Driven by Prices, Medical Cost Trend Increases 6%

PwC’s Health Research Institute (HRI) predicted a six percent increase in medical cost trend in 2020, with a five percent net growth rate after adjusting for increased employee cost sharing or altering of benefits. But researchers identified potential solutions, including value-based contracting and integrating healthcare vendors with payers’ plans.

A major contributing factor has been the increased prices for healthcare products and services, which rose 17 percent between 2013 and 2017. This is not a problem that will disappear any time soon as the CMS Office of the Actuary recently projected increasing prices between 2020 and 2027.

Decreased utilization is additional proof that rising prices are to blame. A significant number of individuals are avoiding physician and hospital services in light of high-deductible health plans, HRI explained.

Deductibles for high deductible health plans (HDHP) are far out of many employees’ reach, with 42 percent of HDHP employees saying they are dissatisfied with their deductible and 28 percent saying that it would be hard to meet the HDHP deductible. 

HRI also indicated that drug spending increases, the prevalence of chronic conditions, and employees taking advantage of mental health benefits contribute to the rising medical cost trend.

Drug spending is a particularly challenging inflator. Retail prescription drug spending for private health plans will increase starting in 2020 from three to nearly six percent until 2027, HRI predicts. However, after the 13 percent spike in prescription drug spending in 2014 followed by the 14 point fall from 2015 to 2017, spending from 2020 to 2023 will be much more gradual, stabilizing at around 5.5 percent annual increase after 2023, researchers stated.

In response to the dramatic fluctuations in pricing, payers must alleviate the expenses by negotiating value-based contracts, HRI recommended.

The report cited the example of Avexis’s Zolgensma, which stops pediatric spinal muscular atrophy for toddlers. The new drug has a wholesale acquisition cost of $2.125 million but the manufacturer may accept the payment in annual installments of $425,000 for five years, as well as outcomes-based agreements.

Payers and providers may need to take risks to cut costs in drug spending. HRI notes that although clinicians in the US are hesitant to adopt and prescribe biosimilars, payers and providers should invest in biosimilars to increase savings.

In addition to value-based contracting, HRI recommended negotiating fee-for-service contracts against a specific benchmark, such as Medicare pricing, manufacturing cost, quality, and social determinants.

As the paradigm shifts and employers become more proactive in selecting their vendors, payers need to find the right mix of low-cost, high-quality benefits for their members, including alternatives to unnecessary hospitalization for basic care. Encouraging worksite clinics, administering medications and care services at home, using free-standing imaging centers and ambulatory surgery centers, and making use of digital healthcare options such as telehealth are all options that payers can provide to decrease costs while meeting members’ needs in 2020, HRI advised.

Many larger payers are also using vertical mergers to incorporate more services into their system, diminishing their own costs and enabling them to channel patients to specific care sites other than the emergency department, the report added. UnitedHealth Group’s merger with DaVita, CVS and Aetna’s potential deal, and Anthem’s acquisition of Beacon Health Options are recent examples of this trend.

Other recommendations for payers to respond to the growth in medical costs included using digital therapeutics and connected devices, taking advantage of new 5G networks, and endorsing precision medicine and data-driven health and wellness programs.

As costs drive higher, payers can play a pivotal role in ensuring access to affordable, quality healthcare by pursuing value-based contracts and integration with third-party healthcare systems.