Recent economic and regulatory developments have created a uniquely challenging environment for payers to manage healthcare spend, while maintaining access to high quality care. At Truven by Merative™, our Applied Analytics and Consulting team is committed to helping payers solve their healthcare challenges with healthcare analytics.It’s time to prepare for 2025! We’ll present original data and expert commentary on healthcare affordability trends, such as weight loss drugs and behavioral health, and provide perspectives on emerging issues that bear watching, including the evolving federal regulatory landscape.
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The cost of healthcare has risen significantly over the last few years, resulting in healthcare becoming less affordable for plans and members. Based on our MarketScan data, since 2018, the Allowed PMPY spend has grown 17% to an estimated $7,207 in 2022. On top of that, the largest cost drivers that we're seeing are prescription drugs and facility charges, which now make up over half of all medical spend. Year-over-year, prescription drugs are up almost 10% and facility charges, both inpatient and outpatient, are up 13%. Managing the rising cost of care is one of the many challenges payers continuously face, but its preparation for a perfect storm of inflation and physician shortages.
Inflation and rising cost of care
One of the biggest questions that we've been hearing from clients is when will inflation hit? So far, healthcare has been largely shielded from inflation. The Kaiser Family Foundation found that while in the total economy, total goods and services grew almost 8% through October 2022, medical spend only grew 5%. But, we expect this to change as inflationary cost increases flow through the healthcare system, from providers to insurers to employers, the timing of which will be based on contracting cycles.
Healthcare systems are grappling with workforce shortages and increased cost for clinical labor, medical equipment and drugs. The combination of these added costs are causing hospital systems to lose money under their current contracts. In turn, contract negotiations between payers and their network hospital systems will be vigorous.
Provider network consolidation
We’re also seeing provider systems consolidating, which will likely impact payer costs in specific geographic areas. At the same time, health plans are focused on demonstrating the value of these networks through improved efficacy, care coordination, and outcomes. As health systems focus on improved cost and quality of care, most payers are advancing various contracting options, such as bundled payments for specific services. These value-based care arrangements may become more attractive to address the cost impacts of inflation and consolidation.
Want to learn more about healthcare affordability? Watch our deep dive and hear our perspectives on high-deductible health plans, consumer financial wellness, specialty medication and pharmacy costs.
Healthcare access has been a focus of improvement efforts for many years, but there are new and intense challenges in the current environment to overcome, especially in rural areas and communities with high social need. With these challenges, there are also some promising innovations on the horizon as health systems try to meet limited supply with growing demand.
Workforce shortages
Staffing shortages aren’t only having a negative impact on healthcare affordability, but access to healthcare is being directly impacted too. Driven by the pandemic, there has been a decrease in the clinical workforce. It is projected that the nursing workforce will be 20% below what is needed and 10% for physicians.
The pandemic also resulted in patients delaying services, therefore, providers are now seeing pent-up demand and higher severity cases. The low supply of staff plus high demand for services is resulting in increased wait times, ultimately affecting the quality of care. These different factors have created the perfect storm and for the first time, cancer treatments are now the number one driver of costs (previously musculoskeletal). We’re seeing payers exploring new treatments such as multi-cancer early detection (MCED) tests, enabling clinicians to rapidly screen for multiple types of cancer at once.
Another area that has been really feeling the pressures of workforce shortages is youth (under 18) mental health. Sometimes it can take up to a year of wait time for youth mental health services, and the evidence shows urgent care and admissions are on the rise. Employers can leverage healthcare analytics tools to understand the impact of ongoing programs and policies to address mental health risks, helping maximize efficiencies to meet these growing demands.
Telehealth trends
One popular strategy to help improve access is telehealth. We used our MarketScan dataset to examine telehealth utilization for primary care and behavioral health prior to, and during, the pandemic.
Our analysis also shows that 16% of enrollees had both primary care telehealth and in person visits in 2022, a trend that may accelerate. Lastly, we looked to see if telehealth might be increasing costs if used as triage for an in-person visit. However, less than 2% of telehealth visits were followed by an in-person visit. We didn’t find any obvious signs of duplication.
Read our findings
Healthcare consumerism
All of this means that consumers are facing a uniquely challenging health care environment. In 2023, consumers and employers really need to engage to make the system work for them.
We’re seeing more of a focus on healthcare consumerism and providing customers with information, financial incentives, and decision-making tools to help make educated healthcare purchasing decisions. The pandemic helped open the door to a growing segment of the population that is willing and capable of engaging with their healthcare in non-traditional ways.
Healthcare consumerism also spans benefit and price transparency. Organizations should consider offering benefit selection tools and price transparency tools to assist consumers with healthcare decisions. Healthcare decisions are often anxiety-inducing and overwhelming with critical information living in siloes. We’ve seen an increase in patients wanting support tools. Not only to help educate them on what they’re eligible for, but to help them navigate decisions for themselves and their loved ones. This technology puts the power back in the hands of the patient and provides them with an educated, shoppable experience.
Additional regulations are needed for healthcare consumerism to become a true reality, but the foundation has been laid down through policies, such as the No Surprises Act. In the fall of 2022, Centers for Medicare & Medicaid Services (CMS) published a request for information (RFI) requesting input from organizations across the healthcare ecosystem to help inform rule making related to advanced explanation of benefits (AEOB). We took the time to read through respondents’ comments, so you don’t have to.
Read our top price transparency themes for CMS to consider
Our healthcare analytics team stays up to date on the latest trends as a service to our employer and health plan customers. Keep an eye on our blog throughout the year for key trends facing healthcare payers.
