Medical and prescription drug costs are projected to increase 6% in 2019, a rate that will outpace both inflation and wage earnings (PWC’s Health Research Institute). Several factors impact this rising trend (see Figure 1)—some driving cost increases and others helping to deflate them. Let’s look at the components impacting medical and Rx trends.
There are traditional inflators, like more expensive technology and the aging population. I won’t cover those. Instead, I’ll touch on the ones that you may not know about from the PWC report.
Increased access to care. We have so many more options to seek care—urgent care centers, retail clinics, and Smart phones—which increase utilization of healthcare services. While utilization is increasing, employers hope that overall costs will decrease from the convenience of less costly care settings.
Hospital and health system mergers. Hospital and health system mergers increased 13% from 2016 to 2017. That included 10 mega-mergers of sellers with at least $1 billion in annual revenue. Higher prices have resulted, at least in the short-run.
Physician consolidation and employment. More physicians, especially those within the first 10 years of practice, prefer to be employed rather than practice independently. This has also increased prices, especially in highly concentrated markets, where physicians charge 14-30% higher prices than their non-metropolitan counterparts.
Read my previous blog, The Impact of Hospital Mergers on Healthcare Prices, to learn more.
The 2018-19 flu season. This year’s flu season is expected to be less severe than last season, where hospitalizations, mortality, and prevalence were high.
Care advocacy. Employers and health plans are offering advocacy programs to help members manage their high deductible health plans and better navigate the healthcare system. Services include cost estimating and help analyzing treatment options. The successful attribute of an advocacy program is member engagement, so education is a major component to consider before implementation.
Physicians embrace advocacy programs as a way to help coordinate care and improve outcomes for their patients (see Figure 2).
High performing networks. The number of employers implementing high performing networks has increased 267% since 2014 (see figure 3). They are contracting with health plans, accountable care organizations (ACOs), or directly with providers to offer these limited provider networks that provide higher quality of care.
Another Point of View
Segal Consulting issued a report asserting that price inflation is the leading cost driver of both medical and pharmacy trends, not utilization. Segal also blames network-negotiated reimbursement rates as a cause of medical inflation (see Figure 4).
Segal projects that prescription drugs will trend closer to medical trend levels for all drugs but specialty pharmacy. One of the reasons prices are trending downward is the lack of blockbuster drugs entering the market this year. Closer scrutiny of the industry and of pharmacy benefit managers (PBMs) is also helping to keep costs in check.
Specialty pharmacy accounts for 35% of total drug spend, and with limited alternatives available, it is expected to continue to rise (Segal). Figure 5 shows the trend forecast for the leading specialty therapies, by class, in the US in 2018-2019 (Statista). It takes utilization and unit costs into account. Inflammatory conditions are projected to grow the most, around 28%.
What Can You Do to Control Medical and Rx Spend?
Employers, health plans, PBMs, and others have been adopting strategies to bend medical and Rx trends from the double-digit growth experienced a decade ago. Arming yourself with data specific to your population will identify where your cost saving opportunities lie and what interventions will address them.
Read colleague Brandon Conroy’s blog, Current State of Health Benefit Strategies, to learn about what the strategies best performing employers are implementing.