Report: Consolidation, convenience care major drivers behind increased healthcare costs in 2019

Healthcare costs will continue to rise next year, and a major culprit is the industry's 'merger-mania."

Costs are projected to rise by about 6% in 2019—in line with recent years and a big improvement from a time not too long ago when prices were rising annually by double digits, according to the annual Behind the Numbers report from the PricewaterhouseCoopers Health Research Institute. 

But trends such as healthcare industry's consolidation has stymied further progress in lowering costs, said Barbara Gniewek, health and welfare practice leader at PwC, in an interview with FierceHealthcare. At the same time, consumers are demanding more convenient access to care, and the focus on new sites of care—such as retail clinics and virtual visits—are also increasing costs as utilization rates increase.

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Barbara Gniewek PwC
Barbara Gniewek (PwC)

The issue is like a balloon, she said: "Every time you squeeze one area," another issue crops up.

The report projects that 93% of metropolitan hospital markets will be highly concentrated by 2019, a number that's jumped significantly from 65% in 1990.

These consolidation deals, at least in the short term, often lead to higher patient costs, Gniewek said. The report notes that in the long term, scale and greater efficiency is possible. The findings are in line with analysis from other experts, who note there is little evidence that horizontal consolidation—in which a provider, for example, buys a direct competitor—leads to lower patient costs.

Gniewek said it's notable that provider consolidation has, generally, been allowed to proceed with little resistance. At the same time in the payer space, several big-ticket deals were derailed on anticompetitive grounds. "Providers really have the upper hand in making change or not," she said.

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The report also identifies several factors that could deflate costs in 2019. The 2017-2018 flu season was particularly bad, for example, and is not expected to be as bad or as expensive in the next flu season.

Employers are also investing more in care advocates to help patients be better consumers, according to the report. This type of advocacy can reduce unnecessary spending and help patients better understand their insurance plans, and is especially crucial as more employers seek to put more healthcare costs on their employees.

Of the 900 employers included in the research, 72% offered health advocacy services to their staffers in 2018, compared to 57% in 2016. Gniewek said employers are starting to realize how hard it can be traverse the healthcare landscape as they ask employees to "get [their] skin in the game."

"If you have a good advocate program, people can make decisions about which doctors to see," she said.

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As more employers offer high-deductible health plans and other options with greater cost-sharing, they're also looking to build more high-performing networks, which makes contracts with accountable care organizations and other value-based care models more attractive.

This is also driving providers to look into direct contracting more, according to the report. It's a trend that's reaching some of the biggest companies in the country; for example, Disney just contracted with Orlando Health and Florida Hospital to offer healthcare to its employees in the region.

"Direct partnerships are a way to improve the care experience," Barbara Wachsman, retired director of strategy and engagement, enterprise benefits at Disney, told PwC.