Off-setting inflationary and deflationary factors will hold growth of year-over-year medical service costs flat again in 2017, according to PricewaterhouseCoopers.
A PwC report pegs growth in the cost of medical services next year at 6.5%, which is the same level of cost growth that PwC predicted for this year.
The medical cost trend report, released Tuesday, was prepared by PwC's Health Research Institute and applies to about 155 million Americans in the employer-sponsored insurance market.
Medical cost trend is defined as the forecasted annual percentage hike in the costs of treating patients. The cost trend has been moving steadily lower since 2007, with the exception of one year, 2015.
"The forces that increase health costs are being tempered by a demand for value in the New Health Economy. Compared with a period of double-digit trend growth in the last decade, flat growth may feel like a win to health industry leaders," the report says.
It identifies two primary inflationary pressures on medical service costs next year, both of which are expected to boost utilization:
- Expansion of retail service locations such as urgent care centers, and
- Increased access to behavioral health services
While treating patients in retail locations is driving services to less costly settings, convenience is expected to drive service utilization higher.
"Clinics could be drawing people who may have forgone care in the past, or they could be leading some to seek care in more than one place. Even if higher use of these alternative sites reduce overall spending in the future, the savings may not reduce the short-term cost of more visits."
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A spike in behavioral health service utilization next year could lead to similar short-term pain and long-term gain in annual medical costs, PwC suggests.
"A raft of new efforts aimed at enforcing the Mental Health Parity and Addiction Equity Act of 2008 are under way to make it easier to get care… As these changes go into effect, they will unlock pent-up demand, inflating medical cost trend in the short term, but should also help reduce costs in the long term."
In terms of deflationary pressures, analysts identify a pair of factors expected to cut the costs of medical services next year: more aggressive efforts by pharmacy benefit managers (PBMs) to drive down drug costs, and growth of narrow provider networks.
The emergence of competition in the specialty drug market such as competing medications for treating hepatitis C is among the factors expected to help PBMs to contain spending on drugs next year, the report says.
"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."
Next year, employers are forecast to step up their efforts to deploy narrow provider networks as a cost-containment strategy, the report says.
3 Strategies
"As more employees push back against high cost sharing due to their inability to pay their deductibles, employers are exploring other ways to control costs, such as high performance networks that have more limited provider choices and may feature outcomes-based payments. Forty-three percent of employers are considering implementing this type of network in 2016, up from 37% the prior year."
PwC suggests three strategies for healthcare providers to respond to medical service cost trends next year: establishing partnerships with payers such as deals that generate shared savings, embracing retail clinics and telemedicine to boost convenience for patients, and collaborating with PBMs to maximize the value of drug treatments.