Inflators, Deflators, Providers, Oh My!

In my last post, I covered medical cost trend and the difference between that and medical inflation. You can read that whole post here if you are interested.

For this week’s “Part II,”

Think of “trend” as synonymous with “cost.” More costs to care for the same patient panel types year over year.

That includes the unit costs of products and services, including new products and services, and the inflation of those services. It also includes the utilization of medical care.

So higher costs and higher utilization lead to higher spending by payers and sponsors.

For the individual providers in the audience, especially those in primary care, it’s not your direct patient care that is causing the utilization pressures. It’s more inpatient hospital stays and procedures driving high trend.

Payers and sponsors then have to find more money to pay for those higher costs and that higher utilization. Where does that money have to come from?

Well, you and me. Payers and sponsors have a pot of money that has to cover all the costs of providing care for the year.

We pay through taxes, through costs that employers pass on to customers and to lower wages for their employees, etc. The available dollars are finite.

But many healthcare consumers expect to get what they want and they can’t easily relate to the fact that spending can’t be limitless.

And they are generally not good at telling the difference between high and low value care. (Excellent point by Stacey Richter.)

And we as providers have not always been great about delivering on what patients need, not just what they want.

Said another way:

While we shouldn’t provide care they don’t want or make the choice not to receive, we also shouldn’t provide care they don’t need but they do want when a third party payer is only paying for medically necessary care.

Not medically necessary? Then it’s not covered by a third party payer. Some providers choose to offer non-medically necessary care on a direct payment/”cash” basis, also, which is one avenue.

I’ll leave that here for now. “Wants” vs. “needs” is a bigger conversation.

Inflators and Deflators

Different populations have some different primary medical cost trend inflators and deflators, but for simplicity, let’s take the 30,000 feet view to get a better idea of what’s driving this high medical cost trend and any factors that may be counteracting it.

Can the deflators grow enough to outpace the inflators?

Inflators

Unit Inflation

Since none of us are living under a rock, we know inflation has been high. But it’s now higher in medical spending than in other spending.

New Medication Classes and Higher Overall Drug Spending

When a new drug class emerges to treat a condition where most people have been on the generic, spending can go up significantly.

More Access to Behavioral Health Services

Growing behavioral health services availability and greater acceptance has naturally led to more utilization and spending.

Inpatient Utilization

There’s still care being accessed that was put off from COVID. Some of that may be delayed detection of treatable illnesses, and there are still elective procedures being done that were postponed.

Especially for the elderly, more inpatient stays also leads to more inpatient post-acute stays. And those stays don’t always lead to better outcomes, and that comes with its own problems. Another story for another day.

New Innovations

We have so much to learn and discover about treating illnesses, slowing the progression of chronic conditions, curing terminal conditions, etc. Of course, this is a great thing. With new technology also comes new spend trajectories for condition management that can impact the cost trends.

Deflators

Spoiler alert: deflators aren’t significant enough to counteract inflators at this point in time. There are also fewer of them. Here are the major ones:

Biosimilars

Biosimilars are starting to replace a few high-cost brand name drugs on formularies. That impact will grow over time.

Value-Based Care

Value-Based Care arrangements between providers and payers help ensure the right spending goes to the right patients at the right time and for medically necessary reasons. It incentivizes and financially rewards upstream care that helps prevent inpatient and emergency care.

It’s one of the most powerful levers we can pull. Providers and sponsors and plans have to work together to design the right value-based payment arrangements that yield more patient days per year at home.

Days at home—the ultimate outcomes-based quality metric.

More value-based care by more providers is what we as providers can do be part of the solution.