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Tag: Medical inflation

The Long and Short of Health Numbers

Screen Shot 2014-06-24 at 6.09.38 AMThe notable five-year contraction in healthcare spending growth comes to an end next year, but not in a way that marks a dramatic reversal—at least, not yet. The Medical Cost Trend: Behind the Numbers 2015 report released today from PwC’s Health Research Institute (HRI) projects a medical cost trend of 6.8% for 2015, up only slightly from the 6.5% projected for this year. Our analysis, which measures growth in the employer-based market, incorporates input from health policy analysts, industry executives, earnings statements, government data and actuaries from more than a dozen insurance companies, whose companies cover a combined 93 million members.

Much of this is simple and not surprising based on historical analysis: the healthcare “economic recovery” lags behind the broader economy. So we are now beginning to see the recovery—with more employed workers and more disposable income—loosen up spending on things such as doctor visits and diagnostic tests. Many Americans, after postponing care, are once again spending on their health needs.

Some underlying nuances in the health numbers are more complex and uncertain: greater total spending on health services is not the same as higher costs per person. Even as private health spending ticks upward, evidence reveals that structural changes over the past few years have produced greater efficiency in the $2.8 trillion US health industry. As with any evolution, there is uncertainty. Some of our big healthcare investments today are a financial gamble. Most notably, the burst of high-cost “specialty” drugs could result in lower treatment costs on chronic conditions in future years or signal the start of painfully expensive pharmaceutical bills.

The most durable long-term factors holding down costs are those that instill a new philosophy about care delivery.  For instance, health systems and hospitals striving for “systemness,” in which care teams seek to achieve more by working together. They are focusing specifically in two areas: streamlining administrative work and consolidating and standardizing clinical programs, which can provide higher quality care through consistent processes and outcomes.

With about 60% of hospital budgets spent on labor, personnel costs are a top priority. Since 2012, hospital employment growth has slowed and is projected to continue on this trend—evidence that providers are achieving improved efficiency with fewer resources.

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