PwC, June 2018
PwC’s Health Research Institute (HRI) projects a 6 percent medical cost trend in 2019, consistent with the 5.5-7 percent range of the previous five years. But employers continue to struggle to contain their employee coverage costs. Medical costs continue to grow, yet the workforce’s health and performance aren’t improving. Average labor productivity growth of 1.1 percent over the last 10 years falls far below the 2.3 percent average of the last seven decades. Efforts by employers to cut utilization have mostly run their course. Employers and consumers are plagued by high prices that continue to grow because of new, expensive medical services and drugs, and other factors, such as consolidation.
HRI’s analysis measures anticipated medical cost trend in the employer-based market, which covers about half of non-elderly Americans.
HRI’s research points to three factors inflating medical cost trend in 2019:
Inflator #1: Care anywhere and everywhere
New high-touch points of care—from retail clinics to video visits to urgent care in the home— have popped up over the past few years.
Many consumers are seeking out care in settings outside of the traditional doctor’s office; of those surveyed with employer-based insurance, 60 percent said they have received care in an urgent care center, 25 percent in a retail health clinic and 11 percent by video visit. At the same time, consumers with employer-based insurance are increasingly willing to receive care in settings outside of the traditional doctor’s office.
Achieving appropriate utilization will require employers, payers and providers to strike a balance between access and convenience to avoid delaying care or creating unnecessary demand.
Inflator #2: Provider megamergers
In 2017, the number of announced hospital and health system deals increased nearly 13 percent from 2016, the highest number of transactions since 2000. Of 115 health system and hospital mergers announced in 2017, 10 were mega-deals involving sellers with net annual revenues of at least $1 billion. The intent of these deals is to achieve scale to invest in the infrastructure and programs necessary to drive quality, convenience and customer satisfaction, and ultimately deliver value to consumers, employers and health insurers. The short-term result is often higher prices.
“There has been little to no action taken to stop providers from concentrating or taking price increases,” said Sherry Glied, dean of New York University Wagner Graduate School of Public Service. “If inflation ramps up and consolidation continues, expect to see strong upward pressure on prices.”
As the market becomes more concentrated, medical prices may rise in two main ways. First, overnight price increases may occur when the acquiring organization has higher reimbursement rates. Second, “You’re going to increase prices because you’ll have more leverage to negotiate higher prices going forward,” said Thomas Getzen, former executive director of the International Health Economics Association.
Movement to a more consolidated provider landscape is expected to continue, with 72 percent of provider executives surveyed by HRI noting that reorganization is important to their organization’s success over the next five years.
Inflator #3: Physician consolidation and employment
As physicians consolidate, prices can rise. Physicians are increasingly practicing in larger, concentrated groups because of acquisitions by other physician groups, hospitals and health systems.
Physicians working in highly concentrated markets charge 14 to 30 percent more than their counterparts working in less concentrated markets.
The percentage of physicians employed by hospitals grew to 42 in 2016 from 26 in 2012.
While this shift has been occurring for several years among primary care physicians and certain specialties—such as cardiology—it’s now more widespread. A recent HRI survey shows medical and surgical specialists’ interest in employment by a hospital, health system or medical group is on par with that of primary care physicians’; those specialties largely remained unconsolidated until recently.
Three factors are tempering the spending increases:
Deflator #1: Flu impact
The 2017-18 influenza season was the worst in several years. Hospitalizations, mortality and prevalence were up across the country. A bad flu season can significantly affect medical cost trend in one year but be a deflator in the next when flu cases return to the mean.
Deflator #2: Care advocacy
Employers and health plans are offering care advocacy services to help employees manage their high deductible health plans (HDHPs), creating a dampening effect on medical cost trend for 2019. Seventy-two percent of employers surveyed by PwC offered health advocacy services to their employees in 2018; in 2016, that percentage was 57 percent.
Employers have increasingly relied on HDHPs to keep medical costs under control. But though HDHPs may reduce utilization, they also may deter necessary care for early diagnosis or management of chronic conditions. With the healthcare system’s ever-expanding number of care options, limited price transparency and complexity, consumers often struggle to navigate the system and make the best use of their benefits. Patient advocacy services have existed for several decades but were primarily offered as an exclusive, concierge-type service available to only a select few. This is changing as employers and health plans see such services’ value for their employees and members.
Health Care Services Corporation (HCSC), a not-for-profit health insurance company based in Chicago that operates Blue Cross Blue Shield plans in five states, has started a program for large, self-funded employers that supplies live advocates to help consumers estimate and compare costs, analyze treatment options and identify the most cost-effective treatment plans. Third party health advocacy firms such as Accolade Inc., based in Plymouth Meeting, Pa., and Quantum Health Inc., based in Columbus, Ohio, offer treatment decision support, transparency tools, provider coordination, help with integrated behavioral health needs, and even logistical help, such as transportation support.
Carolyn Young, chief actuary at Accolade, told HRI that when a member calls for help in finding a specialist, an Accolade health assistant will find out why the member wants to see a specialist, determine whether a primary care visit will suffice, conduct the search for the proper provider, help prepare the member for the appointment and, depending on the circumstance, follow up with the member after the appointment.
Deflator #3: The high-performance network
Employers are looking to high-performance networks after years of selling employees on HDHPs. Employees’ increased interest in plans other than HDHPs and their willingness to select a plan with a limited choice of doctors or hospitals make high-performance networks, which trade lower costs for a limited provider network.
In a recent HRI survey, 64 percent of respondents with employer-based coverage who are enrolled in an HDHP said they would select a non-HDHP next year, even if it meant paying a higher premium. Forty-four percent of consumers with employer-based insurance surveyed by HRI said they would select a health plan with a limited choice of doctors or hospitals under certain circumstances, such as lower monthly premiums, lower deductibles and access to quality providers.
Employers increasingly are implementing or considering performance-based networks created and maintained by a health plan or are contracting directly with providers or accountable care organizations (ACOs). Employers that say they have implemented a performance-based network increased by 267 percent since 2014, while those saying they have implemented direct contracting increased by 80 percent. Consumers are interested. Of those 44 percent surveyed by HRI who are willing to limit their provider choice, nearly all said they would do so if the providers were high quality.
Many providers are positioning for high-performance networks. Sixty-three percent of provider executives surveyed by HRI in 2017 said they plan for their organization to be included in a narrow network plan in the next five years, and 59 percent said they will engage in direct-to-employer contracting in the next five years. Providers’ capacity to engage in high-performance networks should continue to expand as hospitals and health systems consolidate and physicians increasingly are employed by hospitals and health systems.
The healthcare market has seen significant deal activity in the last year.
Any meaningful changes to the existing healthcare system will take significant time and require capturing and integrating data, developing new capabilities and hiring new staff. So it’s too early to measure these potential healthcare system disruptors’ impact. They may have a deeper understanding of consumer experience and behavioral data than traditional healthcare companies do. The disruptors aim to bring best practices from other industries to create a more streamlined patient experience and better outcomes. Whether they also can achieve cost savings will depend first on their ability to successfully integrate, and then on whether they can effect lower prices.
PwC Health Research Institute report (38 pages):
By Don McCanne, M.D.
Employer-sponsored plans were the sector of health care financing that the Affordable Care Act (ACA) was designed to protect. Although the rate of increase in health care spending has declined from double digits since the enactment of ACA, spending is still increasing at 6 percent – twice the rate of inflation. Since these increases are not sustainable, employers are not standing still.
There is much in this report, but perhaps the greatest interest will be found in the eight paragraphs excerpted above – under “Deflator #2: Care advocacy” and “Deflator #3: The high-performance network.” The traditional relationship between patients and their health care professionals is being displaced by the medical-industrial concept in which physicians, nurses and other professionals are relegated to the workforce while disruptors take control of the reins.
It doesn’t have to be this way, but I suspect that most physicians will be relegated to a subservient role unless they are willing to comply with the will of the disruptors by becoming transformed from princes into frogs – Frog Kings, that is.
(Grimm Brothers – The Frog King – https://germanstories.vcu.edu/grimm/frog.html)
Wouldn’t it be better to take control by fixing Medicare and then expanding it to take care of everyone. Then we would spring loose the bands on our hearts.
Obscure? Not really.
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