Pressure is mounting across the healthcare system, and healthcare providers are certainly feeling it. If you read their financial releases, the themes are common — patient volumes are down, labor costs are up significantly, and the cost of supplies have soared like most things have in our current economic environment.
On top of this, most providers are seeing an uptick in patients covered by government-sponsored plans and a decrease in patients covered by commercial insurance. Because reimbursements are generally much higher on commercial plans, this dynamic is adding additional strain on financial performance, which is a domino effect.
Higher Reimbursement Rates = Higher Insurance Premiums
There’s no question that the pressures facing healthcare provider systems are going to result in much more difficult contract negotiations between payers and healthcare providers, and we’re very likely to see higher increases in reimbursement rates.
What happens when payers agree to higher reimbursement rates? You know the answer — the result is higher insurance premiums, which puts employers in the difficult position of deciding whether to absorb the cost or shift the cost. If neither option is acceptable, then the status quo isn’t going to work!
In layman’s comparison terms, if coffee shops operated like healthcare, you could expect to pay anywhere between $2.50 and $13 for a cup of coffee depending on what shop you visited. To make matters more complicated, the $2.50 cup may be better than the $13 cup. In no other industry, do we see the variability in cost and quality like we do in healthcare.
Rising reimbursement rates do not need to mean increased costs for employers and their employees. However, maintaining the status quo is going to lead to exactly that.
The Future of Healthcare
As employee benefits brokers and consultants, we sit at the intersection of payers, healthcare providers, pharmacy benefits managers (PBMs), and niche vendors. With that being the case, we believe it’s important and a part of our responsibility to play a leading role in advocating, innovating, and partnering to solve for some of healthcare’s biggest challenges — medical spend and overall costs.
Medical Spend
For decades, medical spending has outpaced overall inflation by a significant margin. In fact, at no point in the past 30 years has overall inflation outpaced medical inflation in back-to-back years. That happened for the first time as we turned the page on 2022. Is that a trend or a byproduct of the historically high inflationary market and abnormalities driven by the pandemic? Unfortunately, we don’t see this as a trend.
Labor Costs, Government Programs, and Specialty Drugs
As labor costs have increased dramatically over the past couple years and the health status of Americans has deteriorated, we believe there will be significant pressure facing healthcare over the coming years. In addition, the growing percentage of individuals receiving their insurance from government programs is likely to have a meaningful impact on how providers operate. Lastly, as new specialty drugs emerge and become more readily available, it’s likely that pharmacy will continue to make up a bigger and bigger share of total health care spending.
Combatting the Ongoing Healthcare Issues
There is only one certainty when trying to predict the future of healthcare, and that is you’ll be wrong! With that said, we see both tremendous opportunities and challenges in front of us.
We know solutions and data exist to meaningfully reduce variations in cost and quality, but relying on traditional methods, such as high deductible health plans coupled with transparency solutions, will not suffice. Additionally, the probability of a single payer system is lower than it has been in many years, but as I mentioned at the beginning of this blog, the mix of commercial versus government programs is likely to continue to shift.
Factoring in all that has transpired and considering the opportunities in front of us, we believe we all need to focus on:
- Investing more in a better-connected system. There isn’t necessarily a lack of innovation in healthcare, but how all the technology, service, data, and patient care come together is suboptimal.
- Prevention. Proactively finding ways and intervention points to address physical and mental wellbeing is critical.
- Creating more effective interventions. These need to impact the 2.5 percent of individuals driving 50 percent of the cost.
- Site of care optimization. There are significant opportunities to reduce medical and pharmacy costs by optimizing the site of care.
- Reducing cost and quality variability. We’ll also need to accelerate a move towards value-based reimbursement.
- Controlling pharmacy utilization and cost. This should be done through transparent and evidence-based approaches.
- Creating a flexible benefits package, communication approach, and patient experience. The experience needs to be flexible enough to meet the needs of a multi-generational and more diverse workforce.
Knowing all of that, there is a broad spectrum of opportunities available for employers. From basic strategies, such as leveraging centers of excellence and optimizing sites of care, to more comprehensive solutions, such as alternative health plans or reference-based pricing, you have the ability to take control to optimize benefits and spend. And we’re happy to help you navigate it all. All you have to do is contact us!
