January 2, 2020

Another new year is upon us; some would say, a new decade.  But will the “roaring 20s” begin with a bang, or will 2020 turn out to be a harbinger of more difficult days to come?  That is the question that hospital executives and healthcare workers around the country are asking themselves as they survey the road ahead.  While we at MiraMed do not have access to a crystal ball, we do try to keep track of trends and projections that arise from some of the best analysts in the healthcare industry.  Based on these expert forecasters, we would like to provide a few prognostications for 2020.

A Drug Problem

Hospitals and health systems can expect a 4.57 percent increase in pharmaceutical spending this year, according to Vizient’s drug price forecast.  This includes both the inpatient and outpatient environments.  The Vizient forecast also contains the following expectations for 2020 as it pertains to drugs and related items:

• Specialty drug prices will continue to rise.  The inflation rate for specialty drugs is predicted to be 4.23 percent in 2020.  Keep in mind that specialty drugs tend to cost more than the non-specialty variety.
• The adoption of biosimilars will become vital to combat costs of biologics. Biologic agents, including those used to treat cancer and other chronic diseases, are major expenditures for hospitals. Fortunately, the FDA approved several new biosimilars in 2019, and their entry into the market should help lower the cost of biologics in 2020.
• Drug shortages will continue and will contribute to higher costs.  A survey conducted by Vizient in 2019 revealed that drug shortages are costing U.S. hospitals at least $359 million a year on labor costs alone. Extended drug shortages translate to increase spending on drugs purchased from wholesalers with whom the hospital is not contracted.  Vizient expects supply challenges in the immune globulin intravenous market to continue into the first half of 2020, as well.

Rising Medical Costs

Global consulting firm, PricewaterhouseCoopers (PwC), is anticipating a slight increase in the rate of medical cost inflation, projecting a six-percent rise in the cost trend in 2020. This is slightly above the 5.7 percent rate in 2018 and 2019.  PwC reports that price increases will continue to be the primary driver of healthcare spending, growing at a faster rate than utilization.  Despite efforts to control utilization through high deductibles and other forms of cost sharing, the medical cost trend still outpaces general inflation. Prices continue to creep up.

Employers Get into the Act

To drive down the medical cost trend, employers will increasingly be taking a more active role in managing healthcare costs, according to PwC. For example, they will personally engage in:

• Contract price negotiations
• Setting up provider networks
• Building a parallel health system to take care of employees at more manageable costs

Another player in the health and insurance industries, Lovitt & Touche, has issued a report confirming that employers are ramping up to take greater control of what happens in the healthcare marketplace.  To put it in their words:

As healthcare costs continue to escalate, many businesses are searching for solutions to help them contain employee benefit expenditures. In fact, for many organizations the cost of employee benefits is drastically impacting the bottom line, making it vital for them to implement a variety of techniques to manage the growing financial albatross.

Lovitt & Touche have identified three areas employers will be increasingly leveraging as cost-saving opportunities:   harnessing technology, specialty drugs management and telehealth.

Migration to Other Sites

Payers will also be looking for new ways to contain the rising cost of healthcare in 2020.  Many will no doubt follow the example of UnitedHealthcare (UHC) which late last year enacted a policy that will essentially move hundreds of types of surgeries from the outpatient hospital setting to free-standing surgery and imaging centers.  With the prospect of saving hundreds of millions of dollars in costs, other health plans will be hard-pressed to avoid promulgating similar policies as the one UHC has recently put into effect.

The implications of this migration of services are significant and complex.  Hospitals will need to be prepared to adjust quickly to the coming contractions of procedures in certain sectors of the facility.  There may be less business in their endo suites, for example.  They should certainly plan on a dip in outpatient cases.  Conversely, surgery centers and imaging centers will benefit.  They may expand internally and they may proliferate geographically.

Hospitals will need to plan now for this coming shift.  Are there ways hospitals can profit from this new dynamic?  Perhaps, but that will entail a careful assessment of (a) the projected trend of site migration in your market area, (b) the current bevy of state and federal laws controlling hospital ownership of surgery and imaging centers, and (c) your hospital’s or health system’s financial ability to invest in a free-standing facility, where legally allowed.  Competition is coming.  It may make sense to own it.

Suppressing the Surprise

Four more states have enacted separate legislation that will address so-called “surprise medical bills”—all effective as of January 1, 2020.  Healthcare consumers in Colorado, New Mexico, Washington and Texas will have greater protections in the new year against medical bills from non-participating clinicians that tend to be unexpected and exorbitant.  The provisions are different for each state, but the national trend to provide at least some measure of protection for consumers in this area is expected to continue.

In addition to the legislation that is being enacted in the individual states, the U.S. Congress was expected to produce a bipartisan bill by the end of 2019.  However, as of this writing, no national measure has been passed addressing surprise medical bills.  We will provide an update should there be any news on this front in the coming days.

Radical Structural Change

There are times when you can see the difference.  It’s obvious; like the imposition of an avant-garde glass pyramid in front of the centuries-old, classically baroque Louvre Museum in Paris, or the addition of a modern glass dome atop the old Reichstag building in Berlin, or the reshaping of the Chevy Blazer from the truck-framed off-road classic of the 1980s into another family-friendly crossover for the 2020s.  These are examples of radical structural change.  One expert is predicting that same kind of change for American healthcare in 2020.

Mike Lovdal, who obtained an MBA and doctorate at Harvard Business School, served on the faculties of both Harvard and MIT before entering into a 35-year consulting career at Oliver Wyman.  According to many, he is the person who can most accurately and astutely identify what’s on the horizon for healthcare.  In his 80-slide presentation, U.S. Healthcare 2020 – 10 Predictions, Dr. Lovdal suggests that the following changes will occur in the new year as it concerns the overall structure of American healthcare:

• Consolidation of health plans.  Larger plans, like Anthem, UHC, Aetna, Cigna and Humana may continue to look for ways to contain costs via the merger portal. Two of these carriers have already obtained or been obtained by pharmacy giants in recent days, and some have contemplated merging with each other. This merger mania may continue into the next several months, which would no doubt result in less competition and less choices for consumers.
• Consolidation of hospitals into health systems.  From 2000 to 2013, the number of hospitals that were part of a larger health system went from 53 percent to nearly 65 percent, and that trend is expected to continue into the new decade.
• Consolidation of physician practices.  In 2000, 57 percent of physicians were in private practice.  That number dropped to 39 percent by 2012.  This represents a straight-line trend that shows no sign of deviating or reversing in 2020.

From Dr. Lovdal’s perspective, these areas of consolidation represent radical structural change to the nation’s overall healthcare system.  Will all this translate to better care, more efficient delivery of services and lower prices for the consumer?  Only time will tell.  What we can be certain about at this point is that 2020 will be a time of change.  Most of this will be due to a continuity of trends begun in previous years, but we may notice a considerable increase in the rate of change relative to these trends during this new year.  So, buckle your seatbelts.  It may be a wild ride.