Originally posted on pwc.com.
The pandemic has shifted how and where Americans gain access to care, a shift large enough to influence multiple aspects of price and utilization and, thus, medical cost trend. The aftereffects of the pandemic and the health system’s response to changes and failures observed during the pandemic are expected to drive up spending (inflators) in 2022. At the same time, some positive changes in consumer behavior and provider operating models that occurred during the pandemic are expected to drive down spending (deflators) in 2022.
Where is the medical cost trend headed in 2022?
PwC's Health Research Institute (HRI) is projecting a 6.5% medical cost trend in 2022, slightly lower than the 7% medical cost trend in 2021 and slightly higher than it was between 2016 and 2020. Healthcare spending is expected to return to pre-pandemic baselines with some adjustments to account for the pandemic’s persistent effects.
HRI defines medical cost trend as the projected percentage increase in the cost to treat patients from one year to the next, assuming benefits remain the same. Typically, spending data from the prior year is used as an input in the projection. For 2021 and 2022, the medical cost trend is the projected percentage increase over the prior year’s spending, with the effects of the pandemic removed from the prior year’s spending.
Inflator: The COVID-19 hangover leads to increased utilization
The pandemic’s long tail may increase utilization and healthcare spending in 2022 thanks to the return of some care deferred during the pandemic, the ongoing costs of COVID-19, increased mental health and substance use issues, and worsening population health.
- Some care deferred during the pandemic returns - Healthcare spending by employers in 2020 was lower than expected, in large part because of the deferral of care as a result of the pandemic. Some of this care is expected to rebound in 2022, and some of it likely will increase healthcare spending.
- COVID-19 costs are likely to persist - The costs of testing for COVID-19, treating patients and administering vaccinations for the disease likely will continue into 2022.
- The mental health and substance use crises show no signs of waning - The pandemic substantially increased demand for mental health services. Increased substance use also likely will increase healthcare spending in 2022.
- Population health worsened during the pandemic - Poor pandemic-era health behaviors such as lack of exercise, poor nutrition, increased substance use and smoking may lead to deterioration in US population health and increase healthcare spending.
Inflator: The health system prepares for the next pandemic
Calls to prepare for the next pandemic are as certain as its eventual arrival. Preparation costs money; pandemic readiness likely will be an inflator of medical cost trend in 2022. The US health industry is planning, or embarking on, investments in forecasting tools, supply chain, staffing, PPE and infrastructure changes. Because of these investments, payers and employers are bracing for rising prices.
- The health system invests in better forecasting and the supply chain - After experiencing supply chain shortages and disruptions, the majority of provider executives surveyed by HRI in 2020 said they expected to spend money on predictive modeling in 2021. Pharmaceutical and life sciences companies also likely will address the supply chain.
- Providers spend more on staffing and safety measures for all - Prices for personal protective equipment (PPE), infrastructure and staffing such as nursing also have risen. Investments also are being made in infection control. Investments in remote workforces, such as technology, connectivity and cybersecurity, also could ensure the organization is ready, in part, for the next crisis.
- The health system addresses health disparities highlighted by the pandemic - The US health industry continues to invest in addressing health inequities. These investments likely will dampen healthcare spending in the long run but may drive higher prices in the short term. The pharmaceutical and life sciences industry is working toward greater racial and ethnic diversity participation in clinical trials, a critical need amplified by the pandemic. Health organizations also have allocated millions toward addressing the social determinants of health (e.g., transportation and housing). Increased costs to support these programs in the short run could result in savings long term
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Inflator: Digital investments to enhance the patient relationship increase utilization
The pandemic accelerated providers’ improvements in digital experiences so they could maintain their relationships with patients through the challenge of COVID-19 while reaching new segments. Providers are fine-tuning “digital front door” mobile apps that connect them to their patients, beefing up portals and intensifying use of customer relationship management (CRM) tools. They are using virtual care and analytics to not only improve the customer experience and create regular touchpoints with patients, but also to expand capacity to avoid frustrating or alienating patients. HRI expects these digital investments in the patient relationship to expand consumers’ access to care, increasing utilization and medical cost trend in 2022.
- Patients and clinicians expect useful digital tools as part of the care journey - Before the pandemic, digital investments to improve the way patients and clinicians engage with the health system and each other may have been tabled by provider leaders in favor of other needs. The crisis exposed how vulnerable healthcare organizations were without them. In the short term, these investments cost money, but they may pay off in the long run.
- Investments in digital tools can help health systems better engage patients and expand capacity - Health systems are looking to build stronger, more continuous relationships with their patients that enable growth. Investments in virtual care, analytics and CRM tools can build better relationships and drive growth.
Deflator: Consumers lean into lower-cost sites of care
Employers and payers have been nudging people toward lower-cost sites of care over the past few years through care advocacy programs, benefit and network design, and lower copays or coinsurance. Now consumers may need less nudging. More people are shopping around for care, according to a recent HRI report, and millions of consumers became familiar with receiving care in lower-cost, more convenient ways during the COVID-19 pandemic. HRI expects these shifts in consumer behavior to reduce healthcare spending in 2022.
- Consumers increasingly embraced care outside of the doctor’s office during the pandemic - The share of Americans using health settings outside of the traditional doctor’s office or hospital soared during the pandemic. And the “house call” of the past is also taking on new life.
- The emergency department (finally) becomes the last resort - The COVID-19 pandemic deflated emergency department (ED) utilization. Even a small decrease in utilization can have a significant impact on bending the cost curve for employers. Some ED visits - especially lower acuity ones - may never return to pre-pandemic levels.
Deflator: Health systems find ways to provide more healthcare for less
Where just a year ago health system leaders could not imagine a distributed “at home” workforce, they were quickly forced to improvise during the pandemic. Patient care had to be delivered remotely, and centralized functions like the business office were moved to employees’ homes. It was a necessary pivot for the times that revealed a new way of working, one that can improve employee satisfaction while responding to employer pressures to reduce costs in 2022.
- Health systems can reduce costs through new ways of working - The shift to remote work for some healthcare employees could help reduce costs. Health systems are starting to rethink their real estate spending, too. HRI expects more health systems will revisit how much real estate they need for administrative functions, especially as they increase work-from-home options and reconsider the allocation of space between business functions that typically do not generate revenue and patient care that does.
- Health systems can increase efficiency through process automation and cloud technology - Technology-based efficiencies also are being adopted by providers to reduce costs and boost revenue. Cloud services also are growing in popularity as they reduce the physical space and fixed assets of health organizations. They also are an enabling technology that allows employees to work from home.
Healthcare trends to watch in 2022
Not all trends are new or clearly inflators or deflators of the medical cost trend but they are important enough influencers to watch. These are the top items HRI will be following over the next year to see how they influence the medical cost trend:
- Drug spending - The pipeline of costly cell and gene therapies is only expected to increase. Use of biosimilars, a cheaper but still costly version of branded biologic medicines, has started to increase in the US. Employers are covering more of the increases in costs. On average, insurance covers a larger share of retail prescription drug spending than a decade ago, while consumers’ share has leveled off in recent years.
- Cybersecurity - The costs associated with data breaches and ransomware attacks can be material, hindering an organization's ability to operate. While cyber attacks remain a big threat, determining how much to invest in mitigating that threat is not always simple. Forty-eight percent of health industries executives said that they are increasing their cyber budgets in 2021 (PwC’s 2021 Global Digital Trust Insights survey, Fall 2020). Companies also are using automation technologies to identify and respond to security events. Twenty percent of health industries executives surveyed by PwC said they were already seeing benefits from using artificial intelligence in cyber defense.
- Surprise billing - An intra-industry squabble between payers and providers that often left consumers with unexpected medical bills has largely been put to rest with the No Surprises Act, which takes effect Jan. 1, 2022. The implications for employer healthcare spending are uncertain. The Congressional Budget Office said the law will lower premiums by 0.5% to 1% due to “smaller payments to some providers.” Others think the law could drive higher spending as costs shift from the consumer to the payer or employer, and the new costs of arbitration come into play.
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