next topic is one for me is kind of near and dear to my heart, which is this idea of tremendous innovation.
00:11:16:08 It's happening across kind of the world of sort of Rx. And the challenge with that, though, is the affordability piece of it, because you do have these life-curing therapies, life-changing therapies, which is great. It's great for the world of health. It's hopefully will help bend the cost curve. But the challenge is it drives up the cost of a short term.
00:11:37:20 So, Phil, as we think about the world of GLP-1 and we think about specialty Rx, cell and gene therapy and otherwise, how do you think about the innovation side of it, the cost side of it? Obviously, a lot of dynamics in a GLP world as far as who's paying how much is going direct to consumer, etc.
00:11:57:22 But I think the big thing here is how do we see this cost curve in the near-term and really the long term? So a lot there. But Phil, you always love a hard question. So, I'm going to throw it at you.
PHIL SCLAFANI:
00:12:09:07 it's a great question. And $1 trillion one as pharmaceutical costs continue to grow in a couple different ways. Let’s say pharma costs, as we look at it this year, are really a tale of two stories. On one hand, you mentioned we have GLP ones which are actually very rapidly declining in price, but it's all about the utilization we expect. So, while prices have come down upwards of 60-70%, volume has skyrocketed. And could further 2x 3x and 4 x from there.
00:12:34:01 There simply isn't enough price left to offset. Right? So the equation here is simple but challenging. Yeah, if I think about it as an employer, if I pay for GLP ones now, I intuitively believe I will see savings in cardiovascular health and respiratory and bone and joint health and a host of other areas. But when will I see those changes?
00:12:54:10 Or will I ever see those changes for my specific population, depending on the makeup of the lives I insure and how long my employees stick around and all of that? So, it's a tough decision of paying currently 30, 40, $50 per member per month for GLP-1 coverage alone. And there's a ton of innovation in GLP ones and values.
00:13:14:07 But when might I see that? And in what form or shape will it show up? I think this coming year, we're actually going to see a very topsy turvy market as some employers add coverage, some continue to maybe wait and see until there is more evidence of those direct and indirect benefits. And a pretty good amount will drop or more significantly restrict coverage for weight loss while covering for diabetes and some other medical conditions.
00:13:37:00 So that's one half of the story. On the other end, we continue to see fantastic innovation with new treatments in CNS and behavioral health and Alzheimer's in oncology and the cell and gene therapies you mentioned meaningfully and significantly raising the standard of care, treating diseases that have had fewer or no treatment options before, helping new patients that didn't have drugs or the right drugs for their condition.
00:14:00:17 And that does come with a cost, right? The value equation there is less about coverage like we see with the GLP ones. Nearly all of these new treatments will be covered, after they get kind of through their initial launch period. But it really comes down to managing volume appropriately through utilization management and treatment pathways and balancing cost versus benefit.
00:14:18:19 Not every patient needs the new or should get the newest therapy, and some need to be able to get them right away. Really nothing new. And how we've historically dealt with and managed these types of patient costs, but maybe just with two interesting points to add. One is we've raised the standard of care so much, thankfully, in the past ten, 20 years that there isn't a lot of low-hanging fruit.
00:14:37:03 Right? The next small molecule, miracle cure isn't hanging out there. It's a lot of smaller and smaller populations or rare conditions that never had treatments before. That innovation does come with a cost for treating those new diseases, or to launch new mechanisms or new combinations of drugs where I'm stacking costs. All of that. The second point, I'll be looking to see how plans and employers balance offering big, costly benefits like GLP ones, for example, versus redeploying those to innovation in other areas, or even over to medical benefits. So an exciting market to watch.
GLENN HUNZINGER:
00:15:08:08 And Phil, what's your crystal ball on the future? Like costs are going up now, but ultimately, hopefully, it takes down costs in the future with better helping us.
PHIL SCLAFANI:
00:15:18:09 Yeah, I think it's a safe bet to see that. It's one of those things like we know by treating high lipids or hypertension you will see benefits later. Less heart attacks, less strokes, less high-cost patients and chronic patients. It's a question of time scale, right? And for now, there's no data to empirically show that.
00:15:34:07 There was a time where the market didn't believe statins were worth paying for. Of course, they're now accepted general first-line treatments. GLP ones may get there. We believe that linkage of costs will get there, but it's going to take time to develop the evidence base.
GLENN HUNZINGER:
00:15:46:13 And then Phil, along the same vein of utilization, obviously an extremely positive thing, behavioral health and just all the services that are sort of pouring in there to help that sort of major area comes at a cost. Right. So, we see that increasing in cost. But really it's the utilization, which, in some ways is a good thing.Maybe talk a little bit about that too as well.
PHIL SCLAFANI:
00:16:06:08 Yeah. It's a really important area. And I think across the board, we're just seeing behavioral health, mental health services broader in neurosciences continue to be a top-cost driver. It was in the report last year and probably the year before that. And I think for better or worse, a recognition of the decades of significant underinvestment and under treatment in this space.
00:16:26:14 But on the good side, we are now significantly focusing on behavioral health services at all levels. Investment is flooding in legislatively from public markets, from private markets. With that is coming a rise in specialized providers, behavioral mental health centers and payer-provider partnerships, new programs, right to care for children and teens at risk
00:16:46:09 for the elderly, like PACE for PTSD services for our veterans and others, and new ways of treating these groups not just prescription drugs, counseling, inpatient and intensive treatment programs, and a host of other ways. So all incredibly positive for these historically underserved populations. But as you entered here, a real challenge to balance the costs and maybe individually, none of these are expensive services.
00:17:10:20 and certainly, again, have value. But, it's just a big utilization and cost boom. So I think cost control really comes in two ways. First, unlike GLP ones, where it's a near-term cost for a long-term benefit, there are real immediate benefits of treating mental health proactively, earlier and comprehensively. Patients that have acute mental health episodes, patients that slowly deteriorate until they are unable to go through their activities of daily living.
00:17:35:06 Patients who suffer from addiction, for example, all become high cost cases today. Like this isn't a problem five to 10 years from now, we see the effects of under treatment of mental health right away and the costs that come with that. So it’s a little bit more of a direct linkage, hopefully, to seeing effective or treating those patients and bearing that cost now will have some savings pretty near-term.
00:17:54:03 And the second way, for better or worse, kind of like we're seeing with GLP ones and even some of the rare innovative therapies is going to be utilization management. Right. And the challenges here, we don't really understand what patients need, which treatments, when, for how long in the mental health space. Right. So they're just not like, I treat a patient and I see a biomarker or a lab value go down.
00:18:14:00 There's much more back and forth and finding the right treatment for the right patient. And with that's going to come risk that imposing utilization management will end up pulling back on services that some patients need. And it won't be effectively the right treatment for the right patient at the right time. So no question, it's a real challenge here to expand treatment in such an underserved and critically needed area and fragile population while trying to manage which patients get the right treatments.
00:18:39:01 And it's just going to take some time to figure that out. We'll probably continue to see this being a cost driver going forward as we're treating more of the population. And that's great. And hopefully the market trying to figure out how optimally to treat across this diverse and heterogeneous patient population.
GLENN HUNZINGER:
00:18:54:03 Yeah. No doubt we're talking about the cost equation here. But the productivity offset is tough to measure. If people get the right attention and support they need, what does that mean for productivity? That's always a tough one. So to your point, on return on those type investments, clearly, we know they're there. It's an important attribute to think about.
00:19:12:08 And as we move on here, Thom, in this world of as I sort of mentioned, heterogeneous within health, obviously, the one thing that was a surprise to us was the no-surprise act and what that meant for kind of those year-over-year increases in cost.
00:19:28:04 Well, obviously not the biggest piece of the cost. Moving from sort of 26 to 27, it had an impact, right. And obviously seeing that providers are winning 88% of the time. And they flagged some data points here. Maybe for the listeners here, just unpack in simple form what is it. And then sort of what are we seeing here in reality?
THOM BALES:
00:19:49:11 It's interesting Derek talked about the 20 years that we've done this survey. If you actually go back through those 20 years, at the end of our survey, there's sort of this list of what are the emerging trends. And there's a pretty good track record of those trends at some point becoming a major indicator of inflator deflator. And this is one that wasn't on there.
00:20:08:16 And so this question of no surprises, it was a surprise, an anticipated sort of yes or no. And that kind of gets into, sometimes people talk about rational or irrational economics and healthcare, maybe to split this up a little bit. And so, the reality is US healthcare, it's a business, it’s driven by economics. And there is a long history of when there are changes in reimbursement or laws and policies.
00:20:32:12 The participants in healthcare change to optimize their economics for profit, not for profit, mission driven, all folks will respond to it. But what was unexpected out of this? What has become what's a disproportionate win rate for the payments that are being disputed? And so what's happening here is the No Surprises Act allows for a dispute
00:20:55:03 in an arbitration of what the payment was for, service received and you would expect that for some of those based on what is happening in the market and market rates, HHS uses a term called the qualified payment amount as a benchmark that you would have seen a bell curve around those decisions.
00:21:11:13 Well, we're not seeing that. In fact, what we're seeing, and this has been in several articles and research papers that have come out in the last six months, is that providers are winning more than 85% of those disputes. And in some cases, it's not by a little amount compared to what the qualified payment amount. It's by a significant.
00:21:28:04 And so you have a disproportionate number of wins that are going for the providers and in some cases, a disproportionate value that is associated with those which for the arbitrators, which are supposed to be independent, the provider arguments are proving to be much more persuasive than for those who have to make the payments. It's also interesting to just sort of reflect on this is that the cases that show up are somewhat self-selected.
00:21:52:21 Not every claim is being disputed, but those where there are certain patterns that are associated with this, they can also create bias. And looking at this is you start to sort of peel the onion back on it and the different layers. There are questions around is there balance in these arbitration boards or there are questions around there seem to be a small number of providers that are disproportionately challenging this, while others aren't challenging at all.
00:22:18:07 And I think that we've got some learning to do as we look forward on this a little bit, and what service arbitration can serve as a viable revenue recovery tool. And then also reflective of what did CMS actually intend and project out of this versus what is actually happening? So anyway, I think at this point, just given the data that we're seeing, I don't know when the change will come, but I think it's very safe to say that we can expect to see some changes to this original policy going forward as it is contributing to the inflation of medical cost.
GLENN HUNZINGER:
00:22:45:23 Thanks, Thom. Certainly, the intent from a regulation standpoint, is there and the challenges, the outcome of increasing costs, not probably something that anybody wanted. As we think about the flip side of this and some of the deflator is maybe Derek, why don't you kind of take us through what we're seeing some of the offsets.
DEREK SKOOG:
00:23:05:03 Yeah. And the offsets I think are not necessarily going to be particularly new here. But I think the point is that we're starting to see them become a little bit more effectively applied. And certainly, the hope is that they get more effective still. And so I think payment integrity is probably the most immediate example of a key focus area here, particularly in light of the improved revenue cycle management that we're seeing from a number of health systems and medical groups.
00:23:29:19 So, with more sophisticated documentation and coding tools in the market, plans have really a stronger incentive to make sure that they're paying the right amount there and that the amounts billed are truly justified based on the care delivered and the patient acuity. The key here with payment integrity is not to deny claims here. The key is to pay the right amount to pay the claim accurately.
00:23:51:08 Additionally, what we're seeing — a lot of focus on utilization management. But I think the headlines that have come along with it have not always been great, particularly over the last few years. And so, utilization management has got to become more precise. Broad prior authorization creates a friction in the system that I think broadly consumers and patients and providers really don't appreciate.
00:24:13:02 And in many cases produces no demonstrable value. And so really, we are seeing plans retiring low-yield requirements and concentrating their clinical review on where there's the most variation and avoidable utilization, where they can meaningfully improve the quality of care delivered. I think another lever that we're seeing an increased focus on, not surprisingly, is on the pharmacy side, where historically a lot of the thinking has been deferred or delegated to PBMs, plans and employers are increasingly bringing a lot of that thinking back in-house, or at least managing that PBM relationship a little bit more actively than they had in the past.
00:24:52:04 And so thinking really critically about what your payer specific GLP-1 strategy is, how to manage specialty drugs and biosimilars, and really thinking about class-specific governance and not just general or generic formulary management tools is really going to be key. And then I think where there's a whole lot of creativity and a lot of effort being placed is on the network and reimbursement strategy side. We're seeing a whole host of clever solutions hitting the market.
00:25:18:18 We'll see what I think meaningfully bends the curve. But the historical notion that employers more or less had to have nearly everybody in network to be able to offer their employees a compelling value problem, their health plan. I think folks are starting to question some of that, and we're seeing some interesting products and offerings coming out to the market as a result.
00:25:39:13 So the question is really just how quickly can plans move? I think payment integrity probably is at the top of the list in terms of where they can move quickly. Utilization management probably second. A number of these others are much more long-term opportunities. And then I think, as Phil was alluding to,
00:25:56:10 where the value is on some of the improvements in the drugs that are hitting the market, I think have a longer tail still, where really the hope is that the expanded coverage of some of these drugs does eventually amount to meaningful reductions in medical costs that justifies the price that we're paying for them.
00:26:11:01 I think certainly a whole lot of interest across the board but somewhat limited in terms of a medium-term impact here, Glenn.
GLENN HUNZINGER:
00:26:19:06 Yeah, I think the key points there on anything that takes friction out of the system, I think would be tremendous. That is the number one thing in our consumer health survey that we did last year is this idea of friction and health and all but generally sits around the admin side of things, getting appointments, prior authorizations, everything else.
00:26:36:06 And so certainly anything we can do there to bring that down, I think can significantly help to sentiment. I think team, as we think about kind of winding this down and all this insight, maybe I'll start a little bit with Derek and Phil and what are the trends you guys are looking for. What are the ones to maybe watch?
DEREK SKOOG:
00:26:54:17 Yeah, we talked a little bit before focusing on the side about cell and gene therapy. Really exciting area in the market. Lots of innovation. Treating conditions that had never been treated before. Some of them are even lifetime curative in one single treatment that comes with a high cost. Nothing new to the market. Cell and gene therapies and other personalized, even curative treatments have been around for years now.
00:27:15:19 The point we're seeing now is that while each individual one is still a small PM PM impact, even if they cost several million dollars per patient, we are getting to a point where there's a lot of these individual treatments and more to come, right? There's 6000 or so conditions with no treatment at all, and we come up with the single digit number each year that make it to market that are expensive,
00:27:38:08 but they are starting to add up to the small PM PM impact individually is now a growing larger cost to the health system. When we look across all of those is one key point. And then the second is to think about, if you're a large employer with millions of lives, you can more easily absorb getting one of these patients or a couple even, that are treated with a high-cost cell and gene therapy.
00:28:01:01 But a smaller employer, it can really turn a plan upside down in any given year. It's just tough when you have 10,000 lives and have to pay for one of these drugs in cases, that price saturated condition, that's 1 in 500,000 lives. So overall, at a market level, still manageable. More and more of these are coming and it will be a growing cost as an inflator for the innovation is there. But we are starting to see a little bit of a breaking point for some smaller employers that do have,
00:28:25:07 unfortunately, these patients with these rare diseases that are treated by cell and gene therapy and again, can really turn a year upside down. So that'll be one of the things we watch for. Have a good idea of where the market will go in aggregate. But for any individual employer trying to manage these, it's definitely a trend to watch.
PHIL SCLAFANI:
00:28:43:06 Yeah, I think the other trend to watch that could be meaningful here is on the public program side. And what we're really talking about here is the effects of Medicare and Medicaid on commercial reimbursement. And so while I think there are certainly cases where commercial costs are pegged to Medicare or Medicaid, I think in general, the effect is much more indirect than that,
00:29:05:00 in the sense that if a public program meaningfully cuts reimbursement or cuts coverage, then that can have a real impact on the bottom line of a health system and subsequently amp up the pressure even further on the negotiation between that health system and a commercial payer.
00:29:20:11 I think there is a bit of a debate between those in the industry and academics who study this or around the reality here. I think the jury is somewhat still out in terms of exactly how large of an impact this will have, but almost all of the folks who we surveyed and interviewed had brought this up as a real pressure and concern here to watch out for, particularly on the Medicaid front, as coverage levels are likely to recede further over the next few years given Medicaid work requirements.
00:29:48:00 Similar challenges, I think coming down the pike on 340 B, potentially for Medicare, impacting certain health systems that have enjoyed more favorable economics on that front. And so, again, serving to ramp up that pressure between payers and providers, which certainly creates upward unit cost pressure. So, keeping an eye on those elements here.
GLENN HUNZINGER:
00:30:09:10 Yeah. Thank you, guys for that. And Thom, as you kind of maybe bring us home. Obviously, we have the economics of behind the numbers and everything else. You've published a lot and you've been out there in the market helping clients, talking to the world of health and beyond about sort of this need for transformation and the changes that will enable both a healthier world and a more efficient, frictionless.
00:30:31:22 Maybe just talk a little bit about kind of behind the numbers and how you view that. And what do we need to do? A better world, a healthier?
THOM BALES:
00:30:39:07 Well, first of all, there's a lot to do and there's a lot of promise. And as I was meeting with a client this week, it's likely that the three years in front of us may be even more challenging than the three years behind us. The last time that we had medical cost inflation at the level that we're seeing here and approaching double digits, we had a lot of activism in the market.
00:30:58:10 We had activism from employers that actually started to get closer and more involved with what they're providing as benefits. They themselves, in some cases had offices that were set up to control and manage medical costs. We saw activism from the government that ultimately led to the Affordable Care Act, which then overall, while decreasing commercial medical costs,
00:31:18:03 which is what we're talking about here. They provided funding right across the Medicare and Medicaid, buckets of costs overall, that overall supported greater expenditure in US healthcare. The cost inflation itself will prove to be a tipping point for several things. So it proved to be a tipping point for employers to really examine what benefits are for individuals
00:31:41:20 to question and to start to think about what is the difference between what should be subsidized healthcare and what should be optional. We will see in the government asking those same questions. We will see AI and just data bring us closer and closer to the question of what we really, as taxpayers, as federal and state governments, as employers and families, should be pulling our money around
00:32:04:07 with a greater understanding of what that is, the risk that we should be sharing in, and what's reasonable for us to be sharing in that money compared to everybody else. We'll see APIs providing the distribution of that data simpler, cheaper. And we're also going to face a time period that gets closer and closer. And as these costs come down relative to the data in the exchange
00:32:26:04 and perhaps even the services that the volume of services could increase just simply because it's more accessible and there's a better understanding of what's actually going on with an individual. So what I would say is, I just sort of think about wrapping this up is there is a lot of change upon us, some of it innovation driven by technology,
00:32:45:40 some of it just simply driven by the affordability crisis. And I'll call it a crisis for what we're facing that says as a whole economy overall, we can't sustain this current rate of inflation. And there will be change
GLENN HUNZINGER:
00:33:00:04 Thanks Thom. And thanks, team here for all the passion you have. I think a lot of us got into the world of health because we want to make change. There's a tremendous amount of positive that's happening, and certainly for all the listeners here, my ask is we continue to work collaboratively together to one, make the world of healthcare, more efficient, easier, better for the patient, too.
00:33:22:15 We got to bend the health side of the equation too. It's a one thing we don't talk enough about, as we as Americans need to be healthier, live healthier in order to constantly not have that drain on the system. So, we see it certainly in a lot of the generational activity here. Generations are living healthier. So, no doubt with the passage of time, hopefully that changes things.
00:33:42:13 But, we all have a mission and a stake here as Americans and as humans. So team, thanks so much for everything here. To my panelists, thanks for being here to explain our Behind the Numbers 2027 report. For those listening, that are interested in digging further, please be sure to check out our report PwC’s Behind the Numbers 2027 report’s now available and linked in the show notes.
00:34:05:15 And thank you for tuning in to PwC’s Next in Health. For more on these topics and other insights across health industries, please subscribe to our podcast at pwc.com/US/Next in Health podcast. Until next time, I'm Glenn Hunzinger and this has been Next in Health.
FEMALE VOICEOVER:
00:34:30:21 This podcast is brought to you by PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and they sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This podcast is for general information purposes only and should not be used as a substitute for consultation with professional advisors.
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