The healthcare industry is in a transformational period. The rising use of retail clinics, MACRA, population health efforts and the Medicare Part B demonstration are but a few examples of disruptive conversations being had in board rooms. Yet, all of these discussions are underscored by the one topic underlying most business conversations: the almighty dollar.
There’s been plenty of digital ink given this year to the costs surrounding the industry. Just last week, a new Kaiser Family Foundation report outlined how the cost for the most popular ACA plan – the silver plan – is expected to rise on average 10-11% next year. Healthcare costs are generally expected to increase each year but, for context, the average silver plan increased an average of about 5% the previous year, according to the report.
However, a new PricewaterhouseCoopers’ (PwC) report stated while health prices are increasing, they are being tempered by the demand for value. PwC’s Health Research Institute (HRI) projects the medical cost trend – the projected percentage increase in the cost to treat patients from one year to the next – won’t increase or decrease next year but will stay the same as 2016: a 6.5% growth rate for 2017.
The report shows there's a push and pull between healthcare services utilization and narrow networks focusing on value that could shift the medical cost growth rate in future years. "When medical growth outpaces general inflation, a flat trend is not good enough," the report states.
“As a result, 2017 will be a tough balancing act for the health industry,” the report states, adding, “Healthcare organizations must simultaneously increase access to consumer friendly services while decreasing unit cost. Employers, worried that this current trend is at an inflection point that could turn back up, will demand more value from the health industry.”
HRI highlighted four factors that will influence the 2017 medical cost trend.
The Inflators: Convenient care & Behavioral health
Convenience comes at a price: Readily accessible, convenient care such as care found in retail clinics has led to higher healthcare utilization. As HRI found, 88% of consumers said they are likely to seek treatment at retail clinics. With more options, individuals who may not have sought care are now using care services. A March Health Affairs study found 58% of retail clinic visits for low-acuity conditions represented new utilization.
"While this may reduce costs down the road through improved overall health and wellness, the increased utilization of convenient care will be a main medical cost inflator for the foreseeable future," HRI stated. To wit, the Health Affairs' study noted retail clinic use was associated with an increase of $14 per individual annually in healthcare spending.
Pent-up demand for behavioral health increasing near-term spend: "Employers are much more interested in behavioral health," Ben Isgur, director, PwC Health Research Institute at PricewaterhouseCoopers, told Healthcare Dive. "They’re starting to see the connection between behavioral health and their employees’ total health. There’s a recognition that we have to treat the whole body and the brain is an organ like any other organ and should not be ignored."
This, in addition to a regulatory push to help individuals with mental health issues get the care they need, leads to increased utilization of healthcare services. Between 2005 and 2013, the share of employer health spending related to mental health rose from 5.2% to 6.2%, according to HRI. Expanded access will inflate next year’s healthcare spending growth. However, it may help manage costs in the long-term, as behavioral health is linked to many other health issues.
The Deflators: High performance networks & Pharmacy benefit managers
We’re going to see more forceful network strategies: Isgur notes the end of high deductible, high cost-sharing plans are nigh. "That strategy has kind of run it's course," he says, adding, "Employers are telling us that they can’t push any more cost-sharing down to their employees."
HRI believes high performance networks will be the next big strategy to control spending. This strategy, which employs value-based outcomes, competitive pricing and an allegiance to high quality, does impart fewer choices for employees but could reduce costs by as much as 35% compared with broader, more inclusive networks, Isgur notes. Today, he says, about 9% of employers have high-performance networks, almost double to that of 3% two years ago. In addition, the report finds 43% percent of employers are considering implementing high performance networks in 2016, up from 37% the prior year.
Pharmacy benefit managers (PBMs) get aggressive: "With increased appetite from employers to narrow their formularies to one treatment option, PBMs are using competition between products to more aggressively negotiate drug costs," according to HRI. "Reflecting the demand for value, the future of PBM contracting points toward paying for results and cures, not fee-for-service, around drug costs."
What does it mean for you?
For healthcare providers, the report advises three topics for consideration:
- Partner with insurers - "Focus on initiatives to reduce the unit cost of providing services while partnering with insurers to manage utilization to ultimately increase market share," the report states.
- Jump on the convenience train - The report advises providers to up their retail clinic and telemedicine game to "avoid fragmenting patient care." If such efforts aren't viable, partner with existing retail clinics to direct more complex care to hospitals.
- Mix it up with PBMs - Providers should work with PBMs to identify higher-value treatments and help with medication adherence.