Lower-cost healthcare options such as retail clinics and a decline in hospital readmissions are holding the projected increase in medical costs to 6.5%, a full percentage point lower than the 2013 projected rate, says PwC's Medical Cost Trend report.
As work to implement the Patient Protection and Affordable Care Act continues, a new report projects that for the fourth consecutive year, the pace of medical cost increases will slow.
Taking into account the spread of less expensive care options such as retail clinics and a decline in hospital readmissions, in 2014 healthcare cost are projected to increase by 6.5%, according to the Medical Cost Trend report from PwC's Health Research Institute [PDF]. That is a full percentage point lower than the 2013 projected rate.
The medical cost trend, which is a measurement of the inflation in the cost of medical goods and services from year to year, is of importance to employers and consumers because it influences the cost of health insurance premiums, Rick Judy, principal in PwC's Health Industries practice, said in a telephone interview.
While the economy continues to impact the healthcare industry, a number of new factors are identified as influencing the downward direction of healthcare costs in 2014. Some are related to the PPACA while others are structural changes introduced by the private sector:
Declines in hospital readmissions: New readmission penalties introduced by the PPACA take direct aim at waste in the health system, which is estimated to be as high as 30%. According to PWC Medical Cost Trend report, hospitals are already putting more effort and energy into preventing costly readmissions and it shows—hospital readmissions dropped by nearly 70,000 in 2012. That trend is expected to accelerate through 2014.
Use of non-traditional care sites: Consumers are increasingly drawn to retail clinics housed in big-box retailers such as Target and Wal-Mart. Convenience, lower cost, and the retail focus on consumer engagement all contribute to rising interest. In 2007, 9.7% of consumers had visited a retail clinic; by 2012 that number jumped to almost one quarter.
For a minor illness, such as a cold or the flu, the charge at a retail clinic would be around $76 versus $120 for a physician office visit, according to the PwC report. Judy expects retail clinics to expand into the care of to chronic conditions and chronic disease management. "That's a huge opportunity for the retail side."
High performance networks: Faced with high medical bills, employers are increasingly turning to nationally recognized physicians and hospitals to provide high-quality care at a lower price for certain specialized services. Even factoring in the cost of travel, early data suggests these high-performance networks can produce a 25% reduction in costs, the report notes.
During a session last week at the annual conference for America's Health Insurance Plans, Chris McSwain, vice president of U.S. Benefits for Wal-Mart, noted the company's high-performance relationship with the Cleveland Clinic for cardiac care and Mayo Clinic for transplantation, among others.
"We began by trying to raise the bar on performance. We looked at appropriate care and identified who could deliver the gold standard of care. It was a matter of raising our expectations of what the healthcare system can provide to our associates and their dependents."
High deductible plans: U.S. companies are increasing cost sharing with employees by offering plans with higher co-payments and deductibles. According to a PwC employer survey, 44% of companies are considering high-deductible health plans as the only benefit plan options they will offer.
"That shows us that high-deductible health plans are here to stay and really driving consumers toward building cost into their healthcare decisions," says Judy. He notes that there is still work to be done by both employers and health plans to education employees about these plans. "There's concern that patients may defer care, but most high deductible plans offer first dollar coverage for prevention services."
Judy says two factors are exerting upward pressure on healthcare costs—an increase in specialty drug costs and industry consolidation. Although generic drug use is at an all time high, he says approval of generics is slowing while higher-priced specialty drugs are poised to account for 60% of all government drug approvals by 2014. The report notes that approvals of new biologics "now outpace traditional therapies, and that pattern will continue in 2014 as research efforts target complex cases such as cancer."
Meanwhile mergers and acquisitions activity is approaching the level of merger mania of the 1990s. While industry consolidation can improve efficiencies by eliminating duplication, Judy cautions that it typically leads to higher costs. "They have the ability to control how consumers access the delivery of care."
Margaret Dick Tocknell is a reporter/editor with HealthLeaders Media.
