Last June, the major tracker of inflation—the Consumer Price Index—hit 9.1% but has been receding ever since. Employers should be aware that the healthcare industry will not see a similar reduction in prices and, in fact, should expect costs to rise substantially, according to an expert at Willis Towers Watson.
Tim Stawicki, a WTW senior health and benefits consultant, said in a recent blog post that a different dynamic will function in the healthcare industry because contracts lock in negotiated prices, usually for one to three years.
When those contracts end, providers will want to make up for profits they may feel that they missed out on, and that’s especially the case in the wake of the COVID-19 pandemic.
In addition, the healthcare industry must continue to deal with the pandemic’s aftershocks, which include a crushing labor shortage, a hit-or-miss medical supply chain and an aging population. All of which will add to the cost burden they’ll need to address.
“Unlike other areas in the economy, healthcare providers can’t immediately raise prices on their commercial customers,” Stawicki wrote. “This is because they typically sign multiyear contracts with the medical carriers that last an average of three years.”
Stawicki told Fierce Healthcare in an email that “the pandemic led to employment changes for many companies. Some consolidated operations or closed down manufacturing facilities. Others moved to a fully remote or hybrid workstyle that may have encouraged employees to move further from the former job site or to a different state altogether.”
Stawicki said that when the mix of employees changes, employers should review relationships with their health insurance plans, as each one has locations where they’ve got more clout.
“While one health insurance plan may have offered the best financial performance pre-pandemic, the mix of employees and where they live may suggest another carrier is more favorable now,” Stawicki said.
Employers should be prepared for providers to “aggressively” pursue price increases. And because of inflation and the increase in elective procedures and operations that individuals had put off because of COVID-19, providers have a stronger negotiating position than they’ve had for years.
Stawicki argued that both unit cost per service and utilization of services will continue to rise through 2023, 2024 and beyond.
“The pandemic could increase utilization for years to come,” Stawicki wrote in the blog post. “Demand due to the increased need for mental health and deferred surgeries are evident in the data. Delayed or skipped preventive care, unfortunately, means breast and colon cancer are being identified at later stages, driving higher costs, more complex treatments, and worse outcomes for members.”
Stawicki advised employers that they can avoid the worst of this fallout through better management of utilization and reviewing physician networks to make sure that they coincide with an employer’s coverage area that may have changed because of COVID-19. In addition, employers should try to improve the employee experience and implement more cost-effective points of care by steering individuals to urgent care centers or making it easier to use virtual care and choose provider networks based on their geographic footprint.
He told Fierce Healthcare that “the geographic footprint is the mix of locations that employees live in, and more importantly for the purposes of cost analysis, where they receive care. Some employers may be very concentrated in one city while others have a mix of employees spread out across the country. Some are more rural or urban than others.”
Prices vary among providers depending on location, he said.
“For example, overall, Texas and Wisconsin are two states with higher healthcare costs while New Mexico and Arkansas tend to be lower,” said Stawicki. “However, different markets within each of those states may or may not align with the generalization.”
Employers should also:
- Negotiate better administrative and program fees
- Make sure the pharmacy contract keeps pace with market improvements
- Seek out high-performing provider networks
- Investigate what conditions or procedures might benefit from a centers-of-excellence approach
- Use more clinically integrated forms of care such as accountable care organizations, or primary care-first arrangements
- Help employees obtain care by offering access and navigation tools
- Tell employees where to go for support in times of need
- Support virtual care in ways that improve access and reduce costs
- Considered onsite or near-site clinics for preventive care and primary care
- Support individuals who might need behavioral healthcare
But most of all, Stawicki wrote, employers should be prepared.
“Review available market options and outline the benefits and trade-offs for implementing them,” Stawicki said. “Be prepared with thoughtful options to include in your program so shifting costs to employees isn’t the only option that can be implemented quickly.”