Medical Cost Trends for 2019

The employer medical cost trend has plateaued. The PwC Health Research Institute’s annual report projects the growth of medical costs in the employer market for 2019 to be 6 percent, the same as they were in 2018. Cost reduction will now start shifting to prices. PwC examines the opportunities and obstacles that will impact the industry and how this can be used as a guide for your business strategies in the coming year.

Transcript

1. Medical Cost Trends for 2019: Behind the Numbers Katherine Kohatsu, Partner
2. 2 Hello Katherine Kohatsu Partner PwC Health Industries Advisory Government Programs Center of Excellence katherine.kohatsu@pwc.com
3. 3 Agenda • 2019 medical cost trends • Impacts to risk bearing entities • How payers can be positioned to win • Steps you can take
4. 2019 medical cost trends
5. 5 Medical cost trend fell for 7 years before stabilizing at +6% The employer medical cost trend has plateaued, shifting from the wild swings and peak double-digit trends in the 2000s; however, costs continue to grow as a percentage of total employee compensation, making even the current trend unsustainable as employers continue to struggle to contain employee coverage costs. *PwC Health Research Institute revised its estimates for 2017 and 2018 down 0.5 percent each from 6 and 6.5 percent, respectively, in the 2018 report. This revision was based on health plan interviews conducted by HRI, indicating that medical cost trend likely was lower in these two years than HRI had projected. Source: PwC Health Research Institute medical cost trends 2007-2019
6. 6 Healthcare spending continues to grow as a share of the US economy and of total employee compensation Note: Data have been adjusted for inflation. Source: PwC Health Research Institute analysis of CMS national health expenditure data and Bureau of Labor Statistics data
7. 7 Recurring forces continue to affect the medical cost trend in 2019 Perennial factors impact medical cost trend year over year, but risk bearing entities are also impacted by short-term pressures that can change over time Perennial Factors Healthcare-Specific Drivers: Economy-Wide Drivers: Medical technology and Innovation Drug Spending Government Regulation Payment Models Social Factors and Lifestyle General Inflation Demographics Projected Inflators and Deflators between 2018 and 2019 Care Anywhere 1 Flu Impact 1 Provider Megamergers 2 Care Advocacy 2 Physician Consolidation and Employment 3 High Performance Networks 3
8. 8 2019 Inflators – Projected spend increases from 2018 Sources: 1IBISWorld, “IBISWorld Industry Report OD5458: Urgent Care Centers in the US,” February 2017; 2PwC Health Research Institute analysis of PwC Health and Well-being Touchstone survey for 2014 and 2018; 3PwC Health Research Institute consumer survey, winter 2018; 4Ibid. 5PwC Health Research Institute analysis of Herfindahl-Hirschman Index for hospital markets; 6Largest hospital and health system deals announced in 2017 and early 2018; 7PwC Health Research Institute provider executive survey, 2017; 8Physicians Advocacy Institute, “Updated Physician Practice Acquisition Survey Study: National and Regional Changes in Physician Employment 2012-2016,” March 2018; 9Medicare Payment Advisory Committee, “Report to the Congress: Medicare Payment Policy,” March 2018; 10PwC Health Research Institute clinician survey, 2018 1. Care anywhere and everywhere • 32% growth in urgent care establishments expected from 2014 to 20191 • Employers are broadening health & wellness offerings – 38% offered executive health exams in 2018, up from 24% in 20142 • Consumers are seeking care outside of the doctor’s office3 - 60% have used urgent care - 25% have used a retail clinic - 11% have used a video visit • Consumers are willing to seek care in non-traditional ways if they cost less - 45% would have stitches or staples removed at a clinic in a retail store or pharmacy4 3. Physician consolidation and employment • 42% of physicians were employed by hospitals in 2016, up from 26% in 20128 • Cost of a common office visit9 - Physician office setting - $74 - Hospital outpatient setting - $158 • Employment trend expected to continue, driven by physicians in first 10 years of practice10 - 74% - interest in employment by multi-specialty group - 82% - interest in employment by single specialty group - 79% - interest in employment by hospital or health system 2. Provider megamergers • HRI estimates 93% of most metropolitan hospital markets will be highly concentrated by 20195 • 115 health system and hospital mergers announced in 2017, up 13% from 20166 - 10 mega-deals involving sellers with net annual revenues of ≥ $1 billion • Provider executives expect to merge with or acquire facilities in the next five years7 - 62% - Retail clinics - 60% - Home health agencies - 60% - Other long-term care facilities
9. 9 2019 Deflators - Projected spend increases from 2018 Sources: 1PwC Health Research Institute clinician survey, 2018; 2PwC Health Research Institute analysis of Centers for Disease Control and Prevention data, Medical Expenditure Panel Survey data, and Healthcare Cost and Utilization Project data ; 3PwC Health Research Institute analysis of PwC Health and Well-being Touchstone survey for 2016-2018; 4Note: Physicians were asked to select the top two areas of greatest impact. PwC Health Research Institute clinician survey, 2018; 5PwC Health Research Institute analysis of PwC Health and Well-being Touchstone survey for 2014-2018; 6Ibid. 7PwC Health Research Institute consumer survey, winter 2018 1. Flu impact • 78% of primary care physicians saw an increase in appointments in the prior 6 months due to the flu; if they could not see the patient1: - 51% directed patient to urgent care - 36% directed patient to the emergency room - 10% directed patient to a retail clinic • Assuming the 2018-19 flu season returns to the average, lower utilization and expenditures could deflate 2019 trend by 22 basis points2 3. High-performance networks • 11% of employers had implemented performance-based networks in 2018, up from 3% in 20145 - 34% considering in 2018 • 9% of employers had implemented direct contracts with providers or ACOs in 2018, up from 5% in 20146 - 23% considering in 2018 • Consumers with employer-based insurance are willing to consider plans with limited doctors & hospitals7 - 44% would consider a plan with limited doctors & hospitals - 64% of those on an HDHP would select a non-HDHP even if premiums are higher 2. Care advocacy • 72% of employers now offering health advocacy programs, up from 57% in 20163 • Providers are optimistic, seeing potential impact from health advocacy services as follows4: - 42% - improved quality outcomes (including increased drug adherence) - 38% - improved patient experience - 26% - decreased costs from increased care efficiency
10. Impacts to risk bearing entities
11. 11 Risk bearing entities are addressing medical cost trends in a variety of ways 4. Disaggregating From Traditional Channels Reduce the middleman • Amazon, JP Morgan, Berkshire Hatthaway • Mayo Clinic and Walmart Centers of Excellence • PwC and Memorial Sloan Kettering’s MSK Direct • Amazon and PillPack Non-traditional players • Apple’s ECG Tech • PwC’s Bodylogical 3. Owning the Value Chain Payers collaboaring with providers • Cigna and the Weill Cornell Physician Organization • UnitedHealth and DaVita • Humana and Concentra Tightening relationships with PBMs • Cigna and Express Scripts • CVS and Aetna • Centene and RxAdvance 2. Building Economies of Scale Expanding markets • Aetna and Humana • Anthem and Cigna • Centene and Fidelis Care • Ascension and Presence • UNC Health Care and Carolinas HealthCare Consolidation and expansion into adjacent markets • CivicaRx 1. Identifying Cost Saving Opportunities Finding efficiencies within own operations • Cost effective sites of service • Advanced analytics • Utilization management • Population health management • Telehealth expansion • Consumer advocacy
12. How payers can be positioned to win
13. 13 In order to win in the market, payers should incorporate a combination of traits into their growth strategies depending on how they want to impact their populations and address medical cost trends Trait RBE approach Consumer Advocate 1. Identifying cost savings opportunities Bridge Connector 3. Disaggregating from traditional channels 4. Owning the value chain Lean Operator 1. Identifying cost savings opportunities – admin only Analytic Sensor 2. Building economies of scale 4. Owning the value chain Care Integrator 4. Owning the value chain Source: PwC Health Research Institute analysis
14. 14 Health insurers that thrive in the future will recognize that a one-size-fits-all approach won’t sufficiently meet consumers’ needs or expectations and will tailor their approach accordingly Source: PwC Health Research Institute analysis of 2013 Medical Expenditure Panel Survey and Health Research Institute consumer survey, 2016 Consumer group US population in category Health insurer of the future model that fits best Frail elderly Over the age of 75, living at home, facing health issues related to falls or dementia and suffering generally poor health. 5.9M • Bridge Connector • Care Integrator Complex chronic Have one or more chronic diseases affecting multiple body systems and often requiring complicated disease management (e.g. CHF, COPD, DM with end-stage renal disease). 24.8M • Bridge Connector • Care Integrator Chronic Have problems affecting a single body system such as hypertension and require uncomplicated disease management. 175.1M • Bridge Connector • Care Integrator Mental health Mental illness is primary health issue versus comorbid condition. Face depression and mood disorders, post-traumatic stress disorder, addictions and suicidal ideations. 9.4M • Bridge Connector • Care Integrator Healthy families Households with healthy dependent children under the age of 18. 65.4M • Consumer Advocate • Care Integrator • Lean Operator Healthy adult enthusiasts Value a regular physical, wellness/coaching services, and get recommended screenings. 22.6M • Consumer Advocate • Analytic Sensor • Lean Operator Healthy adult skeptics Generally avoid interacting with the health system and are less likely to have health insurance than other consumer groups. 12.5M • Consumer Advocate • Analytic Sensor • Lean Operator
15. 15 Health insurers recognize they will need to increase collaboration with providers and better engage consumers to succeed moving forward Source: PwC Health Research Institute health insurer executive survey, 2016-2017
16. 16 While insurers to date have largely invested in more traditional technology capabilities such as cybersecurity and data analytics, they are considering investments in some emerging technologies in the next five years Source: PwC Health Research Institute health insurer executive survey, 2016-2017
17. 17 In the next five years, most health insurers will focus on supplying providers with data insights to manage the health of populations Source: PwC Health Research Institute health insurer executive survey, 2016-2017
18. Steps you can take
19. 19 It’s the prices – Demonstrating value is critical Healthcare providers Payers and employers Pharmaceutical and life sciences Consider how changes in reimbursement and innovation are impacting where and how care is being delivered (i.e., retail and virtual care) and evaluate opportunities to offer easy access to different levels of care. Differentiate and reduce waste by offering value-added services such as clinical decision-making tools and companion diagnostics which personalize treatments for patients. Offer a value plan option with a limited network emphasizing quality, price transparency and consumer satisfaction.
20. 20 Make room for advocates – consumers and employers want their own representation Healthcare providers Payers and employers Pharmaceutical and life sciences Collaborate with health advocates which may help improve outcomes metrics as well as coordinate non-clinical, social factors that impact patients’ overall health. Prepare for increased demand for outcomes-based pricing, differentiated patient experiences, and real world evidence as advocates encourage patients to select the most cost-effective treatments with the greatest proven outcomes. Leverage health advocates to enhance existing disease management and care management programs and encourage engagement through targeted communications.
21. 21 Consolidation is not enough – creating a better customer experience will be essential Healthcare providers Payers and employers Pharmaceutical and life sciences Prioritize the customer experience following a merger and demonstrate the additional value delivered for any post-merger price increases. Consider adjusting sales tactics to align with a changing customer base with interests in both clinical and financial considerations. Prepare to proactively renegotiate contracts in advance of provider consolidations or acquisitions to manage rate increases.
22. 22 Be tech-enabled, but people focused Consumers and providers continue to have low levels of trust in insurers, a major barrier to overcome. Doing so will require that insurers focus on the fundamentals – delivering digital tools that are easy to use and rethinking core functions like prior authorization. Focus on the fundamentals to build trust 1 Consumers want to speak with a person when making health decisions. These interactions cannot be replaced by technology. The health insurer of the future should, instead, invest in technology that supports and enhances such interactions. Layer technology with human support 2 By supporting and automating processes like patient eligibility and prior authorization, insurers can relieve some of providers’ administrative burdens. Doing so will help insurers send the message that they are providers’ partners and will give providers more time to focus on their most important job: caring for patients. Help providers focus on delivering care 3
23. Thank You