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Healthcare spending set to spike by 6.8% in 2015, report predicts


By Paul Demko
Posted: June 24, 2014 - 12:01 am ET
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Healthcare spending is expected to jump by 6.8% next year, spurred by the recovering economy and increased insurance coverage, according to an analysis by PwC's Health Research Institute.

The boost in spending follows a span in which healthcare expenditures had grown at a slower clip than the often double-digit increases of the 1990s and early 2000s. That's spurred an ongoing debate over whether the trend could be attributed primarily to reforms associated with the Patient Protection and Affordable Care Act or the economic malaise brought on by the Great Recession.

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“The improvement in the economy is finally coming to healthcare,” said Ceci Connolly, managing director of the Health Research Institute. “It's a lag, but it's a very direct relationship.”

While the projected spike in healthcare spending is more than double the rate of inflation in recent years, the report concludes that emerging trends in coverage and delivery systems are actually tamping down costs. For example, employers continue to shift toward high-deductible plans that require workers to take on more financial risk. Roughly a quarter of workers are now in high-deductible plans, a more than 200% increase over the past six years. That trend is not likely to dissipate any time soon: 44% of employers surveyed by PwC indicated that they were considering offering only a high-deductible plan to workers.

“They are desperate for ways to hold down those costs,” Connolly said of employers. “We're seeing the rise in high-deductible plans as the current strategy.”

Paralleling that trend is increased interest in private exchanges. Roughly a third of employers indicated that they are considering moving to a private marketplace that typically would offer workers more coverage choices, including high-deductible plans.

The uptick in the economy and expanded coverage aren't the only factors driving spending upward. The PwC report also raises concerns about the influence of specialty drugs on the healthcare economy. The hepatitis C drug Sovaldi, which costs roughly $1,000 per pill, has attracted the most attention in recent months. But in 2013, 70% of the drugs approved by the FDA were specialty medications, such as those designed to fight cancer or HIV/AIDS. In addition, while only 4% of patients use specialty drugs, they accounted for 25% of pharmacy costs last year. Spending on specialty drugs is expected to top $400 billion by 2020, a more than fourfold increase in less than a decade.

But PwC also points out that such drugs—despite their headline-grabbing price tags—have the potential to save money in the long run. In the case of hepatitis C, a decade of treatment for someone with the liver disease could cost $270,000, far more than the $84,000 cost of a twelve-week course of treatment with Sovaldi.

“I think that this is one of the most difficult emerging issues before the healthcare sector and, frankly, our society today, and we're just getting the tip of the iceberg,” Connolly said.

Another factor driving up costs is the continued absorption of physician groups into hospitals. The share of physicians in solo practices has decreased by 20% during the past three decades, according to the American Medical Association. This allows doctors to charge insurers a “hospital facility fee” even though procedures might not be performed in a hospital.

But there is some evidence that insurers are fighting back against the practice. In April, Pittsburgh-based insurer Highmark announced that it would no longer reimburse at the hospital-based rate for cancer treatment that occurs in outpatient offices. The insurer expects the change to reduce claims by $200 million a year.

“In many of our conversations with health plans they're keeping an eye on that,” Connolly said.

PwC's survey was completed by more than 1,000 employers from 35 industries. Combined, they provide healthcare coverage to 93 million individuals.

Follow Paul Demko on Twitter: @MHpdemko


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