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Trends, Costs  in Healthcare

PWC: 2009 Study of Healthcare in US

Key Findings  (pdf file)

• The growth in medical cost trends for the private sector is expected to level off in 2009 following five years of deceleration. Costs are expected to grow 9.6% in 2009 compared with 9.9% in 2008.

Decelerators of cost growth in 2009:

-- Improved medical management of high-cost patients. Two-thirds of employers say they contract with disease management programs that focus on reducing and eliminating hospitalizations. For example, the number of cardiac procedures has been dropping largely due to improved adherence to medications and more coordinated discharge planning.

-- Generic substitution that continues to reduce costs.  However, fewer drugs will go off patent in 2009 than in 2007 and 2008.

Accelerators of cost growth in 2009:

-- The healthcare industry is in an era of booming construction to replace facilities and adjust to consumer demands.

Cost-shifting from the uninsured, Medicare and Medicaid to private payers continues to increase and will account for nearly one in every four dollars spent by private payers on hospital services in 2009.

• Employers will rely on prevention and disease management programs to temper costs in 2009 rather shifting higher levels of cost-sharing onto workers.

-- Only 38% of employers surveyed by PricewaterhouseCoopers said they expected to increase cost-sharing through plan design changes.

-- Wellness programs have become commonplace; two-thirds of employers are using them, and nearly half say they are somewhat effective at reducing costs.

-- Wellness programs aren’t merely a cost reduction tactic. Employers said these initiatives were nearly equally effective at boosting productivity, improving employee loyalty and demonstrating corporate responsibility.

-- Health plans, which are competing for a slowly eroding number of employer-based members, are increasingly focused on personalizing member experiences to attract and retain large corporate accounts. The effectiveness of consumer-driven tools and wellness programs is closely linked to maintaining those accounts and stifling cost growth.

• If there’s a recession in 2009, the economy is likely to depend even more on the health industry. During past recessions, healthcare has increased its portion of gross domestic product (GDP) and medical prices have risen faster than other prices.

Pressure to reduce medical costs for employees has led to some fundamental strategies such as cost-sharing, improved medical management, and substitution of lower priced treatments. Even so, medical costs are a concern as their rate of increase remains above the general inflation rate. The growth rate has tended to be cyclical. For the past five years, according to most measurements, growth in healthcare costs has been decelerating as shown in Chart 1. The employer cost index (ECI), net cost of private health insurance per capita (PHI) and the Kaiser Family Foundation’s estimate of employer premium trends have all followed a similar decline in growth since 2003.1

As shown in Chart 4, there’s been a drop in the number of new drugs coming to market, as measured by the FDA’s patent approvals of new molecular entities (NMEs) and therapeutic biologic licenses applications (BLAs). The number of patent approvals has remained low in the past five years, 2001 through 2006, at an average of 25 per year, compared to the average annual approvals of 36 in the previous five-year period, 2001 through 2006.

In 2009:  For 2009, offsetting trends are expected to keep the cost growth steady.

They are:

• Tighter medical management of high-cost cases

• Brand name drugs going off patent

• Healthcare construction booming

• Cost-shifting by hospitals

Burden placed on private payer:  has risen to 35% from 22% from 2000 to 2009. Since 2000 the portion that is uninsured has stayed nearly constant at 20%, while Medicare and Medicaid have risen from 2% to 13%.

Hospital construction has risen, but it is up to $30B in 2007 from $15B in ‘99.

Nearly two-thirds (63%) of employers surveyed by HRI said they are using disease management programs.  Designed to focus on high-cost patients with chronic diseases, disease management has become a common cost control strategy for employees with asthma, cancer, diabetes, cardiac disease and diabetes.

In many cases, employers are asking health plans to “carve in” disease management programs and tools; in others, payers are contracting with a variety of vendors, including specialty pharmacy providers and patient activation companies. The tools of disease management, such as online education, telephonic care management and physician education, have become increasingly sophisticated and personalized. 

Employers have found that the risk factors that lead to chronic disease are cumulative, as are the costs, and that a holistic focus on workers can lead to improvements in productivity and retention.

For example, these programs frequently employ nurses and other practitioners who emphasize drug adherence and care coordination. A common goal is to decrease unnecessary hospital days.