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PwC predicts rise in healthcare spending will be lower than usual next year

Spending on healthcare is expected to rise just 4.5% next year as employers and providers make a number of moves to bring down costs.

In its annual Behind the Numbers report, PricewaterhouseCoopers' Health Research Institute is forecasting a medical cost trend of 6.5% for 2014—offset by health insurance changes that will effectively lower that number two percentage points.

“This is a pretty low figure,” said Ceci Connolly, managing director at HRI, who discussed the results on a conference call hosted by Deutsche Bank. “We used to see double-digit increases, and it's really slowed down quite a bit.”

Connolly attributed the slowdown to what she called the “recession hangover,” the lingering effects of the global financial meltdown that began at the end of 2007.

“We know there's still an impact on consumer behavior,” she said, adding that individuals are making fewer doctor appointments, delaying elective procedures and trying to extend their prescriptions by cutting pills or skipping doses.

But there are other structural changes occurring that suggest the lower cost trend may be long-lasting.

For instance, Benjamin Isgur, a director at HRI, pointed to the rapid growth in retail clinics, which can deliver care at less than two-thirds the cost of a physician office visit. In 2012, 24% of consumers had visited a retail clinic—more than double the 10% in 2007.

“There's no indication that it will let up,” he said. “We know that consumers are very interested in alternate care sites. They're also very cost-effective.”

Other cost-slowing factors include the growth of high-performance networks, where employers contract with marquee health systems that deliver high-quality care at a reasonable cost. With savings on the order of 10% to even 25%, employers will cover travel fees or waive copays for employees who use those providers.

While only 4% of employers have adopted these networks, they include major retailers such as Wal-Mart and Lowe's. More than a third of employers say they're considering the option, according to PwC.

The report also cites readmissions penalties and the rapid adoption of high-deductible health plans (often as the only benefit available) as similarly holding down costs.

PwC suggests two factors could work against the larger trend. The first is the growth of biologics: As patents have expired on blockbuster pills that treat common conditions like high cholesterol and hypertension, pharmaceutical companies are increasingly turning to specialty drugs that treat more complex diseases but at high prices.

For the first time in 2010—and continuing the following two years—the FDA approved more specialty drugs than traditional ones, PwC found.

The report also pointed to industry consolidation as inflating prices by as much as 20%. “Many insurance companies report an immediate increase in hospital rates,” Steven Elek, a partner at HRI, said on the call. He added that the other factor is the facility fee that is added when a physician group joins a system.

The report also expressed skepticism about the ability of accountable care organizations to hold down costs. Few people are current enrolled in the networks and start-up costs may offset the cost containment benefits in the short-run, Isgur said.

Follow Beth Kutscher on Twitter: @MHbkutscher


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