Higher costs for healthcare may prompt providers and patients to change behavior

Health care spending is set to increase after a five-year contraction, according to the auditing giant PricewaterhouseCoopers.

In its annual Medical Cost Trend report, PwC predicts overall costs will rise 6.8 percent in 2015. That uptick is far less than the double-digit increases of the late 1990s and early 2000s, but it represents a change from recent years.

The increase is not necessarily bad news for consumers and employers. The PwC report indicates that the uptick might be a precursor for lower healthcare costs.

The auditing firm based its prediction on interviews and modeling. PwC factors in per-capita health expenditures for large, self-insured employers and private insurers when defining medical costs. By contrast, the U.S. government includes costs for programs such as Medicaid and Medicare when measuring overall health spending. The PwC report tries to strike a balance between overly pessimistic and too-optimistic predictions made by industry insiders.

Drug prices and health care costs
The report cites rising specialty drug prices as one of the main culprits behind the higher costs. New specialty drugs to treat chronic and rare illnesses can range from a few thousand dollars a year to upwards of $100,000 for a single patient. In addition to higher drug prices, improvements in the economy and expanded coverage mandated by the Affordable Care Act are contributing to rising costs as well, the report says.

Employers intend to combat rising costs by offering employees high-deductible plans—a trend that has been accelerating in recent years. Plans with deductibles of several thousands of dollars force workers to pay for routine medical costs out of their own pockets. Employees also end up picking up more of the tab for hospitalizations and expensive treatments.

When health plan members are exposed to the real costs of their health care, they tend to opt for fewer tests and routine procedures. In other words, according to the report, “The prevalence of high-deductible health plans is spawning a new class of health care shoppers: price sensitive and willing to consider that less may be more.”

Speeding efficiencies
Health care price shopping is just one of the reasons the 2015 increase may not be all it’s cracked up to be. Another is what the report identifies as “systemness.” More than ever, large health systems and care teams are working together to eliminate redundancies, which should help offset higher costs.

The final reason that PwC expects a slowdown in net growth is due to something known in the industry as “risk-based payments.” Many insurance companies are making more of their payments to health systems that are risk-based, which means they are “holding physicians and health systems financially responsible for patient outcomes.” If its predictions hold, PwC says the triple threat of price sensitivity, systemness, and risk-based payments could hold net cost increases to just 4.8 percent — 2 percent shy of the total rise — in 2015.