Moody's report shows decline in healthcare utilization due to employee benefits changes

A report from Moody's Investors Services shows that changes in employee benefits plan designs as well as new medical management techniques such as employee wellness programs are playing a large role in reducing demand for healthcare services.

"A number of temporary and cyclical factors contributed to a decreased use of healthcare services during 2010. Foremost among these is stubbornly high unemployment stemming from a weak economy that is undergoing a slow recovery," the report noted. "While the negative impact of these cyclical factors may recede, we think employers and insurers are spurring a more permanent cultural shift in consumer behavior that will continue to put pressure on demand for medical services."

The result is that growth for healthcare demand slowed in 2010 more than Moody's had anticipated. It attributes this to the aggressive efforts by both employers and insurers to modify employee benefit plans and insurance packages that create employee incentives to slow medical expenditures.

These efforts include increased shifting of medical costs to employees through insurance plans with higher deductibles and higher co-pays; a growing use of high deductible plans using Health Savings Accounts; and discouraging employees from using high-cost less effective medical treatments.

[See also: Virginia health system says wellness program saved $3.4M ; Continuing cost pressures among PwC's top six healthcare trends]

But what may be good news for employers and insurers is bad news for the nation's healthcare providers, Moody's notes.

"Slower growth in demand and a focus on cost-effective care are clear credit negatives for most healthcare providers and medical products and device companies," the report stated. "This slowdown could also have negative implications for some pharmaceutical products as insurers use medical management tools that favor lower-cost treatments and continue looking to curb the use of high-cost specialty drugs."

The result is that U.S hospital admissions declined during 2010. In the third quarter, growth rates at for-profit hospitals were a -2 percent, not-for profit hospitals saw growth rates range from an anemic 1 percent to 2 percent to as low as -15 percent in the first half of 2010.