November 3, 2021

There’s no doubt about it: Nicholas Cage is one of America’s finest actors. In fact, he is so good at his craft that he has been among Hollywood’s highest-paid personalities, amassing at one point $150 million in acting fees. That’s quite a chunk of change. However, the Academy Award winner lost much of his fortune due to questionable spending habits. It wasn’t like his National Treasure was Gone in Sixty Seconds, but over a period of time he eventually found himself broke and in trouble with the IRS. What could have possibly happened? Some suggest it was his purchase of the dinosaur bones or the 50 vehicles or the 15 estates and two castles, or any number of exotic acquisitions with which he has been associated over the years. Perhaps it would have helped to take an inventory of his balance sheet from time to time.

It’s a good idea, you know. We should all make time, on a periodic basis, to take stock of where we are from a financial standpoint. That goes for hospitals, as well; and, to that end, one organization is leading the way. Last month, the American Hospital Association (AHA) produced a report that sought to gauge the costs generally incurred by America’s hospitals and health systems. The report, released late last month, addressed several drivers of hospital spending, which we will summarize below.

Increase in Utilization

Over the last few years, it has become apparent that the growth in healthcare spending has been exacerbated by the increased use and intensity of services. Here are some of the specifics, according to the AHA’s findings:

Increased use is largely driven by an increase in the number of people with insurance. The number of uninsured nonelderly Americans fell from 48 million in 2010 to 30 million in the first half of 2020.

An aging population uses more healthcare. Between 2000 and 2020, the U.S. population aged 65 and over increased by 60 percent. From 2020 to 2040, it is expected to increase by another 44 percent.

Over half of American adults have been diagnosed with at least one chronic condition such as diabetes and heart disease, and a quarter (27 percent) have two or more chronic conditions.

Hospitals have invested resources in bringing new therapies and technologies to their patients, like CAR T-cell therapy, which often raises hospitals’ costs.

Hospital price growth had averaged 2.0 percent annually from 2010 until the beginning of the COVID-19 pandemic. Health insurance premiums, however, have increased 4.4 percent per year on average since 2010.
Increase in Supply Prices

As the report points out, hospital care requires a range of outlays for items such as “prescription drugs, food, medical devices, utilities and professional insurance. Steep increases in input prices, like rapidly escalating drug prices, can undermine hospitals’ efforts to reduce the cost of care.” Here are some specific indicators of such increases:

Drug prices for purchases directly from manufacturers, including those by hospitals and other providers, increased at nearly twice the rate of retail drug prices over the last decade.

Medical devices such as cardiac defibrillators typically cost more than $20,000, while higher complexity models can approach $40,000. Common items like artificial knees and hips often are priced in excess of $5,000.

Investments in new technologies is another cost escalator. In 2017 alone, hospitals invested more than $62 billion in electronic medical records (EMRs) and other IT systems that record, store and transfer patient data securely among medical professionals.

Hospitals deal with over 1,000 insurers, which typically have several different plan options. Meeting the unique requirements of these payers, including extensive government regulations, results in tremendous administrative and cost burden to hospitals and health systems.
Increase in Compensation Commitment

According to the report, “employee wages and benefits constitute the largest percentage of costs for inpatient hospital services.” The AHA study found that hospital wages and salaries accounted for 56 percent of the average facility’s overall spending. The report did not detail the extent to which these costs have risen, but there can be no doubt that many facilities have seen a steady rise in what they pay out in compensation due to increasing salary demands, overtime, stipends and the cost of bringing in travel nurses.

The cost of doing business is clearly steep and looks to be getting steeper. That’s why many hospitals are under water right now and will have to develop new strategies to stay afloat in the months and years ahead. If you wish to review the AHA’s full report, you can access it here at Cost of Caring | AHA. Remember that you can always reach out to us at info@miramedgs.com for a summation of our hospital-based business services.