PricewaterhouseCoopers in its latest annual employer medical cost forecast predicts that medical cost growth in 2015 will tick a little higher, ending a string of years in which cost growth fell. But the folks at PwC don't seem excessively concerned about the rise in expected employer net medical cost growth to 4.8 percent in 2015 from 4.5 percent in 2014, and for good reason, as the industry is getting better at providing value.
And despite some technology costs, some of the other fundamental factors expected to pump costs higher in 2015 may not last long or could reduce costs years from now.
"For the first time in several years, we're predicting that the medical cost trend is going up, and that can set off a lot of alarm bells," said Ben Isgur, director in PwC's Health Research Institute, which produced the report "Medical Cost Trend: Behind the Numbers 2015."
"As we try to bend the cost curve, the question may be, 'Are we going in the wrong direction?' " Isgur said.
Indeed, information technology costs are one of the factors pushing costs higher, and is one that may be standing in the way of rapid progress from the consolidation in the industry for some time. Kulleni Gebreyes, M.D., director in PwC's health industries practices, said that the report's estimated IT integration cost of 2 percent a year for combining organizations is sizable for a slim-margined, not-for-profit system and should be taken into account when considering a linkage of some sort. "As much as we'd like there to be an easy button that technology would provide [during integration], there's actually a lot of workflow redesign and reengineering … that need to be streamlined and aligned," Gebreyes said.
Yet, there are other influences boosting costs in 2015 that could be short-lived, such as the pent-up demand for care that PwC says is being released by an improving economy. In addition, new, high-cost specialty drugs, if as effective as hoped, could have the potential to reduce costs in the long run, according to PwC.
And there are factors that PwC's analysts forecasted will deflate costs in 2015. Risk-based contracts are beginning to reduce costs and are being adopted "rapidly," according to the report.
"Part of the good news is that we see a lot of promise in the things that hospitals are doing to become more efficient," Isgur said. "We think that has created a structural change to the system and if hospitals continue to keep that focus, we think it will help to moderate medical cost trends going forward."
Looking at the report, it's hard to find inflationary factors that support a long-term return to relatively higher rising medical costs.