Medical expenses in the US continue to skyrocket. Findings from a recent study by the John Hopkins School of Public Health determined that the US has the highest cost of healthcare in the world. Medical spending in this country is expected to reach $6 trillion by 2027. This steady increase is becoming a considerable burden for patients and the economy. But what are the drivers of higher hospital patient costs? And are there any ways to control them?
Factors Driving Higher Medical Expenses are Numerous and Complicated
The main influences on higher patient costs are multifaceted and often in flux. There are also variations depending on region and state. There is no clear-cut answer to what is becoming an epidemic. Since the US operates a for-profit healthcare system, any reduction in patient costs impact the viability of health systems, further complicating the situation.
Why Are Patient Costs Rising?
Much of the rising costs of healthcare are related to population growth and aging. According to a study in the Journal of the American Medical Association (JAMA), healthcare spending increased by $933.5 billion from 1996 to 2013. The study looked at the “why” of this increase, finding five factors:
- Population growth: this accounted for a 23.1% increase in spending
- Population aging: an older population was responsible for 11% of the increase
- Disease prevalence or incidence
- Service utilization
- Service price and intensity: this factor resulted in a massive 50% rise in spending
With a growing and aging population, more people are qualifying for Medicare and Medicaid, two of the country’s biggest payers. The fundamental result of a growing and aging population is that more people may get sick, equating to more spending.
Regarding service price, the reality is that Americans were charged for healthcare products and services. Much of this was due to new or technically advanced treatment. As the intensity of care increases, so do overall costs. This study reaffirms that US citizens pay higher prices for healthcare than any other country. There are calls from experts, stakeholders, and the medical community to address what some call price gouging. That’s great, in theory, but a huge challenge considering all the factors that go into patient costs.
What’s Driving Up Medical Expenses?
There are many underlying and correlating factors that drive prices and utilization. Many issues are increasing patient cost sharing, which includes deductibles, coinsurance, and copayments. Let’s look at this key causes of higher medical costs.
- Fee-for-service reimbursement: in this model, there is an incentive for a high volume of tests and services, regardless of if they improve patient care or outcomes
- Fragmentation of care delivery: providers are paid based on volume, not patient outcomes; meaning there is no push to be more efficient in treating patients
- Administrative burdens: the complexity of the US healthcare system is stymied by paperwork, so more admin resources are required by providers and payers, raising costs
- Aging populations: as discussed, this is key reason for higher medical costs because life expectancy is now longer, so people need care longer
- Rising rates of chronic disease: more people have chronic diseases, sometimes due to rising numbers of obese individuals and other lifestyle choices, accounting for a disproportionate percentage of overall health spending
- New technology: this is certainly good for patients with diseases and ailments that before had limited treatability but using these increases expenses
- Tax treatment of health insurance: because employer-sponsored health insurance tax exclusion encourages more generous benefits, the federal government is losing money
- Lack of standards of care consensus: transparency is missing around cost and quality of care, and without this information, it’s impossible to make a fair comparison, forcing patients and clinicians not to use the most cost-effective treatments
- Regional variation causes imbalances in market power: there are no real market forces to limit high pricing
- Provider consolidation: while this could improve the delivery of care, it may also increase costs because there are no alternatives
- Legal challenges: the current US legal and regulatory environment is contributing to rising prices because it’s preventing the transition to more cost-effective care
- Medical malpractice: physicians fear of lawsuits has them often ordering unnecessary tests and treatments
- Fraud: tens of billions of dollars are lost every year to healthcare fraud
- Clinician shortages or maldistribution: lack of a healthcare provider (often specialty doctors) can cause patients to seek help from higher-cost providers
- Use of ER versus physician offices: patients that don’t have access to a primary care or specialty physician end up in the ER, which is much more costly
- Hospital prices grow substantially higher: a new study found that hospital prices rose 42% from 2007 to 2014, mostly due to overhead
The increase in medical expenses is not expected to slow down. Healthcare has become a political lightning rod with no clear solutions. Value-based care may be a partial answer to higher patient costs, which is something CMS has been pushing for some time.
There are consequences to higher patient costs. Individuals are faced with higher costs that they can’t reduce without impact accessibility to healthcare. This reduces disposable income and consumer spending. It also limits economic growth and restricts wages.
The future of healthcare spending is a huge gray area right now and a concern for all those involved, including those that provide services and products to the healthcare industry. Keeping a pulse on this issue will be vital to how you approach the industry now and in the future. Stay on track with this trend and many others affecting healthcare by subscribing to our blog.