Report Projects Increased Healthcare Costs Again Next Year

Sarasota, FL (WorkersCompensation.com) – Healthcare costs are projected to increase significantly again next year, according to the latest report from PwC Health Research Institute.

Each year, the Health Research Institute (HRI), a healthcare division of the global analytics and consulting company PwC, identifies specific trends that drive costs, and then projects the change to employer healthcare costs for the coming year. The report is based largely on surveys and interviews with healthcare plan actuaries that analyze statistics and then uses that information to calculate insurance risks and premiums. Participants in the surveys are asked about the trends they have experienced, and the factors driving those trends. This year’s report includes results from surveys as late as May 2023.

Overall, the PwC report estimates that healthcare costs will increase by 7 percent, which represents a continuing trend from 5.5 percent in 2022, and 6 percent in 2023. While the projected growth is due in part to inflation and increased costs from drugs and staffing shortages, payer actuaries indicated that they are experiencing more pressure from providers in the contract negotiation process. 

According to reports earlier this year, factoring in inflation, physician reimbursement has decreased by 26 percent since 2001. It’s not uncommon for providers to negotiate their contracts for five or more years, which basically results in going without a raise for the length of contract, or at least after the last built in escalator which can last multiple years.

Wedged between unmoving reimbursement, and increased administrative burdens and costs, providers are now pushing back in their proposals to payers, according to the PwC report. Not only are payers expecting shorter contract lengths, but rate increases as well. 

To further complicate matters, provider acquisitions increased during the pandemic. According to the PwC analysis, the percentage of physicians employed by hospitals or corporations increased by 62 to 74 percent. Consolidation can impact access to care, but also offers providers more bargaining clout in the contract negotiation process. The analysts indicate however that larger providers groups and health plans are focusing more on value-based care, which has shown better cost management, and lower overall costs. Approximately 60 percent of healthcare payments in 2020 referenced some form of quality and value component. The total represents an increase from 38 percent in 2015.

Another big item that is predicted to drive costs according to the report is drug pricing. Analysts from the PwC report indicate that they do not expect pharmacy costs to lower any time soon, between the rising costs of new drugs, price increases in existing drugs, and accelerated approvals of new cell and gene therapies. While the costs for biosimilar drugs are around 50 percent lower, even with new drugs coming on the market to lower costs, the analysts predict the lower costs will not be strong enough offset the other drivers impacting the expected overall increase in healthcare costs.  

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