Wednesday, June 19, 2013

Medical costs are down - and it may be a trend

There was some good news involving medical costs yesterday:

  • The Wall Street Journal reports that, for the first time in almost 40 years, health care costs reflected in the Labor Departments's price index for medical care actually decreased. Ok, so the adjusted amount was a drop of 0.1%, but a decrease is a decrease. 
  • The Associated Press tells us that a report issued by accounting/consulting giant Price Waterhouse Coopers says that the recent slowdown in medical costs may be a trend and not a statistical blip (as reported in the Washington Guardian). 
Of course, as you dig into the details things do get a bit murkier.

According to the WSJ report, the recent decrease is fueled by "the onset of new policies" i.e. the Affordable Care Act, which is "probably going to be a temporary factor" according to Goldman Sachs economist Alec Phillips. However this same article cites contrary opinion from Randall Ellis, a professor of health-care economics at Boston University, who expects that the decrease is a longer term trend.

Prof. Ellis' point of view is echoed in the PwC report. An excerpt:

"Four big factors were seen as pushing costs down next year:
  • Patients seeking more affordable routine services in settings like clinics springing up in retail stores, as opposed to a doctor's office or the emergency room.
  • Major employers contracting directly with hospital systems that have a proven record for complicated procedures such as heart surgery and certain back operations.
  • The government ramping up penalties on hospitals that have too many patients coming back with problems soon after being discharged.
  • Employers' ongoing effort to shift more costs to workers through higher annual deductibles, the amount people must pay each year before insurance picks up.

By using such shifting, PwC estimates that employers may be able to drive their share of next year's cost increase even lower than 6.5 percent.
On the other hand, two big factors will push costs upward:
  • The high price of new "specialty" drugs to treat serious chronic illnesses such as autoimmune diseases and some types of cancer.
  • Industry consolidation, with big hospitals buying up smaller ones, as well as medical practices and rehab centers. The downside of the demand for greater efficiency by employers and government is that it may be fostering new health care monopolies."

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