The Health Care Cost Trend for 2014

Health care spending is already slowing and is expected to dip even lower in 2014, according to a new report from PricewaterhouseCoopers.

PwC’s Health Research Institute projects that the rise in the health care growth rate will be 6.5% in 2014, down from the projected 7.5% for 2013. The Affordable Care Act and new models for delivering care are expected to press spending down more, according to the report.

“Health care organizations, hurt by a squeeze on reimbursements and what might best be described as a recession ‘hangover,’ have spent the past few years adapting to more modest growth rates,” according to HRI. “The industry will continue those efforts in 2014, including pushing care to locations and personnel that cost less.”

With less personal wealth, individuals, with more financial responsibility for their health care, are delaying procedures. According to a PwC survey, 17% of employers only offer their employees a high deductible health plan. Reports have shown that consumers make more cost-conscious decisions when they have to pay more themselves for their health care.

Plus, care is moving from hospitals, which are costly, to affordable retail clinics and mobile health options. While emergency room visits can cost $499, a retail clinic is $76 and an e-visit is as low as $39, according to HRI.

Also, hospitals are working to keep down readmissions, which are expensive, because of penalties put forth by ACA. Readmissions dropped by nearly 70,000 in 2012 and should accelerate in 2014, according to HRI. As of October 2012, the maximum readmission penalty is 1%, but that is set to increase to 2% this year and 3% in 2014 with the potential for further expansion in 2015.

However, there are two factors that will increase costs in 2014. Generic medicines have brought down health care spending, but new, expensive complex biologics will nudge spending up. Before 2010, the FDA was approving far more traditional drugs than specialty drugs, but since then the situation has reversed. In 2014, specialty drugs could account for up to 60% of new drug approvals.

HRI reports that health industry consolidation is up 50% from 2009 and, in some markets, higher prices will follow as that activity continues. In fact, mergers can increase prices up to 20.3%, according to HRI.