Hospitals are striving to make health care more cost-effective and efficient for patients, while providing the nation’s most complex and resource-intensive care.
- If the past eighteen months have proven one thing, it is that hospitals are critical to providing life-saving care to their communities.
- This has been especially true throughout the pandemic, as hospitals have provided essential services despite facing financial and operational challenges.
Why it’s important: Affordable health care is one of the biggest concerns facing many Americans. And health care spending likely will continue to rise to meet the needs of an aging population.
- Hospitals and health systems provide complex, life-saving care, but the country’s fragmented health care system often leaves many hospitals with a daily balancing act to maintain their mission to serve their communities.
The background: Recent health care spending growth has been driven by the increased use and intensity of health services, not by rising medical prices.
- More people are insured — the number of uninsured nonelderly Americans fell from 48 million in 2010 to 30 million in the first half of 2020.
- People are living longer — The U.S. population over age 65 increased 60% from 2000 to 2020 and is expected to increase another 44% from 2020 to 2040.
- More people have chronic diseases - Over half of American adults have been diagnosed with at least one chronic condition and 27% have two or more.
Hospitals Role: Hospitals and health systems have remained leaders in controlling costs within the health care field.
- Hospital price growth averaged just 2% annually from 2010 to 2020.
- Meanwhile, health insurance premiums have increased 4.4% per year on average since 2010.
Hospitals face significant challenges as they work to reduce the cost of care while maintaining operations.
The challenge: Hospitals have a variety of costs associated with providing care, including wages, prescription drugs, food and medical devices.
- Wages and benefits account for well over half of inpatient hospital costs.
- Life-saving items such as cardiac defibrillators can cost more than $20,000, while more complex models can cost roughly $40,000.
- Hospitals have invested resources in bringing new therapies and technologies to their patients, but this often raises the cost of providing care.
Steep increases in input prices, like rapidly escalating drug prices and labor costs, can undermine hospitals’ efforts to reduce the cost of care.
- Prices for drugs purchased directly from manufacturers increased at nearly twice the rate of retail drugs over the past decade.
Additionally, meeting the unique burden of requirements of over 1,000 insurers, including extensive government regulations, results in tremendous administrative and cost burden to hospitals.
COVID-19 has heightened a number of these challenges, as hospitals faced steep financial losses estimated at $54 billion in net income in 2021, with more than a third of hospitals expected to have negative operating margins through year’s end.
- Hospitals also experienced dramatic increases in expenses because of COVID-19’s care complexity, supply chain and labor shortages, travel nurses, personal protective equipment (PPE), vaccine testing and distribution.
A recent analysis of workforce data found:
- Staffing shortages have cost hospitals approximately $24 billion so far.
- Hospitals have also spent an additional $3 billion in acquiring PPE for the additional staff.
- Hospitals’ use of contract temporary labor is up 132% for full-time and 131% for part-time staff.
Learn more about how hospitals are providing accessible and effective care.