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A repeat of the +6.5% cost trend indicates that medical costs are still rising above inflation
The annual Medical Cost Trend: Behind the Numbers report, from the PwC Health Research Institute projects that the same trend in 2016—6.5% growth—will be seen in 2017. The study authors point out, however, that since the trend is still well above base inflation (a couple percentage points), the pressure to lower healthcare costs will remain in place. The PwC data pertain only to commercially insured patients which, at 155 million, are roughly half of the US population.
“Trend,” as conventionally defined, is the combination of price and utilization. Over the past several years, PwC sees a flat or declining utilization (the publicly insured are not included in this population base), and significant increases in price—however, at a lower rate than in earlier years. “Compared with the past six decades, healthcare costs appear to be in a prolonged period of relatively low growth: The average trend from 1984 to 1994 was 10.0%; from 1994 to 2004, 7.9%, and from 2004 to 2014 (a time that includes the Great Recession and reflects fewer people enrolled in employer plans), just 4.2%,” says PwC.
Health costs are also analyzed by type: physician; inpatient; outpatient; pharmacy (drug); and “other.” For 2017, the largest component will be physician costs, at 30% of total; pharmacy is at 17%. Compared to a decade earlier (2007), drug costs have risen by three percentage points—the same increase as outpatient costs; physician costs have dropped by six percentage points, and inpatient costs have stayed the same.
Looking ahead, PwC sees two cost “inflators”—increased use of retail clinics and outpatient services, and increased spending on behaviorial health—and two “deflators”—so-called “high performance” health networks that provide a narrower range of services and the opportunity for outcomes-based reimbursement; and “aggressive” PBMs. “Pharmacy benefit managers are aggressively negotiating drug costs, in part, because their employer clients have more of an appetite for narrow formularies, and, in part due to public and political pressures to hold down drug prices. When there is competition, PBMs can win bigger rebates that act as a counterweight to higher drug spending,” says PwC.
PwC advices life sciences companies to discuss new products with insurers and PBMs before they come on the market. “Patients are more likely to have immediate access to new drugs if insurers have clearly stated policies when drugs arrive on the market. Health plans will put up less resistance to new products if they can budget for them. This process will go more smoothly when drug manufacturers have already made the case that new products are worth the price.”
The full report is available here.