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Better access to care, mergers to inflate medical costs for 2019: PwC report

Better access to care, mergers between healthcare providers and physician consolidation could drive up medical costs in the U.S. in 2019 — leaving employers struggling to keep up with their employees' coverage costs, according to a report by consulting firm PwC.

Medical cost trend is expected to be 6% in 2019 after lingering within the 5% to 5.7% range over the last five years. Medical cost trend is the projected increase in the cost of treating patients from one year to the next while assuming fixed benefits.

Health insurance companies use the medical cost trend to help determine premiums by estimating how much a health plan will cost the following year.

Inflators

Medical cost inflation is usually driven by a number of factors that remain present every year, including medical innovation, drug spending, government regulation and payment models, the PwC report said. Demographics, social factors and general inflation also contribute to rising medical costs, the PwC report said.

Access to both traditional and nontraditional care settings is increasing through initiatives such as Walgreens Boots Alliance Inc.'s partnership with NewYork-Presbyterian health system. Making treatment more convenient for consumers often leads to higher utilization, which can drive up costs for 2019, PwC said.

More concentrated hospital markets — thanks to mergers within the industry — also are expected to lead to higher prices for healthcare services in 2019 as providers gain more negotiating power with payers and accrue more expenses for integrations. "Of 115 health system and hospital mergers announced in 2017, 10 were mega-deals involving sellers with net annual revenues of at least $1 billion," the report said, adding that the short-term result of the mergers is higher prices.

The report also cites physician consolidations as one of the drivers for higher prices for medical care in 2019, with the percentage of physicians employed by hospitals growing to 42 in 2016 from 26 in 2012.

"A recent Merritt Hawkins study found that employed physicians see an average of 20 patients per day compared with 23 seen by their independent counterparts," the report said. "An imbalance between physician supply and demand could push up physician compensation and, ultimately, the price of services."

Disruptive deals

The effect of recent disruptive deals between both healthcare and non-healthcare providers on medical costs — including CVS Health Corp. and Aetna Inc.; Cigna Corp. and Express Scripts Holding Co.; Optum Inc. and DaVita Medical Group; and the Amazon.com Inc., JPMorgan Chase & Co. and Berkshire Hathaway Inc. venture — are not yet well defined.

"If successful, these new combinations could be powerful drivers toward a more integrated healthcare system and improved customer experience," the report said.

The combinations could generate enough negotiating power to control their expenses but may drive up costs for employers. The mergers could also disrupt the market for middlemen such as pharmacy benefit managers.

Efforts to lower costs

Meanwhile, the U.S. government is also undertaking efforts to lower healthcare costs. President Donald Trump said some of the nation's largest drugmakers will voluntarily reduce the prices of their medicines.

U.S. Department of Health and Human Services Secretary Alex Azar said June 12 that a number of pharmaceutical companies are in discussions with the agency about lowering their prices, adding that such change takes time.

However, to drive medical costs even more than the current trend, the PwC report said, employers and health plans will have to tackle prices of services as well as products such as medicines.

"Addressing prices will require employers and insurers to collaborate with employees, providers, pharmaceutical companies, pharmacy benefit managers, community health resources, retail pharmacies and new entrants to the industry," PwC said.