Medical costs to rise 7% next year: report

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Patient treatment costs are expected to rise by 7% in 2024, according to a report from the Health Research Institute (HRI), an arm of the accounting and management consulting firm PwC.

The major drivers of the projected increase are general inflation and increases in pharmaceutical prices, the report says. These will be somewhat offset by the impact of biosimilars coming to market and more care being provided in outpatient settings.

The impact of inflation will be felt primarily through higher labor costs among hospitals and other health care institutions, leading them to seek higher reimbursement rates from payers. The growing shortage of clinicians will add to cost pressures on provider institutions.

“The ability of health plans to manage price increases during contract renewals will be a key factor in determining the impact of inflation in the coming years,” the authors state. The report’s predictions are based on interviews and surveys conducted with executives at health plans covering 100 million employer-sponsored group members and 10 million Affordable Care Plan marketplace members.

Additional inflationary pressures are expected to come from rising median prices of new pharmaceuticals along with higher prices for those already on the market. It cites data from the U.S. Food and Drug Administration’s Center for Drug Evaluation and Research showing the median annual price for approved new drugs increasing from $180,000
in 2021 to $222,000 in 2022.

Drug price inflation is made worse by the FDA’s approving greater numbers of high-cost drugs, the authors say, noting that 9% of drugs approved in the years 2008-2013 cost $150,000 or more annually, compared to 47% of those approved in 2020-21.

“New drugs typically exist in the market for 15 years on average without competition from generic drugs, along with general increases in drug prices over time,” they note.

A counterweight to the overall trend of rising care prices is the growing availability of biosimilars. Prices for these, they say, are on average 50% less than the drugs for which they can substitute. They point to the 2023 launch of adalimumab biosimilars as a milestone, adding, “The adoption of biosimilars to specialty drugs has substantial potential to manage the rising drug cost.”

Also helping to offset overall price increases is the growing shift away from high-cost inpatient care to lower-cost outpatient and emergency room settings. “With the increased demand for outpatient surgeries, home-based services and virtual care, the healthcare delivery system has reached a new phase,” they write. “With lower-cost in-person settings and virtual delivery setting the path going forward, the overall cost of care is expected to decline, helping plans offset the trend inflators.”