A new PwC report projects the medical cost trend will remain high in 2026, driven by soaring drug spending and hospital expenses. As payers seek to strengthen utilization management, revenue cycle leaders should prepare for a tougher reimbursement landscape.
Health plans expect the growing medical cost trend to continue into next year, according to a recent report from PwC, with growth projections of 8.5% in the group market and 7.5% in the individual market for 2026.
The annual report identifies several inflationary forces driving medical costs higher, including spending on drugs and upward pressure on hospital expenses. The report could signal a turbulent year ahead with difficult payer negotiations and increased scrutiny on reimbursement on the horizon.
High-cost drugs are a primary driver
Pharmacy spending, particularly on high-cost specialty drugs like GLP-1s, is expected to be a significant driver behind high medical cost growth, according to the report. PwC expects 10% growth in this area.
This aligns with reports issued by payers earlier this year. For instance, Blue Cross Blue Shield of Massachusetts pointed to spending on GLP-1s when it announced an operating loss of about $400 million for the 2024 calendar year. Just five GLP-1 drugs accounted for more than $300 million of Blue Cross’ pharmacy spend in 2024.
"I don't see much changing in terms of the major drivers of rates — which are provider prices and drugs," Blue Cross CEO Sarah Iselin said at the time.
Payers and providers at a crossroads
Hospital costs are another significant driver behind projected medical cost growth. While year-end margins averaged 7% in 2019, that figure fell to 2.1% in 2024. And margins declined even further in the first quarter of 2025, according to the report. Much of this decrease can be placed on high labor costs and rising expenses for supplies.
Some outliers with double-digit margins have successfully passed rising costs onto commercial payers by increasing utilization and optimizing revenue cycles, according to the report. While PwC recommends payers strengthen utilization and payment integrity programs to combat the medical cost trend, this could be devastating for hospitals operating on razor-thin margins, which are also likely to be the ones most affected by impending Medicaid cuts.
Deflationary forces offer muted relief
While some forces are countering inflationary pressures, these are limited. For example, health plans have cited biosimilars as a leading cost deflator for the third year in a row, according to the report.
AI also holds the potential to contain rising medical costs should health plans effectively embed the technology into care management, pre-payment audits, and care coordination. However, because prices are contracted, they are often fixed for multiple years, and any productivity gains achieved through the implementation of AI are not likely to have a deflationary effect any time too soon.
In case there were doubts about it, the PwC report makes clear that the fundamental pressures driving medical costs higher will likely remain for the foreseeable future. Recommendations for payers include stronger controls and smarter use of data, including claims analysis, rate benchmarking and scenario modeling. Revenue cycle leaders will need to prepare for this with a proactive, data-driven approach of their own.
Luke Gale is the revenue cycle editor for HealthLeaders.
KEY TAKEAWAYS
Professional services firm PwC projects 8.5% medical cost growth in the group insurance market and 7.5% growth in the individual market.
The recommendation for payers is to strengthen utilization management, which could signal a tougher reimbursement landscape for revenue cycle leaders.
Revenue cycle leaders will need to respond with a proactive, data-driven approach of their own.