Medical cost trend: Behind the numbers 2024​

Increased pressure in healthcare

The cost of treating patients is on the rise. The healthcare industry is under pressure from high inflation, rising wages and other costs, which are only compounded by clinical workforce shortages. Health payers are negotiating pricing with hospitals while provider profit margins continue to erode. Health plans are also feeling the squeeze of higher median prices for new drugs as well as increasing prices on existing drugs.

To generate an estimate of the cost to treat patients for the coming year, PwC’s Health Research Institute surveyed and spoke with US health plans covering 100 million employer-sponsored large and small group members and 10 million Affordable Care Act (ACA) marketplace members. These healthcare executives grapple with how to transform the patient and member experience while coping with aging technology, outmoded business operations, frayed infrastructure, clinical workforce shortages and competition from medical and tech innovators and start-ups. This report summarizes the survey and interview findings, highlighting the major medical cost inflators and deflators cited by health plans.

HRI is projecting a 7.0% year on year medical cost trend in 2024 for both Individual and Group markets. This trend is higher than the projected medical cost trend in 2022 and 2023, which was 5.5% and 6.0%, respectively. The higher medical cost trend in 2024 reflects health plans’ modeling for inflationary unit cost impacts with their contracted healthcare providers, as well as persistent double-digit pharmacy trends driven by specialty drugs and the increasing use of certain medications used to treat Type 2 Diabetes or weight loss.

As we warned in our 2023 report earlier this year, confronting affordability and disrupting costs are the top challenges for an industry under pressure. Organizations need to reshape strategies, reengineer financial, workforce and business models and seize every transformational opportunity — from investments in innovation and technology to deals — to clear the path for a drastically different cost, capabilities and business footprint by 2030.

Source: PwC Health Research Institute medical cost trends, 2009-2024



Inflator: Inflationary impacts on providers

Though falling, inflation in the US remains at rates not seen in decades. All health plans ranked inflationary impacts on health providers among the top three inflators for 2024. In a persisting high inflationary environment, hospitals and providers will often be pushed to seek significant rate increases from payers. The ability of health plans to manage price increases during contract renewals will be a key factor in determining the impact of inflation in the coming years.​ Recent years’ clinical workforce shortages further compound inflationary pressure. Assuming the persistence of the staff shortages in 2024, hospitals will continue to be financially challenged and seek higher reimbursement from payers. Hospitals and physicians are expected to seek higher rate increases (potentially also at a higher frequency) in contract negotiations. Workforce shortages and physician consolidation can further amplify the effect.​ Further, provider “burnout” and increased patient demand are expected to keep the pressure up on clinical workforces across the industry.

Inflation and clinical workforce shortages will continue to exert pressure on healthcare.

PwC Medical cost trend: Behind the numbers 2024
  • Health plans and payviders: Health plans will likely encounter greater unit cost increase pressure from providers, which can play out for several years to come. Given that affordability is key to winning in the Individual and Group markets, health plans should rethink their strategies. Value-based care, targeted care management, versatile in-house data analytics and harnessing the power of AI technology can help plans aggressively counteract the forces of inflation.
  • Providers: Systemic clinical workforce shortages have led to significant margin losses and, in some cases, even hospital closures. Providers need to be proactive in attracting healthcare talent and doing more with less while also moving quickly to leverage technology such as AI to ease the workforce strain.
  • Employers: Because of continued talent concerns, employers are generally not expected to increase employee cost sharing. Instead, employers likely will increase emphasis on network strategies, including concentrating on narrow / high performing networks, using centers of excellence to target high-cost claims (particularly cancer and orthopedic cases), designing plans that steer patients to lower cost providers and making a renewed attempt at finding effective navigation tools.

Inflation and clinical workforce shortages will continue to exert pressure on healthcare.

PwC Medical cost trend: Behind the numbers 2024


Inflator: Increasing cost of pharmaceuticals

Plans are experiencing inflationary pressure from rising median prices of new drugs as well as increasing prices of existing drugs. Combined with the accelerated approvals of new cell and gene therapies, pharmacy trends are not expected to slow down in 2024.​ The inflationary impact of pharmaceutical pricing is expected to be in the high single or double digits from 2023-24.

  • Health plans and payviders: Payers anticipate that the new pharmacy pipeline will be an increasing driver of medical cost trends. Plans have begun modeling double-digit pharmacy trends into their cost projection models to avoid underestimating the overall cost trend heading into 2024 and beyond. The recent growth in the number of approved gene therapies is expected to drive costs to a historic high as consumers shift to alternative medicines. As the scope of physician prescriptions widens to allow certain diabetes drugs to be prescribed for weight loss, plans will face a new challenge to address in 2024.​
  • Pharmaceutical manufacturers: Pharmaceutical manufacturers face pricing and Gross-to-Net impacts from regulatory changes, such as the Inflation Reduction Act (IRA) and the removal of the cap on Medicaid rebates based on average manufacturer price (AMP) in 2024. Pressure continues to be applied from potential federal and state government legislation, increased PBM/ payer utilization management and competitive RFPs, patient copay and assistance program dynamics, and other key trends. Manufacturers will face continued challenges as they balance optimally enabling patients access to their therapies while continuing to invest in R&D and innovation.


Deflator: ​Biosimilars coming to market

The prices of biosimilars are, on average more than 50% lower than the reference products for which they can substitute. The launch of adalimumab biosimilars to Humira® in 2023 is a new milestone in the market.​ ​​In January 2023, Amgen launched its adalimumab biosimilar, Amgevita™, and to date, the FDA has approved nine adalimumab biosimilars and most others are likely launching within a year following Amgevita. The adoption of biosimilars to specialty drugs has substantial potential to manage the rising drug cost.

65% of health plans ranked biosimilars coming to market among their top three cost deflators.

PwC Medical cost trend: Behind the numbers 2024
  • Health plans and payviders: Plans should work closely with pharmacy benefit managers and understand which biosimilar is the most cost-efficient – sometimes staying with the existing biologics might be as cost-efficient through competition-driven larger rebates. Plans may explore alternative cost sharing design and utilization management tools such as prior authorization, which can incentivize members towards more cost-efficient options. An important consideration is the impact on member experience should the plans change existing benefit terms. Additionally, plans should consider potential utilization if the price of the previously expensive drugs becomes more accessible. All the various factors need to be weighed and each health plan may reach a different decision depending on its unique priority and membership characteristics.
  • Pharmaceutical manufacturers: While biosimilars have grown and carved out a space on the medical benefit side, particularly within physician-administered drugs in oncology, biosimilar market maturity within the pharmacy benefits space is just beginning. The entry of Lantus biosimilars last year and Humira® this year have provided the first and largest tests of biosimilar penetration on the pharmacy benefit, with growing tests throughout 2023 (January Amjevita launch; multiple launches in July). Despite the uncertainty, there are some early strategies and implications emerging. First, manufacturers have launched with both high and low wholesale acquisition cost versions to appeal to different market segments, a trend that shows no sign of stopping with the Coherus + Mark Cuban Cost Plus Drugs recent announcement. Second, biosimilar entry in some cases replaces the innovator on the formulary and in other cases is disadvantaged/excluded versus the innovator. But every entry has come at the expense of the innovator’s Gross-to-Net. Payers and pharmacy benefit managers are leveraging biosimilar entry to lower the cost of these drugs, and at times the entire class/therapeutic area. The industry will keep watching for any future regulatory/legislative actions that impact the biosimilar market as many players appear to remain committed to near and long-term growth of the biosimilar market.

65% of health plans ranked biosimilars coming to market among their top three cost deflators.

PwC Medical cost trend: Behind the numbers 2024


Deflator: Shift in sites of care

The pandemic rapidly shifted the site of care from more expensive inpatient hospital settings to less expensive outpatient or emergency rooms. Health plans and payviders reported a decrease in inpatient utilization as well as a shift toward outpatient settings, allowing a two-pronged benefit to contain costs. With lower cost care settings and virtual delivery setting the path going forward, overall cost of care is expected to decline, helping plans offset the trend inflators. ​With the increased demand for home-based services and virtual care, the healthcare delivery system has reached a new phase. Plans are factoring in higher utilization of less expensive care settings and virtual care when pricing their 2023 plans and beyond, helping plans offset the trend inflators.​

Outpatient and virtual care decreased costs.

PwC Medical cost trend: Behind the numbers 2024
  • Health plans and payviders: The unique circumstances created by COVID-19 decreased inpatient utilization over the last two years, which helped control the cost of care while also shifting care toward outpatient settings. There is enough evidence to support a deflationary impact on trend until inpatient and surgery utilization rebound to pre-pandemic levels, if at all.​
  • Providers: ​Providers have an important role to play. They can work with plans to establish ownership models that share financial gains and incentivize physicians to accelerate the shift to outpatient care. This can help ease the pressure on inpatient settings, where capacity has been the slowest to recover across the country, driven by the lack of skilled clinical labor. ​​It is important to note that not all care can be shifted to ambulatory service settings. This may not be appropriate care for frail patients, for example, or for those with complex comorbidities. There should be clear criteria for defining use cases and when patients can safely be transitioned to less costly settings.​​
  • Employers: Through plan design changes and new third-party telemedicine vendors, employers can continue to encourage the use of telemedicine. Virtual visits for behavioral health have grown in recent years, allowing for increased flexibility in addressing the pressing need for mental health treatment. Virtual primary care visits are expected to increase in the coming years.

Outpatient and virtual care decreased costs.

PwC Medical cost trend: Behind the numbers 2024


Other healthcare cost trends to watch

Our 2023 report outlines six pivotal issues that are critical to remaining competitive and leading in healthcare. Confronting affordability and disrupting costs is chief among them, and it underscores the cost inflators and deflators highlighted in this “Behind the numbers” report. As we look ahead, we’re also watching other trends that could influence medical cost in the future.

Larger health plans tend to be better at medical cost management.

PwC Medical cost trend: Behind the numbers 2024

Total cost of care management

Many health plans continue to invest in cost initiatives that help maintain year over year trend.​ For example, value-based care participation, which better aligns incentives across payer and providers, increased to 60% in 2020, up from 11% in 2012. As National health plans who are historically better at medical cost management grow and acquire other plans, this trend is expected to be a deflator on medical cost trends. ​Overall, for plans that are mature in managing total cost of care, the effects of such efforts have become part of the year over year baseline and not explicitly a deflator.​

COVID-19

Impacts of changes in federal and state policies and the need for vaccines, testing and treatment vary, with the net effect likely being neutral.​ Health plans did not report a causal relationship between pent-up demand for care during the pandemic and utilization of care. The consensus among health plans is that inflationary pressures continuing in 2023 and going into 2024 will be driven by provider unit cost increases and pharmacy trends rather than a recovery in surgery utilization post-pandemic.

Health equity

Health equity is a focus of every health plan. The effect of efforts to improve population health has not yet factored into plans' cost of care models, neither with near-term utilization pattern changes nor long-term population health impact. Further, all plans are still working through CMS guidance on health equity.

Behavioral health

During the pandemic, behavioral health and mental health/substance abuse services saw a significant and consistent surge in utilization. The increase has slowed, but health plans do not anticipate usage retreating to pre- pandemic levels.​ Still, most health plans are not explicitly accounting for behavioral health trends as an inflator in their pricing and forecasting.

CMS Price Transparency Rule

Starting January 1, 2021, hospitals are required to provide clear, accessible pricing information online for all of the items and services it provides. Price transparency rules were extended to include health plans and payviders in July, 2022. ​​​Overall, most plans deemed the impact of the CMS rule on 2024 medical cost trend to be neutral or immaterial, mainly given the immaturity of the data. The extent to which more transparency will shift the balance of power in negotiations remains to be seen.

Medicaid redetermination

Congress passed the Families First Coronavirus Response Act in 2020, which prohibits state Medicaid agencies from disenrolling people unless they specifically request it. ​A consensus among health plans and payviders is that the impact of Medicaid redetermination is likely to be felt predominantly in the Individual market. Overall, most plans indicated the impact to be neutral or low on the 2024 medical cost trend.

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Thom Bales

Principal, Health Services Sector Leader, PwC US

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Derek Skoog, FSA, MAAA

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