Many factors are driving the growth of healthcare spending. The number of insured individuals has grown – in large part to the Affordable Care Act – with an additional 16 million Americans having access to compensated care since passage of the Act.
In addition, the aging of the U.S. population as the so-called baby boomers reach retirement age is pushing the number of Americans aged 65 or older to an all-time high. As utilization of health services increases dramatically after age 65, the result of an aging population on top of already increased numbers of insured is projections of healthcare spending reaching close to 20% of our gross domestic product.
Who’s spending this money? Increasingly it’s the healthcare consumer. Out-of-pocket costs for premiums and deductibles doubled to nearly 9.6% of household income between 2003 and 2013, according to data from the Commonwealth Fund. Despite the rise of consumers’ out-of-pocket costs, hospital leadership still want and need to to control costs. Hospital operating margins are slim – according to a June 21, 2014 Modern Healthcare article the average is 3.1% – so eliminating waste and inefficiency is vital.
Clearly the way we provide and pay for healthcare must evolve. Historically a fee-for-service system has meant that hospitals perform the procedures considered necessary to ensure best outcomes. Hospitals must charge more for more procedures, striving to at once realize best outcomes and greatest reimbursement from this volume-based approach.
But this fee-for-service model doesn’t always work. It doesn’t necessarily follow that providing more and more scans, tests and treatments results in better outcomes. And as healthcare spending approaches 20% of our GDP, this evolution is not only necessary, but becomes urgent.
What’s next? How do we achieve best outcomes at the best cost? In the next entry we’ll look at how reimbursement that’s adjusted on value is pushing us to look beyond the revenue cycle to the value cycle.