Financial perils in the healthcare industry continue. Costs rise. Deductibles increase. Hospital debt forces closures. The impact of soaring health costs reaches everyone involved, from the providers of services to the patients.
Reports show us just how much the cost of healthcare has increased and due to what factors. Furthermore, stock performance signals failing medical device companies caused by excessive pricing. Let’s dig into the news to see what’s happening; what the U.S. can do to lower costs; and how healthcare IT solutions can help.
Rising Healthcare Costs Continue
On Tuesday, November 7, the medical journal JAMA released an analysis that found healthcare spending in the United States has risen by approximately $933.5 billion from 1996 to 2013. Information was collected from 155 different health conditions and six treatment categories, including:
- Outpatient (hospital)
- Emergency services
- Dental care
- Nursing facilities
Five factors were analyzed for changes and how they related to healthcare services, including aging, population size, use of services, disease incidence, and service price and intensity. Four takeaways from this report include:
Rising Price of Services
While multiple reasons were cited for the increase in cost – more than half of this climb ($583.5 billion of the $933.5 billion increase) was directly caused by higher prices for healthcare services, especially inpatient care. The growth in population accounted for $269.5 billion and aging of the population led to $135.7 billion of the total.
More Spending on Certain Conditions
Diabetes was the condition cited for the greatest increase of $64.4 billion from 1996 to 2013. Interestingly, the majority of this expense was spent solely on the medications used to treat the disorder. Other cost increases for specific conditions include:
- Low-back and neck pain $57.2 billion
- Hypertension $46.6 billion
- Hyperlipidemia $41.9 billion
- Depressive disorders $30.8 billion
- Falls $26.0 billion
- Urinary diseases $30.2 billion
- Osteoarthritis $29.9 billion
- Sepsis or bloodstream infection $26.0 billion
- Oral diseases and disorders $25.3 billion
Ambulatory care, which includes both outpatient hospital services and emergency department care, increased from $381.5 billion to $706.4 billion annually. This makes outpatient care the highest of the five types that were analyzed.
As mentioned above, diabetes was the condition with the most profound cost increase. In fact, $44.4 billion of the $64.4 billion increase for diabetes care was spent on medications to treat and prevent the condition.
What Consumers can Expect to Pay in 2018
Healthcare costs are certainly rising and payers, insurers, hospitals, and everyone else involved are feeling the effects. CNBC News reports that family plans can expect out-of-pocket maximums in excess of $7,000 in 2018 and that workers will pay an average of $2,752 in premiums.
While the overall cost continues on a steady incline, the price for co-pays is down from 2005 according to analysis from the Kaiser Family Foundation (KFF). In reviewing the graph (click to enlarge), it’s noted that in 2005 employees paid an average of $218 toward co-pays and in 2015 that average has dropped to $139.
Matthew Rae, senior policy analyst at KFF explains, “Money spent on co-pays is going down because fewer people have them.” Rather, insurers and plans use coinsurance that splits costs with employees, and they are charged only a percentage of the overall cost of service, instead of the traditional flat dollar fee.
Expensive Equipment Causes Hospitals to Shop Around
The cost of healthcare equipment and devices is so expensive, that hospitals and organizations are starting to look to new and innovative supply companies. Amazon, and others that are coming into the industry entice organizations by providing quality equipment at lower prices.
ABC News reported on U.S. stocks that dropped largely due to ]falling health stocks. Namely, the medical device and healthcare equipment industry is taking a hit as new suppliers, such as Amazon, are selling quality medical equipment for a lower cost than the typical manufacturers that have held dominance in the industry for more than a decade.
Amit Hazan, a Citi Investment Research analyst, explained that Amazon is making such quick progress in the medical supply and equipment industry, that it’s likely the tech giant will be selling goods to hospitals directly in the near future. Because of the rise of healthcare costs, many organizations are already interested in partnering with the company. Hazan wrote:
“New online distribution/wholesaling models like Amazon’s will come to dominate the supply chain.” Who are the mega-corporations that are falling? Here are some examples:
- Baxter International fell $1.35, or 2.1 percent, to $64.04
- Becton, Dickinson fell $5.25, or 2.3 percent, to $219.23
- Medtronic fell $1.48, or 1.8 percent, to $79.33
What the U.S. can do to Stop the Increase of Healthcare Costs
A new study from Health Affairs examines the delivery of quality healthcare services from around the world and concludes that the U.S.can curve the cost by adopting more ‘frugal innovations’, which are defined by the study as ‘good enough’ products that are affordable and meet the consumer’s needs. Yasser Bhatti, one of the authors of the study, explains:
“The U.S., and indeed the rest of the world, is increasingly concerned about escalating costs of healthcare, and in order to contain these, they need to be open to learning from new models and from new places that have tried more frugal approaches.”
How IT Ties into Healthcare Costs
Integration of healthcare technology has been a significant expense over the last decade in the healthcare industry, that was not optional in many aspects. Centers for Medicare & Medicaid Services’ (CMS) Meaningful Use programs continue to offer incentive-based payments for hospitals that adopt and implement certain IT-use standards. Stage 1 of the Meaningful Use program mandated the adoption of electronic health records (EHR) in order to receive Medicare and Medicaid payments.
Forbes reports that medical technology has contributed greatly to this growing cost, and accounts for 40-50 percent annually in cost increases for healthcare. The article does point out that the healthcare industry’s “technological advances over the last several decades have been monumental and have served the industry very well.”
While the investment in healthcare IT may cost organizations more upfront, in the long-run, the addition of tools, such as revenue cycle management software, has been shown to decrease overall operational expenses. A report from Science Direct demonstrated this effect in a recent study. The authors stated that:
“The usage of financial management systems is associated with lower hospital operating expenses. Furthermore, we find that not-for-profits and urban hospitals are more likely to exhibit greater conformance with process quality metrics, while for-profits exhibit lower operational expenses.”