Major trends in healthcare spending and what providers need to know for the future

The Great Recession, slow economic recovery, landmark health reform law, innovative disruptors and cost conscious purchasers have provided the crosswinds in a tumultuous decade for U.S. healthcare.

Today, 10 years after PricewaterhouseCoopers' Health Research Institute began issuing its projection for the coming year's medical cost trend, the growth rate has slowed. A recent report from PwC's Health Research Institute — Medical Cost Trend: Behind the Numbers 2016 — projects U.S. medical inflation will dip to 6.5 percent in 2016, capping a 10-year trend of slowing employer medical cost trend growth in the employer-sponsored market. 

In a webinar hosted by PwC on major trends in healthcare spending, presenters explored findings from the medical cost trend report.

Presenters were Mike Thompson, principal, Global Human Resources Services, PwC; Rick Judy, a principal in PwC's Health Industries Advisory practice; Kulleni Gebreyes, MD, a director with PwC's Advisory services; Jim Prutow, a principal in PwC's advisory practice; and Ben Isgur, director of thought leadership at PwC's Health Research Institute. 

Presenters discussed major trends of the past decade, including more consumer cost sharing, better use of technology and more data and incentives to make health decisions. They also discussed factors affecting the growth rate in 2016, along with projections for healthcare spending over the next decade.

A 10-year perspective

When PwC's Health Research Institute made its first projection of healthcare spending, the growth rate for 2007 was nearly 12 percent. The trend ticked down in 2008 but remained high for the next four years — even in the midst of the Great Recession and slow economic recovery. PwC identified four trends behind the slowing spending growth.

  • The healthcare-spending trajectory has leveled off but is not decreasing. Private healthcare spending continues to increase faster than the economy despite steps taken to bend the cost curve, webinar presenters said. Efficiency has not always meant value.
  • Cost-sharing slows consumer use of health services. Since 2009, when HRI started keeping tabs on employer health plan design, the number of employers offering high-deductible health plans has grown almost 300 percent. Although consumers now think more about what services to use, this trend can also inhibit early diagnosis and result in more costly chronic care management, Ms. Gebreyes said.
  • Curtailing inpatient care lowers costs. More care is being shifted from hospitals to less expensive ambulatory centers, retail health clinics and physicians offices than in the past. This trend has led to a decrease in hospital inpatient prices.
  • The Patient Protection and Affordable Care Act has had minimal direct effect on employer health costs. In its cost trend report, PwC found that only 4 percent of employers saw a significant impact from the PPACA's employer mandate and even reporting requirements have not proven to be a burden to employers.

Factors affecting spending growth rate in 2016

Employer cost-shifting, greater use of virtual care, and more savvy consumers being guided toward cost-effective care will put downward pressure on health spending in 2016, according to PwC.

Although the PPACA has not greatly influenced health spending, its impending "Cadillac tax," a 40 percent excise tax on high-cost health plans some employers provide their workers, has businesses scaling back their plans and shifting more of the cost onto employees.

Another factor that PwC expects to put downward pressure on health spending is virtual care. Although technology has been enabling remote care for years, the trend is expected to expand significantly in 2016, according to PwC. A series of regulatory and financial actions are easing the way for expansion. In addition, barriers that currently prevent virtual care and telehealth across state lines are expected to fall.

PwC projects that new health advisors steering consumers to more efficient healthcare will put downward pressure on health spending. "New health advisers are sometimes competing, but more often partnering with, health insurers, providers and employers, to help individuals navigate the complex terrain of the health ecosystem," according to the firm. "Through the right tools, consumers can find out where they stand in terms of how much they need to pay for a specific service, at a particular setting. They are also informed on whether they have reached their deductible, and whether there are cash rewards for a particular setting."

The Next 10 years

In order for hospitals and health systems to continue bending the cost curve in the next 10 years, PwC recommends they consider the following.

  • Now is the time to make healthcare technology work
  • Patient engagement tools can make transparency initiatives successful
  • Innovation may lead to more affordable care options
  • Healthcare costs less when there is competition
  • Chronic diseases can be managed with healthier lifestyles

 

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35 financial benchmarks for healthcare executives

 

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