The Rising Healthcare Cost and the Effect on Hospital Viability

I. Introduction

Healthcare financial viability continues to be a top trend within the industry.  Healthcare financial viability is a hospital’s skill to produce and manage an inflow of revenue.  All hospitals live by the same philosophy; to provide the best patient care while making a profit. There are several factors that cause healthcare cost to continue to increase.  These factors include; healthcare spending and insurance reimbursements. Hospitals must find a way to increase the profit while providing phenomenal patient care.  What drives the rising health-care cost and how will hospitals maintain financial viability?

II. Findings

Top Trends of the Healthcare Industry

The top three trends of healthcare are: financial viability and the cost associated with healthcare, technological advancements, and how interest in population health management will grow.  The major goal of every business is to make a profit.  Several factors contribute to the rising cost in healthcare and make it difficult for hospitals to sustain financial viability. 

Since the beginning of time, people and technology continue to evolve.  In 2017, almost everyone owns a computer or a smart phone.  In the light of emerging technology hospitals must also keep up with the technological advancements.  Patients now have the luxury of accessing medical records at their own leisure.

The interest in population health management and how it will grow is an equally important trend within healthcare.  Population health management ties into a very important trend on how to lower healthcare cost.  Population health management starts with research to gather data on the patient population.  The data is used to help manage specific diseases within the population.  These actions will help improve the patient population health and the patient satisfactions scores.  The higher the satisfactions scores, the more profit gained.

The Rising Healthcare Cost and the Effect on Hospital Viability

            The first factor that causes healthcare cost to rise is healthcare spending.  Many doctors and managers are worried about having the equipment and supplies required to get the job done while keeping the doors open. The developments of new drugs cause the spike in overall drug prices.  A great deal of time and money is put into the creation, production and the study of new drugs.  The only way for the drug companies to make a profit is to charge the consumer.  Hospitals are forced to spend money on the development of new drugs, to help care for patients.  As seen in figure 1 the money spent on prescription drugs causes’ healthcare spending to spike. 

 Figure 1. (Fiedler, M., & Furman, J., 2015)

Healthcare spending continues to rise as surgeons are using more expensive equipment to do surgeries. Furthermore, new technologies such as robotic surgery are growing rapidly. Many surgeons have been trained on how to use expensive equipment to perform surgeries. The use of robotic surgical systems is expanding rapidly, but hospitals, patients and regulators may not be getting enough information to determine whether the high tech approach is worth its cost (Evans, 2013). 

ADD MORE INFO ON THE ROBATC SURGERY

Additionally, hospitals spend a large amount of money on uninsured patients. There are several expenses associated with patient care. Nonpayment of these expenses makes it difficult for hospitals to maintain financial viability. Uninsured patients cause a financial burden to the hospital. At nonprofit hospitals, an unpaid bill either becomes bad debt for the patient or is written off as “charity care”. Nationally, this adds up to $57 billion in uncompensated care (Lam 2015). 

Technology advancement also causes healthcare cost to rise.  With the change in technology, almost everyone has access to the internet.  Hospitals want the patient satisfaction rates to increase, so access is granted for patients to check lab results in the comfort of their home. 

More information on how technology makes cost of healthcare increase

The second factor that drives healthcare cost and makes it difficult for hospitals to maintain financial viability is insurance reimbursement. The hospital loses money when payment rates are negotiated with insurance companies. The payment that the hospital receives may not be the amount the hospital charges for the service. Payments below cost would result in a loss to the hospital.  

“transition word” Medicare payments to hospital and other private sectors play a critical role in hospital and providers finances. Medicare has created rigid guidelines on how acute hospitals will be paid. If a patient with a chronic illness is released from the hospital and is re-admitted into the hospital for the same illness, Medicare will only make one payment. To include Medicare, also makes supplemental payment to hospitals (Figure 1). Supplemental payments are payments that may or may not be tied to a precise payment. 

Figure 1. Cunningham, P., Rudowitz, R., Young, K., Garfield, R., & Foutz, J., 2016). 

The forth factor that drive healthcare cost and makes it difficult for hospitals to maintain financial viability is chronic conditions.  The rising cost in copayments and urgent care visits, force many United States citizens to abstain from visiting primary care doctor as often as they should.  The individual’s lack of care may cause a chronic condition. According to the Centers for Disease Control and Prevention (CDC), chronic diseases are responsible for 7 of 10 deaths yearly, and treating people with chronic diseases accounts for 86% of America’s total healthcare costs (Trotter 2016). 

The fifth factor that drives healthcare cost is insurance denials. Hospitals cannot afford to leave money on the table by submitting inaccurate claims to insurance companies. Insurance denials play a major effect on hospital viability. Some of these errors may be beyond the control of the hospital. Many of the errors fall on untrained staff and a physician’s lack of focus while billing for test. Many billing errors result in denial. Denials of insurance claims cause a delay on payment to the hospital. The survey conducted by The United States Department of Health and Human Services finds that the rate of denial is 19% but the denial rate increases with the age group of the patient (Keen, A., 2012).  

The sixth factor that drives healthcare cost is competition.  This is simple; the large hospitals that promote receive more business.  The hospitals that tend to go bankrupt are generally independent, smaller and generally not rural (Becker, JD, CPA, & Dunn, 2010).  With the expansion in healthcare, many businesses are now opening up urgent care facilities across the globe to remain competitive.  Urgent care facilities were established to treat a patient when the individual is unable to see their physician for a visit. 

To sustain financial viability hospitals can do a number of things.  The major thing that hospitals can do to sustain financial viability is to give quality patient care.  Quality patient care brings in more money through patient satisfaction surveys.  If a patient feel unsatisfied with their care it may cause the hospital to spend more money on customer service.   

Hospitals should pay close attention to the overhead cost.  The reduction of overhead cost includes; keeping advertising to a minimum, reduce labor costs, and reduce duplications of test. Hospitals spend a substantial amount of money on labor cost.  Each department has a manager. One of the duties of the manager is to keep an eye on the overtime worked by employees.  If the facility is fully staffed with employees with the mission to appease patients, labor cost will remain low. 

The huge expansion to electronic medical records is equally important.  With this huge expansion many healthcare providers have the capability of communicating with other providers.  If the providers use the same electronically medical record each provider has the access to a patient’s outside visit. The electronic medical record was mandated by the federal government yet it cost the hospitals and small offices a huge overhead cost. 

III. Conclusion

In conclusion, there are several trends within healthcare that may bring either total success or total failure, and therefore very important. Healthcare facilities have no desire to go bankrupt.  The only way to keep the doors open to a successful business is to generate profit.  The key factors in maintaining healthcare viability is; excellent patient satisfaction scores and controlling cost.  Hiring top notch, qualified employee is the success of healthcare.  Training of new employees is vital for the success of the organization. People require quality healthcare and hospitals must maintain financial viability to keep the doors open. 

References

Becker, JD, CPA, & Dunn. (2010, September 30). 7 Factors to assess the sustainability of a hospital: Assessing a hospital’s viability, its financial situation and the severity of the threats it faces. Retrieved July 22, 2017, from http://www.beckershospitalreview.com/hospital-management-administration/7-factors-to-assess-the-sustainability-of-a-hospital-assessing-a-hospitals-viability-its-financial-situation-and-the-severity-of-the-threats-it-faces.html

Cunningham, P., Rudowitz, R., Young, K., Garfield, R., & Foutz, J. (2016, June 09). Understanding Medicaid hospital payments and the impact of recent policy changes – issue brief. Retrieved July 24, 2017, from http://www.kff.org/report-section/understanding-medicaid-hospital-payments-and-the-impact-of-recent-policy-changes-issue-brief/

Furman, J., & Fiedler, M. (2015, September 22). New data show slow health care cost growth is continuing. Retrieved July 21, 2017, from https://obamawhitehouse.archives.gov/blog/2015/09/22/new-data-show-slow-health-care-cost-growth-continuing

Kaiser Health News and Marissa Evans. (2013, November 01). Mishaps and deaths caused by surgical robots going underreported to FDA. Retrieved July 24, 2017, from http://www.pbs.org/newshour/rundown/mishaps-and-deaths-caused-by-surgical-robots-going-underreported-to-fda/

Keen, A. (2012, May 13). Effects on physician’s reimbursements: Insurance denials and uncertainty of health reforms. Retrieved July 17, 2017, from http://www.selfgrowth.com/articles/effects-on-physicians-reimbursements-insurance-denials-and-uncertainty-of-health-reforms

Lam, B. (2015, October 13). Who pays hospital bills when patients can’t? Retrieved July 25, 2017, from https://www.theatlantic.com/business/archive/2015/10/hospital-charity-care/410020/

Rivers, P. A., & Glover, S. H. (2008). Health care competition, strategic mission, and patient satisfaction: research model and propositions. Retrieved July 17, 2017, from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2865678/#R18

Trivedi, MD, MPH,, A. (2016, February). Causes of high health care costs – Special subjects. Retrieved July 16, 2017, from http://www.merckmanuals.com/professional/special-subjects/financial-issues-in-health-care/causes-of-high-health-care-costs#v1130189Trotter, P. (2016, June 17). Chronic disease is healthcare’s rising-risk. Retrieved July 16, 2017, from https://www.healthitoutcomes.com/doc/chronic-disease-is-healthcare-s-rising-risk-0001).