Segal Group Projects Lower Rx Cost Trend Increases in 2018

New York (9/22/17) —  The rising criticism over soaring drug prices may have caught the attention of some drug manufacturers, as the increase in prescription drug benefit cost trends will be lower in 2018 than in 2017, according to The Segal Group’s most recent Health Plan Cost Trend Survey.

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Other key survey findings:

  • Medical plan cost trend increases are projected to be slightly higher than 2017 projections, a change in direction that may concern plan sponsors given that medical coverage represents the lion’s share of their health care costs.
  • Price inflation — not utilization — is the leading driver of trend.
  • Rx cost-management strategies and improved vendor contracting are plan sponsors’ top priorities.

“Health plan cost increases continue to significantly outpace general inflation and average wage increases, underscoring the need to monitor performance targeting cost-management efforts,” said Edward Kaplan, Segal’s National Health Practice Leader. “Plan sponsors can use the survey results to support their 2018 rate renewal negotiations and their budget projections.”

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Price Inflation the Main Culprit for Rising Trend

As was the case in last year’s survey, the leading driver of trend increases for 2018 continues to be price inflation for physician services, hospital services and prescription drugs. For Rx, it is nearly 9 percent.

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“While patients may not be getting more procedures done, some of the price inflation is due to inappropriate use of emergency rooms and urgent-care facilities and unnecessary, expensive diagnostic radiology procedures when a simple x-ray would suffice,” said Eileen Flick, senior vice president and Director of Health Technical Services at Segal. “Plan sponsors should ensure their plan designs are properly aligned with the costs of care, and that their participants are making smart choices in order to get the right care at the right price with the right provider.”

Top Five Cost Management Strategies from Plan Sponsors

Segal asked the survey participants to rank the cost-management strategies implemented by group health plans in 2017. Here are the top five:

  1. Using specialty pharmacy management
  2. Intensifying pharmacy management programs
  3. Contracting with value-based providers
  4. Increasing financial incentives in wellness design
  5. Adopting a High Deductible Health Plan (HDHP)

These strategies show plan sponsors are looking to drive utilization to high quality, low cost providers in lieu of simply passing the costs on to their employees. Plan sponsors continue to embrace a wide range of strategies to lower costs, including the use of custom and limited provider networks, expansion of dedicated primary care clinics that are on or near work-sites and, for some industries, continued migration to tax advantaged Health Savings Accounts and HDHPs. 

“Each plan sponsor has a unique set of goals, but all share in the common objective of managing cost increases,” added Kaplan. “In that sense, we highly recommend a three-pronged approach to the challenge of health care cost management that encompasses vendor management, plan design management and population health management.”

This is the 21st year of Segal’s survey of managed care organizations, health insurers, pharmacy benefit managers and third-party administrators. The survey respondents reported trend forecasts for medical, prescription drug, dental and vision coverage.

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The Segal Group (www.segalgroup.net) is a private, employee-owned consulting firm headquartered in New York and with more than 1,000 employees throughout the U.S. and Canada. Members of The Segal Group include Segal Consulting, Sibson Consulting, Segal Select Insurance Services, Inc. and Segal Marco Advisors.

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