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Medical cost growth expected to stay low in 2014

The U.S. economy’s index for health professional services and insurance shrank in May and capped off the lowest 12-month increase since 1972.

By Charles Fiegl — Posted June 28, 2013

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Relatively slow growth in the health care sector of the economy is expected to continue in 2014, analysts at PwC stated in a recent report.

Projections show medical costs growing just 6.5%, a figure that would be down from the 2013 estimate of 7.5%. Policies aimed at lowering hospital readmission rates as well as large businesses entering into contracts with medical clinics to provide high-priced services to save on costs are expected to restrain national spending on health care.

Researchers believe that the 2014 projection counters conventional postrecession patterns that have shown double-digit spending increases after an economic downturn. PwC’s Health Research Institute estimates smaller growth even though millions of Americans stand to gain insurance coverage starting in 2014 because of the Affordable Care Act (link).

The trend of restrained national growth, and in some cases reduced spending, on health services continues even though the economy left its latest period of recession in 2009. In May, the medical care index compiled by the Bureau of Labor Statistics recorded the smallest 12-month increase since September 1972. The index, which includes costs for professional services and health insurance, had declined from the previous month by 0.1%, while the index for prescription drugs decreased 0.6%.

“The long-term trends suggest that as the economy improves, the cycle of runaway cost increases will be broken,” said Michael Thompson, principal with PwC’s human resource services practice, in a statement. “This is critical as employers strategically re-evaluate the role of health care benefits to their organizations and step up efforts to engage employees more directly in value-based health care decision-making.”

Bundling, penalties having impact

For instance, large companies such as Walmart and Boeing will enter into bundled payment arrangements with hospital systems, such as Cleveland Clinic, to provide heart surgeries, the report states. The employers have found that negotiating directly with clinics for specialized services can reduce overall costs.

Efforts to reduce costly readmissions by expanding use of best practices and penalizing low-performing hospitals will accelerate through 2014, the report stated. Medicare readmissions dropped by 70,000 after the penalty first was implemented in 2012, according to the Centers for Medicare & Medicaid Services. The 30-day, all-cause readmission rate also decreased to 17.8% after averaging 19% for the previous five years.

The penalty has lowered payments to more than 2,000 hospitals and is viewed as a “step forward in a series of steps” toward better quality and improved patient outcomes, the Medicare Payment Advisory Commission stated in its June report to Congress. However, MedPAC has asked Congress to revaluate the current policy and consider setting targets and introducing risk adjustments.

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