Healthcare Costs Increases to Slow

Defying historical patterns, medical inflation will dip even lower in 2014 than in 2013. Several factors are expected to moderate costs including aggressive and creative cost-saving steps from employers, new venues and models for delivering care, and the Affordable Care Act (ACA), according to a report by Pricewaterhouse Coopers.

Healthcare organizations have spent the past few years adapting to more modest growth rates. The industry will continue those efforts in 2014 including a push towards moving care to lower-cost locations and personnel. Also, the decline in personal wealth has lowered the demand for healthcare; and the sluggish recovery has created a new normal in healthcare spending patterns.

Since consumers have more financial responsibility for their medical bills, they are questioning and sometimes delaying procedures, imaging, and elective services. New delivery models, such as accountable care organizations (ACOs), are promising, but their prospects for significant savings remain largely unproven, according to Kelly Barnes, PwC partner and US health industries leader.

The ACA will play a role in the slowdown of cost increases in 2014, with hospitals working to hold down expensive readmissions (or face the law’s penalties) and employers having more power to influence employee behavior through increased or discounted premiums – up to 50% in some cases.

Care continues to move outside hospitals to more affordable retail clinics and mobile health centers. Consumers value the convenience while costs can be as little as one-third of the bill in a traditional healthcare site. Major employers, such as Wal-Mart, Boeing, and Lowe’s, contract directly with big name health systems for costly and complicated procedures, such as heart surgery and spinal fusion. Employers are moving to high performance networks far from the home office, believing that these networks still deliver savings even with travel costs.

The federal government’s new readmission penalties take direct aim at waste in the health system, estimated to be as high as 30%. According to government data, hospital readmissions dropped nearly 70,000 in 2012, and this trend is expected to accelerate through 2014 as hospitals focus on discharge planning, compliance and the continuum of care.

Seventeen percent of employers in PwC’s 2013 Touchstone survey offer a high deductible health plan as the only option for employees. And more than 44% are considering offering it as the only option. When consumers pay more for their healthcare, they often make more cost-conscious choices.

Until recently, widespread adoption of generic medicines helped dampen medical inflation, but the rise of expensive complex biologics will nudge spending trends upward. Approvals of new biologics now outpace traditional therapies, and that pattern will continue in 2014 as research efforts target complex cases such as cancer.

Health industry consolidation has increased more than 50% since 2009 and is expected to continue through 2014. Higher prices are sure to follow in some markets. Hospital mergers can lead to price increases of up to 20.3%. These price increases are especially acute in markets with one dominant system. For more information, visit www.pwc.com.

Last Updated 11/25/2020

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