Hospitals can expect slower patient growth, higher wages, more expensive drugs

Healthcare enters the new year fresh off a yearlong hiring rebound and signs of the most robust spending growth since the Great Recession.

Health systems anticipated that the demand surge from Americans newly insured under the Affordable Care Act would fade in 2016, and late 2015 data support that. HCA cautioned that the biggest gains from the ACA may have already occurred by April. Economists with the Altarum Institute say spending acceleration from the coverage expansion may have peaked last February.

“Coverage is starting to level off,” said Charles Roehrig, head of Altarum's Center for Sustainable Health Spending. “That's telling us that the impact on healthcare spending growth should be smaller as we get into 2016.”

The CMS Office of the Actuary projects that 2016 spending will increase 4.9% to $3.4 trillion. Medicare spending will accelerate next year through 2018. Older baby boomers will create more demand and higher spending.

Continued economic recovery and low unemployment could begin to force employers to increase wages. The Federal Reserve raised interest rates in mid-December, which could boost healthcare prices, too.

Moody's Investors Service agrees patient volume will moderate. “We expect the current strong growth in patient volumes and cash flow will return to normal levels … because some of the factors driving recent strong performance, such as gains in insurance coverage and strong patient volume growth, will not be repeated in 2016,” Moody's analysts wrote in December.

Nonetheless, demand won't evaporate. “Those trends don't appear quickly, nor do they disappear quickly,” Bill Rutherford, chief financial officer of HCA, told analysts in December.

Meanwhile, another major contributor to faster spending growth will be as strong or stronger in 2016. Pharmaceutical manufacturers have focused on development of specialty drugs. The introduction of new hepatitis C drugs proved that specialty drug spending can soar as pricey, high-demand medications hit the market.

The spending surge from hepatitis C drugs, however, has likely hit a plateau, contributing to a slower growth rate next year, Roehrig said.