The medical cost trend is nearing double digits as health plans feel the squeeze from recent inflationary factors, according to researchers at PricewaterhouseCoopers. Provider adoption of AI-enabled revenue optimization tools, the escalation of payment disputes under the No Surprises Act and the popularity of GLP-1s are all to blame, they say.
In the new research, PwC estimates the medical cost trend to rise to 9% next year -- the highest trend in nearly two decades. This is also the fifth year that health plan actuaries surveyed by the accounting firm anticipate elevated trends in both the group and individual markets.
The individual market trend is projected to be 8.5% in 2027, up from 7.5% this year, researchers said.
Notably, these medical cost trends do not reflect the impact of the expiration of enhanced premium tax credits this year, which helped consumers afford plans sold through the Affordable Care Act's Marketplace since 2022. The lapse in premium assistance is expected to worsen the cost crisis for payers and providers if healthier enrollees exit the market and premiums spike.
For now, though, PwC researchers say investments in technology, regulatory factors and increased drug innovation are among the drivers of rising costs for health plans, which, left unchecked, could push healthcare spending to $9 trillion annually by 2035.
How RCM drives up plan costs
PwC researchers identified five factors driving the expected increase in covering consumer health needs in 2027. Top of their list is revenue cycle management, as providers -- and their vendors -- increasingly use AI for documentation and coding.
About 70% of health plans ranked AI-enabled tools that capture more provider revenue as a top three inflator of the medical cost trend, according to the report. These AI tools not only make providers more efficient at notetaking but also enable more thorough documentation that better captures billable services and patient complexity, researchers explain.
Initial analyses of the impact of these AI-enabled tools support the hypothesis. Research from Trilliant Health released earlier this year found increased outpatient coding intensity following hospitals' adoption of AI scribes. Another analysis from Blue Health Intelligence tied about $2.3 billion more in expected healthcare spending to more aggressive documentation and billing practices enabled by AI.
Providers are also squeezing payers for higher reimbursement rates, PwC researchers stated, identifying this as the second inflationary factor.
Provider organizations are asking payer partners for more money in light of elevated expenses for labor, supplies and drugs, which researchers said have never returned to pre-pandemic levels. Providers also have the upper hand in more healthcare markets, they added, as provider consolidation continues to accelerate.
As such, nearly 65% of survey respondents ranked provider contracting pressure as a top three inflator in 2027.
Utilization trends impacting the medical cost trend
PwC researchers also identified two healthcare utilization trends that will significantly affect the cost of patient care in 2027.
One of the "clearest sources of medical cost pressure," they wrote, is prescription drug spending. More than 85% of respondents said the 2027 pharmacy cost trend will outpace the medical trend.
The adoption of high-cost therapies will also contribute to rising costs next year. Spending on cancer drugs, for example, has already reached $143 billion, according to IQVIA data. That figure is slated to grow as researchers make progress, with manufacturers charging premium prices. Plans can also expect similar growth for clinically administered and infused specialty drugs, PwC researchers added.
The expansion of GLP-1 indications beyond obesity management will also affect the medical cost trend, they said. The FDA has approved the class of drug for common conditions like cardiovascular disease, chronic kidney disease and sleep apnea.
Widespread use of GLP-1s holds promise for lowering overall healthcare costs by addressing high-cost conditions, but researchers noted that this has yet to materialize, according to industry data.
Healthcare consumers are also accessing more behavioral health services, making it an "important medical cost inflator for 2027." This utilization -- up 10% from 2023 to 2024, researchers said -- is driving higher costs rather than unit prices and service intensity.
High costs from the IDR process
The final driver of the rising medical cost trend is provider reimbursement from the No Surprises Act's independent dispute resolution, or IDR, process, PwC researchers found.
The IDR process has become a "reimbursement inflator," they said in the report, citing statistics that show providers won 88% of disputes with payers in 2.6 million cases filed last year.
The law, however, was meant to reduce medical costs not only for patients but also for payers, according to the Congressional Budget Office. That has yet to happen, as significantly more payment disputes are submitted to the IDR process for reconciliation.
Providers are also winning payment rates well above the qualifying payment amounts, or QPA rates. QPA ratesare payer-calculated median in-network rates that the IDR process uses as a key payment benchmark.
Providers have argued that payers tend to artificially deflate QPA rates, but the process has still yielded a median rate of 459% of the QPA when providers win, according to research from Georgetown University.
Payers have a close eye on the IDR process in light of these trends. They are monitoring dispute patterns and service pattern concentration, in addition to better documenting QPA calculations and establishing more effective dispute-eligibility defenses, researchers said.
More direct efforts to control out-of-network spending through reimbursement policies are also on the horizon, they continued. Providers can expect stricter contracting provisions and network strategies that reduce reliance on nonparticipating providers.
How payers could deflate the cost trend
These network and reimbursement strategies will be top of mind for payers as cost trends reach a record high. Price transparency, value-based contracts focused on specific cost drivers and guidance that steers patients to lower-cost care sites are among those strategies.
Payers and providers will also see stronger payment integrity efforts to assess high-dollar claims before payment, especially with AI-enabled documentation and coding tools. Payers will also be tracking provider-level severity drift and integrating contract terms, payment policy and claims edits into a single accuracy engine, researchers said.
"Rising healthcare costs are forcing every stakeholder to examine costs, quality and value, and rethink their role in the system," Thom Bales, principal and U.S. health services advisory leader at PwC, said in a statement to RevCycle Management.
"Payers are looking for new ways to manage affordability, providers are under pressure to deliver value, and patients are increasingly bearing more of the financial burden. The organizations that succeed in the next decade will be the ones that move beyond traditional roles and work together to create a more transparent, consumer-focused, and sustainable healthcare experience," Bales stated.
Jacqueline LaPointe is an Executive Editor at Xtelligent Healthcare Media, covering revenue cycle management, healthcare payers, health policy and health IT since 2016.
