Healthcare costs at 'new normal' but still outpacing wages, inflation
- Medical costs have seemingly settled into a "new normal" where increases have hung behind 6-7% for four years, a new report from PricewaterhouseCoopers' Health Research Institute (HRI) states.
- HRI expects a 6.5% medical cost growth rate increase for 2018.
- HRI's estimate is half a percentage point higher than last year's report. The organization posited the price of services should be evaluated to further bend the cost curve.
While medical cost trends are not expected to rise sharply, it's not a time to claim victory over the cost curve.
Even with net growth rate expected to hold at 5.5% for next year (due to likely changes in benefit plan designs), that's still growing faster than general inflation, Ben Isgur, director of HRI, told Healthcare Dive, adding that's outpacing wage growth for employees.
Inflation is one of the major medical cost inflators for next year, Isgur stated. In his research, he found that inflation affects hospitals' spending because as inflation rises, labor markets tighten while wage growth rises. "So much of a hospital or delivery systems' expense is labor costs," Isgur said. "We think inflation is going to have a big effect on medical cost trends in 2018," meaning delivery systems will have to address labor costs to slow growth even further.
HRI in part advises providers to consider assessing their labor skill mix as well as investing in care management to demonstrate their value to their communities.
"As labor costs continue to account for over half of providers' budgets, providers should consider how to make the most of their staff's skills and productivity," the report stated. Providers should look at how much time a physician is using to deliver care versus other staffers to get a sense of how to staff efficiently to maximize more expensive employee's time and productivity.
Interestingly, HRI offers consideration to "doubling down" on employing nonclinical staff, a category of jobs usually on the chopping block when considering personnel cuts. HRI argues such staff are critical to tamping down costs as case managers can provider greater care coordination and help prevent readmissions.
According to Isgur, virtual visits could be one means to make care delivery more efficient. Potentially, a physician delivering care by telehealth one day a week could increase the number of patients seen at an organization. He added telehealth can help providers out in another area HRI sees inflating medical costs next year: Decreasing high deductible health plans (HDHPs).
Only 28% of employers are considering offering HDHPs as the only benefit plan they offer in the next three years, according to PwC, down from 44% in 2014. Still, a Kaiser Family Foundation report found the average deductible for employer-sponsored health plans rose 12% for single coverage last year. In addition, the researchers found a 29% increase in workers that were covered by a health plan with a general annual deductible of $1,000 or more for single coverage since 2009 (51% in 2016).
While time will tell how many HDHPs will be offered next year, Isgur believes HRI's research predicts insurers will move toward more narrow networks, where provider performance for participation will be key. Telehealth could make care delivery efficient and optimal for narrow network participation.
A lot of the trends looking to bend the cost curve in the past focused on utilization, Isgur said, adding healthcare prices will be need to be addressed to soften further cost increases. Inpatient spending, according to PwC, has relatively flattened around 30% since 2008, while outpatient spending has increased 18% in that same time period, highlighting consumers' inclination to shop for prices at retail clinics, bedless hospitals, etc.
If the theory of decreasing HDHPs hold true, healthcare utilization likely will increase, and with cost trends holding relatively flat, prices are the next frontier for cost containment.
- Healthcare Dive 4 forces that will influence medical cost trends in 2017
- PwC's Health Research Institute Medical cost trend: Behind the numbers 2018
- Healthcare Dive 4 strategies for providers to collect on outstanding patient balances
- Kaiser Family Foundation Average Annual Workplace Family Health Premiums Rise Modest 3% to $18,142 in 2016; More Workers Enroll in High-Deductible Plans With Savings Option Over Past Two Years
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