Healthcare Spending Tops $3T, Hospitals and Health Systems Can Help Alleviate the Burden

CFOs and other healthcare leaders will need to take a more proactive approach to ease patients' monetary stress without hurting the organization's financial well-being.

Medical spending in the U.S. has grown exponentially over the last several years, jumping to more than $3 trillion, according to the latest ValuePenguin by LendingTree report. The rising cost of healthcare, higher premiums, copays, and deductibles means that patients are responsible for the bulk of this financial burden.

Between 2016 and 2019 healthcare spending rose to $3.07 trillion from $2.69 trillion, according to the ValuePenguin report. That's an increase of 14.3%. The bulk of the spending increased the most on mental illness (29.4%), neoplasms (22.8%), infectious and parasitic diseases (19%), endocrine, nutritional, and metabolic diseases, and immunity disorders (18.3%). Flu treatment costs and the number of flu diagnoses increased by 120.4% and 121.3%, respectively.

The rise in healthcare spending can have a positive and a negative impact on health systems and hospitals, says Javier Vallejo, CFO for Prism Health North Texas.

"Increased spending could lead to an increased bottom line and improved financial performance of the organization; however, this is at the expense of the patient," he says. "Ultimately, increased healthcare spending will have a disparate impact on vulnerable populations and could lead to reduced access to healthcare services."

Several elements impact the rising cost of healthcare including the way physicians are paid, patients' financial circumstances, and a rise in both medical and non-medical expenses. While there is no doubt healthcare costs will continue to rise, experts agree that there are steps patients and healthcare providers can take to help reduce this financial encumbrance.

"Many factors combined to drive up healthcare spending between 2016 and 2019, starting with a growing and aging U.S. population using health services," says Robin Townsend, a healthcare expert with ValuePenguin. "There has been a rise in the incidence of disease and more frequent use of healthcare overall. Ever-rising drug prices, new procedures, and the cost of technologies like telemedicine also contributed to the uptick in healthcare spending."

There has also been a rise in non-medical expenses as spending on administrative and social admission increased 24.2% between 2016 and 2019 and 15.8% on a per-case basis. Additionally, spending on non-prescription pharmaceutical products increased by 12.7% for the same period.

"Administrative costs are a key factor in the cost of healthcare. They are the third-largest healthcare expense after public health programs and hospital expenditures," Townsend says. "The main driver of these costs is administrative waste. Healthcare providers must navigate myriad insurer policies and payment systems and need competent staffing to manage the process, which can be expensive."

Insurance plans have spent decades trying to control the rising cost of healthcare by transferring a higher percentage of those costs to patients, according to Harold Miller, president, and CEO of the Center for Healthcare Quality and Payment Reform.

"The real problem is that insurance plans pay too little for primary care and other high-value services, and they pay too much for unnecessary and ineffective treatments," Miller says. "To solve this, fundamental reforms are needed in the way healthcare providers are paid."

Miller believes hospitals, health systems, and other healthcare providers should switch to a patient-centered payment system. In a patient-centered payment system, hospitals, doctors, and other healthcare providers are paid sufficiently for providing services each patient actually needs, and they are required to offer high-quality patient care to be compensated for helping that patient.

"Under the current payment system in healthcare, physicians and hospitals are financially penalized when they help patients stay healthy," he says. "Most value-based payment reforms don't solve this problem. Health plans need to start using patient-centered payments that pay adequately for high-quality care and stop paying for unnecessary services and avoidable complications.  The result would be a financial win-win-win for patients, providers, and payers."

Another factor impacting the financial burden being placed on patients is that salary growth hasn't kept pace with rising healthcare costs, according to Townsend. She predicts that consumer out-of-pocket healthcare costs could grow by 10% per year, over the next five years.

"Prevention and good health habits are the best way to avoid costly healthcare expenses," Townsend says. "Patients should participate in every wellness benefit available, such as programs to control blood pressure and cholesterol. Those with access to preventive services like immunizations and diabetic screening should take advantage of those, too. Even if the patient bears the cost, preventive care can save on overall expenses. For example, a flu shot costs between $20 and $75, but an ER visit for a severe case of the flu can cost $730 and hospitalization can run into the thousands. Indirect effects like lost work time make it even more important to take advantage of preventive care." 

One actionable step in preventive care is for hospitals and physicians to provide greater healthcare education to patients to keep care out of the emergency room and urgent care centers. Vallejo says community collaboration can play a huge role in preventive care and education. This can include a community paramedicine program, partnering with local nursing homes and home health entities to provide in-house wellness services, investing more in telemedicine, and getting more aggressive when it comes to following up post-discharge. Hospitals can also make sure patients are aware of the financial assistance programs they offer, which Vallejo says are more common than people realize.

"Organizations could take a more proactive approach to inform and enroll patients into these programs," he says. "Organizations could employ dedicated financial counselors to assist in this process. Having patients take some accountability for their care will help reduce healthcare inflation caused by moral hazards."

Better health comes from overall wellness, whether that is physical, mental, or financial. CFOs and other healthcare leaders will need to take a more proactive approach to help patients alleviate monetary stress without hurting the organization's financial well-being.

"It's important to quickly address barriers to preventive care," Townsend says. "Some hurdles to overcome are cost, limited provider access, and—possibly the biggest obstacle—lack of awareness or understanding of preventive services. Wellness-focused educational campaigns may be key to curbing healthcare costs in the coming years."