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Health Cost Growth Slows Further Even as Economy Rebounds

Photographer: Brendan Smialowski/AFP via Getty Images

Hospitals should instead be collecting data on the quality of their care and on their patients’ outcomes to show insurers and large employers that their services are more valuable than competitors'. Close

Hospitals should instead be collecting data on the quality of their care and on their... Read More

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Photographer: Brendan Smialowski/AFP via Getty Images

Hospitals should instead be collecting data on the quality of their care and on their patients’ outcomes to show insurers and large employers that their services are more valuable than competitors'.

Provisions in the Affordable Care Act that penalize hospitals for excessive readmissions and encourage employers to offer wellness programs are slowing the growth of U.S. medical costs, even as the economy rebounds.

Health-care costs for commercial insurers and employers are expected to rise about 4.5 percent next year after accounting for changes in benefits, PricewaterhouseCoopers LLP said in a report today. The increase is a percentage point less than what the consulting company projected for 2013.

The report cited the positive effect of provisions in the health-care law that reduced hospital readmissions by 70,000 in 2012 and lowered premiums for people in employer-sponsored smoking cessation or chronic-disease management programs. The report supports President Barack Obama’s contentions that the 2010 law has contributed to historically slow cost growth.

“It’s picking up speed and force,” said Ceci Connolly, managing director of PwC’s Health Research Institute in Washington. Provisions such as the readmission penalties “will be having a measurable impact across the health system.”

Employers are encouraged under the law to vary insurance premiums based on whether workers participate in wellness programs, and hospitals that re-admit too many patients within 30 days of a discharge face Medicare payment penalties.

PwC’s findings track with studies by the government and others that show continued slow growth in medical costs even with the economy four years into an upswing since the 2007-2009 recession. The Centers for Medicare and Medicaid Services said in January that U.S. health spending, including from government programs, rose 3.9 percent in 2011, matching the slowest growth in 52 years of record keeping.

Sustained Effect

“Historically, medical inflation jumps after the nation recovers from a recession,” PwC said. “But changes in how the industry operates and how average consumers choose health care appear to be having a more sustained effect.”

Wal-Mart Stores Inc. (WMT), Lowe’s Cos. (LOW) and other large employers reported some success in reducing costs by sending workers to prominent “high-performance” hospitals such as the Cleveland Clinic for major procedures including heart surgery, PwC said.

Connolly said the employers may be saving as much as 25 percent on the cost of the care, even after paying for travel. The companies benefit because their workers get more reliable diagnoses and suffer fewer complications, requiring less follow-up care, she said.

While companies and consumers can expect to benefit from slower growth, it places “added tension on the health industry,” Connolly said.

Pressure Cooker

“There will certainly be health-care organizations that thrive in this pressure-cooker of an environment and there are others that are very much challenged by it,” she said. “Relying solely on volume in the future will not be a winning strategy in the health-care world.”

Hospitals should instead be collecting data on the quality of their care and on their patients’ outcomes to show insurers and large employers that their services are more valuable than competitors’, Connolly said. Stand-alone community hospitals that can’t prove the value of their care may suffer as employers and insurers divert patients to institutions better able to track the data, she said.

To contact the reporter on this story: Alex Wayne in Washington at awayne3@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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