PwC’s annual medical cost report is out, and as always, it’s a lot to dig through. The full report breaks down each of the factors underpinning medical inflation, but the headline takeaway was that healthcare costs are projected to rise 7% in 2024.
That’s up from 5.5% in 2022 and 6% in 2023, with PwC attributing the acceleration to two primary changes.
Inflator 1: In an inflationary environment like the one we’re currently seeing, providers are pushed to seek significant rate increases from payors. That effect is only amplified by workforce shortages and the return of patient demand.
- PwC expects inflation to cause employers to focus on high performing networks, centers of excellence that target high-cost claims (particularly cancer and orthopedic cases), and health plans that steer patients to lower cost providers.
Inflator 2: Pharmacy expenses are skyrocketing, with the median annual cost of newly approved drugs reaching $222k in 2022. Combined with the introduction of new cell and gene therapies, we look poised for persistent double digit pharmacy inflation.
- The demand of GLP-1 medications is another strong contributor, and if the FDA decides that these drugs are appropriate for weight loss, their popularity is just getting started.
PwC called out a couple deflationary forces, most notably biosimilar drugs entering the market at less than half the cost of their reference products. In 2023, the launch of adalimumab biosimilars to Humira was “a new milestone” in the U.S.
- The shift to lower cost care sites also made an impact, with the report highlighting increased demand for outpatient surgeries, home-based services, and virtual care. PwC recommends that providers work with plans to establish models that share in the gains.
Cost Neutral but Key to Watch:
- Continued efforts to manage total cost of care (the growth of value-based care)
- The COVID hangover causing provider unit cost increases and pharmacy trends
- Behavioral health utilization increasing
- Health equity’s impact on population health
- CMS Health Plan and Hospital Price Transparency Rule
- Medicaid redetermination
Although healthcare’s multi-year contracts dampen some of inflation’s immediate impact, PwC’s prediction of a 7% cost increase suggests that we’re now past any buffer. Industry bellwethers like UnitedHealth and Humana have already begun signaling that pent-up-demand is adding even more pressure to the equation, and PwC thinks that cost mitigation strategies should now be a top priority for payors and providers alike.