Rising Healthcare Costs: How Technology can Reduce the Costs?

• March 25, 2024

Navigating healthcare in the U.S. isn’t just challenging; it’s often overwhelming. Between the high costs, the long waits for appointments, and the looming threat of medical debt, many are left wondering if the system works for them at all.

Hospitals serve a vital role in their communities, but the past few years have presented many significant challenges to their financial viability. Health spending has increased all around as a result of general inflation, rising prices for prescription drugs, higher wages for healthcare providers, and many other factors.

Heading into 2024, only 3% of health system executives have a “positive” outlook on the coming year. On the surface, pressures to improve quality and outcomes contrast with the precarious financial position hospitals find themselves in today. During 2023, a number of U.S. hospitals closed their doors or announced plans to close. Many question whether this trend will continue this year.

Let's explore the drivers of rising healthcare costs, the impact on hospitals, and steps they can take to rein in health spending.

Factors Increasing Healthcare Costs

In its recent report, The Commonwealth Fund cited "administrative costs, specialty drugs, and physician and nurse wages" as contributing to excess healthcare spending" in the United States.

But this is just the tip of the iceberg. There are many other underlying factors driving high health spending growth, including an aging population, rising rates of preventable chronic health conditions, and non-acute care provided in high-cost acute care settings

1. Inflation

   Higher general inflation has increased healthcare costs in a variety of ways, with the American Hospital Association (AHA) citing factors such as the rising cost/shortages of raw materials contributing to more expensive hospital supply and medical device costs; higher building material costs and shortages impacting hospital capital expenses; and increases in interest rates, "which may hamper borrowing options and add to overall costs."

2. Administrative Costs

   Administrative costs for healthcare services, defined as "what is left over after accounting for clinical activities," compromise 15-30% of healthcare spending. The administrative burden on healthcare providers, including costs for general administration, human resources, and quality reporting and accreditation, is estimated to comprise 15% of overall excess administrative costs in the healthcare system.

3. Labor Costs

   The Covid 19 pandemic had a direct impact on increased healthcare spending, particularly those related to labor costs, and these cost pressures continue to burden the U.S healthcare system. A recent report on pay trends in the U.S. health care industry revealed how 2022 saw the highest salary budget increases in nearly 20 years.

   There is currently tremendous pressure on hospitals and other health providers to increase wages for physician services, clinical services, and healthcare support services. For example, in October 2023, Kaiser Permanente agreed to a 21% pay increase after over 75,000 workers went on strike. During the same month, California Governor Gavin Newsom signed the "nation’s first law creating a statewide healthcare worker minimum wage standard and the first to raise the minimum wage to $25 per hour."

Impact of Healthcare Costs on Hospitals

The high cost of health spending has broad impacts, including higher national health expenditures, Medicare spending, health insurance premiums for private insurers, patient average annual premium, monthly premiums and out of pocket costs, all of which place financial pressures on hospital services. Below are some ways total healthcare costs and spending growth impact U.S. hospitals.

1. Financial Strain Driven by Rising Healthcare Costs

   As reported in the Becker's Hospital CFO Report, "Health systems face continued weak margins, high expenses and low reimbursements for the next year."

   Fitch Ratings’ 2024 outlook for U.S. not-for-profit hospitals and health systems noted how labor shortages and salary/wage/benefit pressures are still "compressing margins for a sizable portion of the sector, even as other core credit drivers, specifically volumes and overall liquidity, begin to improve." While "Fitch believes this pressure will remain for the foreseeable future yet slowly resolve”, the agency "expects a number of health providers to lag significantly behind any recovery."

2. Quality of Care vs. Cost

   The transition from volume-based to value-based payments over the past few decades has intensified national focus on healthcare prices, total cost of care, and overall health spending. According to the AHA, the CMS Hospital Value-Based Purchasing Program "affects payment for inpatient stays in more than 3,000 hospitals across the country."

   Looking ahead, CMS estimates the total amount available for value-based incentive payments is approximately $1.7 billion for FFY 2024.

   Investments in value pay off - studies have shown how quality care improvements can help combat rising healthcare costs.

   Researchers from Texas State University conducted an Exploratory Analysis of the Association between Hospital Quality Measures and Financial Performance, which was published in October 2023 edition of the journal Healthcare. Their conclusion: "We can confidently indicate that the effort expended to enhance the patient experience, reduce readmissions, and improve patient safety is associated with improved hospital financial performance."

3. Influence on Hospital Staffing and Resources

   Skyrocketing labor costs for medical care delivery and staffing shortages have been primary factors in increased health spending since the COVID 19 pandemic. Widespread clinician burnout and an increase in those leaving the medical field have forced many hospitals to hire costly contract labor to fill staffing gaps.

   Higher labor costs, in turn, have increased the cost of health services. Hospital total expense per patient rose 22.5% from 2019 to 2022.

   As a result of financial pressures, many hospitals resorted to layoffs and staffing cuts in 2023, mainly among administrative staff and upper-level management as opposed to patient-facing employees. As Fierce Healthcare reported, "many organizations paired their layoff announcements with notices that they were continuing to aggressively hire nurses and other clinical positions

4. M&A, Expansions and Rising Healthcare Costs

   Mergers and acquisitions among health systems are rebounding back from pre pandemic levels. In many cases, it is financial distress that is driving M&A activity, according to The Advisory Board, which reported how 40% of the 18 healthcare transactions that occurred in Q3 2023 "involved organizations that cited 'financial distress' as a driver for the transaction."

   Private equity investors are also increasing acquisition of hospitals and other health services providers, spending $1 trillion in the past decade. The quality of care under private equity ownership has been called into question, mostly recently by researchers from Harvard Medical School, who found:

   "Private equity acquisition of hospitals, on average, was associated with increased hospital-acquired adverse events despite a likely lower-risk pool of admitted Medicare beneficiaries, suggesting poorer quality of inpatient care."

   Other research has found private equity ownership increases healthcare costs, with researchers stating, "Such ownership is often associated with harmful impacts on costs to patients or payers and mixed with harmful impacts on quality."

Role of Technology in Controlling Costs

Improved Efficiency Through Automation

The healthcare system is constantly overburdened. Longer patient lifespans, chronic diseases, and staffing shortages have created many obstacles for healthcare providers. Technology can provide a more straightforward way forward by automating outdated processes. For example, many administrative tasks can be shifted from manual and tedious to intelligent and seamless to improve efficiency and ultimately reduce provider costs

1. Appointment Scheduling: AI-powered scheduling systems or apps can automate appointment booking and reminders. This reduces manual tasks for administrative staff and ensures efficient resource allocation. Providers can avoid using third-party schedulers, and the costly consequences of poor scheduling like staff overtime or temp hires to handle overflow
2. . Insurance Claims: : Automation can accelerate the insurance claims process by eliminating manual data entry, sorting, and verification. Claims can be submitted within minutes and processed much more quickly, reducing the time it takes to settle a claim. This decreases the need for manual labor, helping providers save time and money, which can be redirected to other areas of the business.
3. Medical Records: Automation significantly improves the accuracy of medical records by reducing human error. With automated systems, providers can eliminate manual data entry and easily detect inconsistencies. Patient data from multiple sources can also be integrated into a single, comprehensive patient record, reducing the time and effort required to access and update patient records.

RELATED: Practical How Healthcare Automation Can Enhance Efficiency, Interoperability, and Patient Care?

By implementing AI-powered systems to automate administrative tasks, healthcare providers can improve efficiency, reduce costs, and free up resources. The industry can also improve accuracy and patient outcomes by reducing manual labor and human error. As technology advances, we expect to see even more opportunities for automation in healthcare and further reduce costs.

Remote Visits with Telemedicine

Telemedicine is the practice of providing healthcare services remotely using telecommunications technology. Healthcare providers can connect with patients who can’t attend in-person appointments via video conferencing, phone calls, text messaging, and email.

Telemedicine allows patients to receive medical care from the comfort of their own homes, reducing the cost of care for both patients and providers. Patients no longer need to travel to in-person appointments, whether to their local doctor's office or a far-away specialist, allowing them to save on travel-related expenses. Providers can use telehealth to see patients more efficiently without the need for a lot of office space or equipment, reducing their overhead costs. For example, telehealth adoption surged during the COVID19 pandemic, with a McKinsey report indicating that providers saw 50 to 175 times the number of patients via telehealth than before the pandemic, highlighting its potential to maintain continuity of care and patient engagement.

Telemedicine can also be used as a cost-effective follow-up method, reducing the need for additional expensive visits.

Remote Patient Monitoring and Wearables

Remote patient monitoring (RPM) allows healthcare providers to monitor and collect patient data outside of traditional healthcare settings. Sensors in connected devices or wearables track patients’ conditions in real time and send the data back to providers, giving them a continual, real-time view of the patient's health.

Remote patient monitoring devices and wearables enable new methods of patient care that not only make care more accessible but also more affordable.

1. Reduced Hospital and Emergency Room Visits: Using RPM, providers can monitor patient conditions from anywhere and make proactive changes to treatment plans as needed, reducing hospital and emergency room visits. This is especially impactful for patients with chronic conditions requiring long-term care and adhering to post-op treatment plans.
2. Improve Medication Adherence: Medical professionals can use real-time data on patients’ activity and vital signs from wearables to monitor for proper medication intake. They can quickly intervene if a medication is missed or taken out of the cycle. Patients not adhering to their prescriptions can create unnecessary costs from wasted prescriptions or additional hospital visits.
3. Improved Care Coordination: RPM helps increase alignment and communication between patient and provider. With real-time data on their health, patients can better manage their conditions and make more informed decisions about their own care. Meanwhile, providers can detect potential problems earlier and use telecommunication methods to quickly communicate needed adjustments to patients.

By enabling real-time monitoring of patient conditions and facilitating better communication between patients and providers, RPM can help reduce the need for hospital and emergency room visits, improve medication adherence, and enhance care coordination. As RPM technology continues to evolve, we will see even more innovative uses of this technology to help improve the overall quality of care for patients.

RELATED: Embracing Remote Patient Monitoring: A Guide for Healthcare Providers

Conclusion

As we wrap up our digital deep dive into healthcare’s future, we’re clearly not just stepping but leaping into a new era. An era where technology doesn’t just support healthcare; it propels it forward, making “waiting rooms” a term for the history books and transforming patient care into a personalized, predictive, and, dare we say, pleasant journey. The pandemic wasn’t a pause; it was the push we needed to see what’s truly possible when innovation meets intention.

For the healthcare providers and HIT wizards out there, feeling the weight of this digital evolution, remember, you’re not alone. KPi-Tech Services, armed with 22+ years of battling in the tech trenches, is here to lighten that load. Whether it's implementing telemedicine solutions, developing custom healthcare software, or integrating disparate systems for seamless data exchange, our expertise ensures that healthcare organizations can navigate the evolving landscape with confidence.

From streamlining administrative processes to implementing AI-driven solutions, KPi-Tech serves as your healthcare IT partner, empowering you to focus on delivering exceptional care while we handle the intricacies of technology. Let us be your healthcare IT cavalry, guiding you towards a future where innovation meets intention, and patient care takes center stage.