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Despite ACA, report predicts decline in medical-cost trend for 2014

By Jonathan Block
Posted: June 18, 2013 - 2:00 pm ET

Despite the influx of millions of new Americans gaining coverage next year because of the healthcare reform law, the projected percentage cost increase to treat patients is expected to decline as consumers become savvier in how to spend healthcare dollars, according to a PricewaterhouseCoopers Health Research Institute report.

Institute researchers expect a medical-cost trend of 6.4% for 2014, less than the 7.5% for 2013 PwC predicted last year.

“The (Patient Protection and Affordable Care Act) will also play a role in the slowdown in 2014, with hospitals working to hold down expensive readmissions (or face the law's penalties) and employers being given greater power to influence employee behavior through increased or decreased premiums,” PwC researchers wrote. The latter refers to wellness programs under the ACA. A final rule released in May describes incentives and flexibility for employees to participate in workplace wellness programs offered by their group health plans.

One of the major reasons for a lowering medical-cost trend next year is that care continues to move outside hospital settings, where costs are high, and to retail clinics and mobile health. In addition, readmission penalties assessed by the federal government will help lessen an estimated 30% of waste in the health system. PwC, citing government data, said that last year, hospital readmissions declined by almost 70,000, “and this trend is expected to accelerate though 2014 as hospitals focus on discharge planning, compliance and the continuum of care.”

Other key factors is that 17% of employers offer a high-deductible health plan, according to a PwC Survey, with more than 44% considering it as the only health plan option for their employees. HDHPs tend to have the lowest premiums of any plan, but also have the highest deductibles. “When consumers pay more for their healthcare, they often make more cost-conscious choices.”

Another contributor to the declining trend has to do with many major employers, including Wal-Mart, Boeing and Lowe's, contracting directly with large health systems under what is known as “high-performing networks,” where providers are far from a home office. Although a worker may have to travel to another city to get a procedure, the prices negotiated directly by the employers with the health system make it more than feasible, with the additional benefit that the quality is higher, said Rick Judy, a principal in PwC's Health Industries practice.

For example, the three companies have contracted directly with the Cleveland Clinic to have their employees treated there for cardiac procedures under a bundled payment. Some employers pay for related travel costs and wave deductibles for employees by traveling for treatment.

“Employers are going out and looking to do a larger volume of procedures (at a particular medical center) that can guarantee high quality, and gives them the ability to negotiate lower costs,” Judy says.

The report also identified factors that contribute to inflating medical trend. The first is the rise of biologic medicines, which not only mitigate but overshadow savings from generic prescription drugs, a pattern that is expected to increase. The other is that health industry consolidation has grown by more than 50% since 2014, and is expected to continue through next year, according to research from Irving Levin Associates. A Robert Wood Johnson Foundation report from June 2012 found that hospital mergers can lead to price increases of up to 20%.

Follow Jonathan Block on Twitter: @MHjblock

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