Steep American healthcare costs are projected to continue climbing for the foreseeable future. Amid pandemic aftershocks in the U.S. healthcare system, cost management efforts have gained traction in some instances but are only getting started in others. Meanwhile, economic, regulatory, technological and health trends are buffeting organizations’ budgets. Even as telehealth lowers expenses, for example, the needs of an aging U.S. population raise them back up. This article describes leading cost drivers and controls — with a focus on how CFOs and financial management professionals can use digital technology to improve the performance of hospitals, health systems, physician practices and health plans.
What Is Healthcare Cost Management?
Healthcare cost management aims to balance efficiency and quality in the delivery of care. Striking this balance has become more difficult in a healthcare environment characterized by staffing shortages, drug scarcities, accounts receivable backlogs and other cost drivers. In fact, 89% of doctors’ practices have seen their operating costs increase in 2023, according to a survey by the Medical Group Management Association (MGMA).
To bring costs under control, healthcare organizations are adopting new technology to optimize clinical and operational workflows, support doctors’ decision-making, provide remote care and automate administration. Digitally transforming these and other processes allows clinicians and administrators to share data and collaborate with colleagues, partners and patients.
Key Takeaways
- U.S. healthcare costs continue to mount in the aftermath of COVID-19.
- Solutions are emerging for the delivery of more efficient, quality healthcare, but not all are making a difference in the near term.
- Digital technology is helping healthcare organizations manage costs and improve performance.
Healthcare Cost Management Explained
Healthcare leaders are pulling four big levers in their efforts to reduce spending while increasing quality: financial, operational, clinical and policy.
- Financial: To set the financial framework for managing costs, chief financial officers and their teams at healthcare organizations are digitally enhancing their budgeting and forecasting. The latest techniques, such as dynamic forecasting, integrate financial and operational data from within their organizations with external data to forecast demand and care-delivery requirements throughout the year — not only during the annual budgeting process. By using external data on economic and health trends to adjust internal resource allocation, for example, healthcare organizations can identify and head off problems as they arise.
- Operational: To run healthcare organizations more efficiently, management has turned its focus to automating and streamlining administrative processes, especially revenue cycle management (RCM). RCM handles procedures from the moment of scheduling appointments through a gauntlet of insurance-related steps, such as eligibility verifications, prior approvals, claims submissions and denial management — ultimately resulting in remittances from insurers and collections from patients.
- Clinical: Technological advances, such as electronic health records, remote monitoring, telehealth and clinical decision support tools, are redefining doctor-patient care by facilitating collaboration among physicians, enabling remote care and equipping doctors with immediate access to the best available medical information.
- Policy: Policymakers have been mobilizing the healthcare industry around new models of care. The move is away from fee-for-service payments that reward the volume of medical services delivered over the quality of these services. Instead, healthcare organizations are implementing value-based care models to achieve better patient outcomes more efficiently, with more information sharing among collaborative care management teams.
Why Is Cost Management in Healthcare Important?
Not only are healthcare costs rising, but providers’ operating margins remain extremely tight after some turned negative during the pandemic. For example, U.S. hospitals’ median year-to-date operating margin in July 2023 was 1.3%, according to the National Hospital Flash Report. This squeeze can leave little to invest in providing high-quality healthcare and less to report as profits. In the current healthcare system, the three biggest cost centers are:
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Operational spending: The operational spending category, also known as administrative spending, covers necessities such as facilities, administrative staff and billing, and accounts for 15% to 30% of a healthcare provider’s budget. About half of these costs, however, are considered wasteful, according to the Council on Health Care Spending and Value, a high-level working group on the future of healthcare.
Attention has turned to streamlining and automating administrative processes, such as RCM. Automation relies on technologies, such as enterprise resource planning (ERP) systems integrated with accounting software, customer relationship management solutions and other modules, which interact with insurers via electronic data interchange or application programming interfaces. Other options include specialized RCM software or RCM outsourcing services.
The Council for Affordable Quality Healthcare (CAQH), an alliance of health plans, providers and other organizations dedicated to streamlining the business of healthcare, says that today, nine out of 10 eligibility verifications are conducted electronically. However, electronic processing of prior authorizations and claim status inquiries remains much lower — an indication that recent pandemic and post-pandemic trends have disrupted progress, according to the CAQH.
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Clinical spending: Inflation and staffing shortages are driving up clinical expenses of all sorts, from doctors’ and nurses’ salaries to medical supplies, pharmaceuticals, tests and equipment. On the other hand, how and where patients access care is shifting, with the acceleration of cost-saving technologies, such as telehealth, and the move to outpatient, ambulatory surgery centers and other less expensive sites of care. A recent report from the PwC management consultancy lists what it calls inflators and deflators of clinical costs, including:
Inflators
- Economic inflation
- Workforce shortages leading to higher wages
- Physician practice consolidation, expected to raise costs in the near term
- Higher patient demand
- Drug price increases due, in part, to shortages and new pharmaceuticals, such as biologics
Deflators
- Shift from inpatient hospital settings to less costly ambulatory surgical centers
- Home-based services and virtual care
- Introduction of “biosimilar” drugs that can replace brand-name biologic drugs at half the price
So far, though, the deflators have not surpassed the inflators. Among trends with the potential to deflate future costs, according to PwC, are value-based healthcare, preventive care, transparent pricing, regulatory mandates and advanced data analytics.
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Behavioral spending: Behavioral health visits surged during the pandemic, including telehealth services, and remain above pre-pandemic levels. Though related costs are growing, they are relatively low compared with other cost drivers. What’s more, behavioral services can contribute to lowering other healthcare costs, according to PwC. This mutually beneficial relationship, combined with unprecedented growth in America’s mental health and substance abuse needs, may explain why many medical groups are integrating behavioral care providers and services in 2023-2024, according to the MGMA.
Telehealth and other forms of remote care have also acted as drivers of behavioral health services. Nearly nine in 10 mental health treatment facilities in the United States offered telehealth services by late 2022, according to medical researchers. The level of payment for these services is a topic of debate, however, as are their costs and value relative to in-person visits.
Impact of High Healthcare Costs
Between 2022 and 2031, growth in the nation’s healthcare expenditures (5.4%) is expected to outpace growth in the average annual gross domestic product (4.6%), according to the Centers for Medicare & Medicaid Services (CMS). This will take the healthcare industry’s total share of GDP from 18.3% in 2021 to 19.9% in 2031.
The impact of high costs on patients and providers is wide-ranging, as indicated in the table below. Here are some of the effects, by the numbers:
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Patients
- More than half of U.S. adults have skipped or delayed healthcare in the past two years, according to a Harris poll.
- Of those, 40% did so because of the cost.
- Nearly two-thirds said that coordinating and managing healthcare are overwhelming tasks, according to the poll.
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Healthcare providers
- About a third of medical groups have seen their levels of support staff decrease this year, damaging productivity, according to the MGMA.
- More than three-quarters of hospitals and health systems said their experience with commercial insurers is getting worse, according to an American Hospital Association survey that underscored the high cost of complying with insurance policies.
- More than half of physicians said they are burned out, according to Medscape’s Physician Burnout & Depression Report 2023.
Impact of High Healthcare Costs
On Patients | On Providers |
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Insufficient insurance coverage | Staff shortages |
Unaffordable care | Slim operating margins |
Inequitable access to treatment | Insufficient technology investment |
Low quality of care | Slow payments/unpaid bills |
High out-of-pocket expenses | Red tape/prior authorizations |
Red tape | Below-cost insurance reimbursements |
Delayed care | Compliance risk |
Long waiting room times | Low profitability |
Poor patient outcomes | Clinician burnout |
Healthcare Cost Management Challenges
Simultaneously aiming for lower healthcare spending and higher-quality care poses inherent challenges that are only increasing. “The dramatic rise in costs of labor, drugs, supplies and equipment continues to put enormous pressure on our ability to provide care to our patients and communities,” AHA President Rick Pollack said recently. Six cost drivers are discussed below.
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Workforce Issues
Labor represents the largest and most problematic cost center in healthcare. In fact, staffing accounts for more than half of hospital spending. And at medical groups, while staffing had partly stabilized by early 2023, some clinical support roles remained difficult and more expensive to fill. When polled by the MGMA, practice leaders called staffing their biggest priority.
According to the American Medical Group Association, physician groups reported a median 10% increase in staffing costs from 2022 to 2023. At the same time, only a quarter of groups surveyed reported clinical staffing at 90% or better when compared with optimal staffing, while just 40% said their administrative staffing achieved that level.
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Regulatory Pressures
Healthcare providers must comply with complex, shifting policies covering most aspects of their operations. The requirements are numerous: licensing and accreditation, patient privacy, equitable access, price transparency and the list goes on. Medicare payments are subject to performance scores. Medical waste must be disposed of safely.
All these requirements require expensive compliance staffing, technology and organizationwide training. And in 2023, the burden was increasing faster than the resources available to address them, according to a survey by SAI360, a risk and compliance company. Greater responsibilities have not been accompanied by more budget or staff, the survey found.
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Rising Cost of Medications and Medical Technologies
Drug costs are climbing in the high single or double digits, according to PwC, and inflation is not the only factor. Other drivers include shortages of some drugs, six-figure price tags for newer drugs and market dynamics. The U.S. Department of Health and Human Services reported that the price increases on more than 1,200 drugs from July 2021 to July 2022 exceeded the rate of inflation at the time. The average hike was 31.6%, compared with an inflation rate of 8.5%. The Inflation Reduction Act has introduced new requirements to curb such increases.
Meanwhile, hospital equipment has also increased in price. For example, emergency room ventilators, respirators and other medical technologies and supplies experienced a nearly 33% increase in price between 2019 and 2022, the AHA said.
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High Administrative Costs
Healthcare providers’ administrative workflow begins when a patient schedules an appointment and continues through various stages of billing and insurance approvals, until it ends in payment for services rendered. All of this has to be accomplished within strict regulatory and privacy guidelines, such as the Health Insurance Portability and Accountability Act (HIPAA) — adding to the risk of errors and inefficiencies. While the industry is making progress in automating all these transactions, there’s still room to reduce time and costs, according to the CAQH, which benchmarks electronic adoption in this area.
The bottom line: The U.S. healthcare industry could save nearly $25 billion a year, or 41% of the current spend on administrative work, by going fully electronic, the CAQH said. So far, only $187 million a year has been saved by automating transactions. One stumbling block is the shortage of administrative support staff, which has also driven up wages. In particular, medical coders have become the most difficult role to hire for RCM, according to the MGMA.
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Inefficient Delivery of Care
Of all the drags on healthcare efficiency, from administrative complexity, to old technology, to the lack of support staff, the biggest problem is the fragmented, uncoordinated care that patients receive from their multiple providers. High levels of this fragmentation persist despite the increased use of electronic health records, integrated health systems and many initiatives designed to deliver more coordinated, patient-centered care, according to Mathematica, a consultancy.
The impact of uncoordinated care is high: increased use of hospitals and emergency departments, readmissions, unnecessary testing and, ultimately, poor patient outcomes. The causes of fragmentation are formidable. For example, researchers found that a primary care provider needs to coordinate with almost 100 physicians. Some experts also blame the lack of interoperability among healthcare databases and other systems.
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Patient Populations with Complex Healthcare Needs
The 5% of the population with the highest healthcare expenses accounts for almost half of total U.S. healthcare spending. This population includes the elderly, patients with multiple chronic diseases, victims of catastrophic health events, those with mental health issues and others.
Because they require continuous and sometimes lifelong care, patients like these can experience high rates of care fragmentation. This lack of coordination, in turn, can lead to overuse of healthcare services and adverse patient outcomes. The problem is only getting worse due to an aging population, an increase in mental disorders and substance abuse and almost 30 million Americans suffering from multiple chronic illnesses.
Best Practices to Improve Healthcare Cost Management
To better manage costs, healthcare providers are implementing solutions that look to streamline and coordinate the clinical and operational sides of their work. Their efforts include:
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Standardize Contracts and Procedures
The use of standardized contracts and procedures can ease the interaction between healthcare providers and their patients’ insurers in matters such as prior authorizations. If prior authorizations are to be continued, despite doctors’ complaints about their negative impact on administrative costs and the timeliness of care, nine out of 10 medical groups support a single, standard electronic process for them, the MGMA reported.
Reducing contract complexity and variations can also help providers offer more satisfactory answers to patients with questions about their bills. And, when it comes to cost, standardization can reduce the need to tailor software for automatic payment processing for a variety of insurers, as well as cut down on the frequency of payment errors.
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Assess Patient Flow
Healthcare providers can find opportunities to cut costs, improve patient satisfaction and increase safety by mapping patients’ journeys through their systems, from check-in through discharge or follow-up care. Improvements can be identified in scheduling, wait times, room turnaround intervals, staff resources and occupancy rates for hospital beds. Providers can also improve patient outcomes by reducing overcrowding and ensuring more timely and appropriate access to the right clinical staff and equipment.
Analyzing patient flow can be a significant project involving data gathering, process mapping, analysis, strategic decision-making, training, monitoring and continuous improvement. Data from wireless patient tracking systems may be collected, along with information from electronic health records, analyzed for bottlenecks and other inefficiencies and fed into modeling and simulation tools. Machine learning (ML) is increasingly used to identify patterns.
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Implement Care Coordination
Care coordination is the leading practice for ensuring that providers meet patients’ needs for services across multiple encounters and settings. Providers collaborate within Medicare-sponsored accountable care organizations (ACOs) and other care management teams. These collaborations also involve patients more directly in their own treatment to provide patient-centered care.
For example, the CMS has set 2030 as the target date by which all traditional Medicare beneficiaries should be in a relationship with an ACO member who is responsible for coordinating their quality and total cost of care. About a third were included as of 2023.
Care management teams, often anchored by primary care physicians, can extend beyond healthcare specialists to dietitians and community health workers. Their cost benefits include the avoidance of adverse events, such as hospital readmissions, and duplicative services, such as testing. Also, private insurers and Medicare provide financial incentives for collaborative care. While technologies such as electronic health records and health information exchanges can enable more collaborative care, interoperability issues and other limitations continue to hinder progress.
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Review Staffing Plans and Recruitment Strategies
Amid staffing shortages, wage hikes and high turnover, healthcare providers are reviewing their staffing plans and recruitment strategies. Staffing issues are costly, in terms of both care quality and efficiency. The U.S. Surgeon General’s recent report, “Addressing Health Worker Burnout: Advisory on Building a Thriving Workforce,” cited national turnover costs related to clinician burnout at $9 billion a year for nurses and up to $6.3 billion for physicians.
Healthcare providers are using old-school and innovative tactics to get and keep clinicians and administrators on board, as well as fill gaps that arise. Even as many are increasing pay ranges, benefits and bonuses to improve retention, some use more innovative approaches, including:
- Artificial intelligence (AI), to develop staffing plans that recognize patterns, gaps and potential changes in demand
- Reliance on telehealth to hire remote workers
- More automation at the initiation of the visit process, including not only online patient portals but also self-check-in kiosks in the office
- Remote sensing to assist bedside nurses in monitoring patients in hospitals
- Outsourcing RCM
- Autonomous coding, to address the acute shortage of medical billing coders
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Augment with Technology
Technology is seen as part of the solution to the high cost of healthcare. Yet, upfront costs, a global shortage of digital skills and cultural resistance remain as barriers to implementation, and the healthcare industry is lagging other sectors’ digital transformations.
Physicians currently use an average of about four digital health tools in their clinical work to improve work efficiency and clinical outcomes, according to the American Medical Association (AMA). Telehealth and remote monitoring devices top the list of tools. Yet, health IT remains a work in progress.
For instance, the U.S. surgeon general has issued a plea to the technology sector to improve the design of electronic health records in order to reduce the overload on clinicians who often end up spending more time with records and documentation than they do with patients. His recent advisory also calls for greater interoperability and integration of data.
Indeed, clinical technology continues to improve, according to the American Health Information Management Association. The organization reported that AI/ML is transforming clinical decision support systems from “burdensome platforms offering alerts with limited value to intelligent workflows supporting best practices based on relevant patient history in real time.”
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Practice Evidence-Based Medicine
Evidence-based medicine, as the name suggests, systematically incorporates the best available scientific evidence into decision-making on patient care. For instance, a doctor might use evidence-based medicine to find a new medication for a particular patient, review the latest research on it and weigh the findings against the patient’s condition.
Many clinical decision-support tools include up-to-date research databases, ratings, costs and other information. They may also incorporate software that applies all this data to a patient’s profile to generate recommendations. Using these tools can save time and improve patient outcomes.
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Create Preventive Care Programs
Preventive care has become a topic of debate in 2023. The U.S. Affordable Care Act says that all insurers’ and employers’ health plans have to cover a core set of preventive services at $0 cost sharing on the part of patients. But a Texas judge recently overturned this requirement. A stay of the rule was issued, and a Supreme Court appeal is ultimately expected.
In the meantime, medical groups are using screenings, annual wellness visits, immunizations and other preventive care methods to reduce hospitalizations, avoid costly interventions and achieve better patient outcomes. Recognizing the significance of social determinants of health and mandates for equitable access to healthcare, clinicians are also beginning to include social support and other nonclinical services in preventive care.
Some worry about the cost and effectiveness of preventive care. The response, in some cases, has been to review which tests and treatments might be overused or unnecessary. In other cases, the response has led to developing new models. One example is care guidance provided by nonmedical personnel using technology platforms and structured workflows to lighten the burden on clinical staff as they assist in explaining to patients the various aspects of managing their care. The consensus view is that the short-term expense of preventive care lowers the longer-term cost of care.
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Focus on Outcomes Over Productivity
The U.S. healthcare system is transitioning away from volume-based, fee-for-service payments to value-based care — but only gradually and partially. As described later in this article, value-based care involves incentive payments from insurers to focus on quality over productivity.
In theory, value-based care might not deliver immediate cost benefits to healthcare providers as they begin to deliver more preventive care, use bundled payments, work in care management teams and take other related steps. Yet, providers could see a reduction in long-term costs with fewer hospital readmissions, complications and other expensive health events. In 2021, nearly 60% of healthcare insurance payments were tied at least partially to value.
Healthcare experts are still assessing the impact of value-based care on patients’ health. One study cited large improvements in heart failure admission rates, screening for fall risk, pneumonia vaccination and screening and follow-up for clinical depression. Another showed a reduction in emergency department visits.
An important consideration for healthcare organizations is the potential impact of each care model on doctors and nurses. Clinicians are said to prefer working under value-based care models rather than volume-based models. Considering the current priority placed on solving staffing issues, adopting a value-based approach could deliver the added benefit of helping recruit and retain staff.
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Monitor Medical Costs Continually
A recent MGMA poll of medical groups found rising expenses to be their second biggest pain point after staffing. They are taking several steps to reduce costs, including:
- Improving documentation and billing accuracy
- Re-evaluating vendors for better pricing, managing inventory more closely and joining group purchasing organizations that source supplies with volume discounts
- Renegotiating insurance contracts to secure better reimbursement
- Capping unapproved spending for positions below the C-suite
To lay the foundation for cost reduction efforts like these, healthcare providers need to monitor medical costs continually. A recent report from Deloitte shows healthcare providers implementing cloud-based digital transformations focused on operations and administration to reduce costs and improve back-office processes, such as procurement. Cost containment strategies require constant monitoring and analysis of metrics, including patient volumes, usage trends and pricing. Financial management software integrated into enterprise resource planning (ERP) systems can provide timely tracking, reporting and auditing. New applications of AI/ML are showing the potential to solve some of the industry’s toughest problems, such as how to determine the cost of a hospital patient’s care in real-time.
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Implement an Action-Planning Process
Clinical action plans have been shown to improve the efficiency of medical teams as well as patient outcomes, especially in the treatment of chronic diseases. Action-planning processes provide patients with clear, documented guidance to help them “project manage” their own condition according to health goals, specific steps along a timeline and relevant information about their condition and treatment.
For doctors, clinical action plans serve as tools for making the best use of time during office visits — or, in administrative terms, increasing the physician’s relative value units (RVUs), the time it takes to deliver a given service. Action planning also aids coordination among care management teams. It’s a leading practice that’s growing, in part, thanks to technologies such as clinical decision support tools, wearable devices, patient portals and mobile apps.
The Future of Healthcare Cost Management
Cost pressures will continue to strain the U.S. healthcare system for the foreseeable future. New solutions are emerging, some of which require major upfront investments but promise longer-term savings. Major cost management developments include the following factors.
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Predictive Analytics and Big Data
Predictive analytics can cut costs in two ways: helping healthcare providers intervene earlier and more effectively; and streamlining administration and operations.
Analyzing an aggregation of data from national statistics, biometrics, electronic health records and claims can help predict the likelihood that patients will develop certain medical conditions. Health insurance companies have been early adopters of this approach to identify high-risk patients. Healthcare providers are catching up, using analytics to identify health risks and decide on appropriate treatments. For instance, analytics can help predict which diabetes patients are most likely to develop kidney disease.
The uses of analytics at the operational level are many, including hospitals’ reliance on predictive analytics to reduce overstays. Healthcare providers also apply predictive analytics to managing their supply chains; identifying future resource needs, such as equipment and personnel; and even determining which patients are likely to miss their scheduled appointments.
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Artificial Intelligence and Machine Learning
AI and ML are infiltrating healthcare at both the clinical level, where they are helping to inform better care, and the operational level, as they accelerate and enhance the types of predictive analytics described above. But it will take time. In an MGMA poll, only one in five medical groups had added or expanded their use of these tools in 2023. Uses described in the poll include:
- Clinical
- Clinical decision support
- Natural language processing, for visit notes and documentation
- Predictive AI/ML for monitoring clinical performance
- Operational/Administrative
- Predictive AI/ML for monitoring operational performance
- Medical coding with better quality and accuracy
- Contact center routing of calls and sorting of incoming faxes
- Conversational AI for chatbots and virtual assistants
- Clinical
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Telemedicine and Remote Patient Monitoring
Telehealth spiked during the pandemic, but the surge proved overwhelming and usability became an issue. As a result, usage rates dropped from about 70% of patients in 2020 to about 20% in 2022, according to the AMA, which predicts that telehealth usage should rise gradually to 50% of patients or more in the coming five years. The AMA also pointed to studies showing telehealth being as effective as in-person visits in delivering diagnoses in the vast majority of cases.
As for physicians, 80% of them are using telehealth for consultations, while 30% use remote monitoring devices, the AMA said. The cost for a medical organization to implement a platform for telehealth or remote patient monitoring can range from $50,000 to $300,000, according to Vicert, a digital health consultancy. Once the system is set up, cost of care savings come in many forms, ranging from the increased productivity of seeing more patients in a shorter period to the reduction in costly hospital readmissions due to remote monitoring for post-discharge complications.
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Value-Based Healthcare
Healthcare providers have historically used a fee-for-service payment model, but they’re being encouraged to convert to value-based healthcare. Value-based approaches involve incentive payments from insurers to reward the quality and equity of care given, instead of the quantity. In this way, value-based healthcare aims to improve patient outcomes, including in underserved populations, while also reducing the high cost of healthcare in America.
Insurers, including the CMS, have been rolling out value-based models with providers. ACOs, for example, involve incentives for better coordination of services among providers. So far, however, a decade of using these approaches has produced only mixed results, the CMS said.
While concurring that the transition has been hindered by staffing and financial challenges in the industry, the MGMA still reported the following advances in medical groups:
- Integrating systems within primary care to close the loop on referrals, add behavioral health access and track outcomes
- Building quality-focused teams to better manage chronic care
- Engaging and educating patients to take more responsibility for their own care
And a recent McKinsey analysis described an optimistic outlook, including cost savings of 3% to 20%, depending on the model. “Value-based care is a reality with potential benefits for everyone, from patients, to clinicians, to investors,” the analysis concluded.
Technologically, value-based care relies on a range of tools, such as health information exchange among collaborating providers; patient engagement technology, such as remote monitoring; and data analytics with capabilities ranging from descriptive to diagnostic and predictive to prescriptive.
Optimize Healthcare Costs With NetSuite
Healthcare CFOs and their colleagues need to get ahead of numerous pressures on costs and operational efficiency. They have to execute agile cost control based on the most recent and insightful data. NetSuite’s cloud-based ERP system for healthcare and life sciences gives healthcare organizations the visibility, transparency and tools they need to collect, identify and analyze data so that they can control costs and operate more effectively in an ever-changing environment.
Healthcare costs are moving in many directions today. Most are rising, due to inflation, shortages and other post-pandemic pressures. A few are receding, thanks to newer care models, such as telehealth. Overall, costs are changing in nature because of the shifting focus in the U.S. healthcare system from volume- to value-based care. Technology is integral to redefining healthcare and controlling historically high costs, both in addressing immediate needs and ushering in a future of affordable, high-quality care.
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Healthcare Cost Management FAQs
What is cost management in healthcare?
Healthcare cost management aims to ensure quality care while controlling costs. Healthcare’s use of techniques, such as budgeting, forecasting and cost accounting, is similar to financial management practices in other industries, but the healthcare sector must control costs in a more complex and shifting environment skewed by insurance providers, regulators and vulnerable patients.
What are cost control strategies in healthcare?
Some of the more common cost control strategies in healthcare are standardizing contracts and procedures, reviewing staffing plans and recruitment strategies, practicing evidence-based medicine and monitoring medical costs continually.
What is an example of cost accounting in healthcare?
An important example of cost accounting in healthcare is known as the work relative value unit (wRVU). Measuring the time and skill necessary for a physician to treat each patient, the wRVU is used to help determine physicians’ compensation and the rates charged for their procedures and services. In turn, the wRVU helps to allocate costs across different departments, assess productivity and profitability and benchmark against peers. At the same time, the practice expense RVU (peRVU) tracks labor costs and operational expenses, such as building space.
What is the role of health insurance in healthcare cost management?
One important role that health insurers play in healthcare cost management involves their incentive programs for value-based care and managed care teams. The U.S. healthcare system is transitioning from insurance payments based on the volume of care delivered under the current fee-for-service model, to a value-based care model based on clinician collaboration for better quality of care. The new model has delivered only limited savings in the short term, but it is expected to lower healthcare costs significantly in the long term.
How does healthcare cost management differ across different types of healthcare systems (for example, private, nonprofit, public, hybrid)?
Healthcare cost management differs based on the type of healthcare system. Private, for-profit systems, for example, prioritize profitability and competition, often leading to cost containment measures. Nonprofit and government-run systems face budgetary pressures as they prioritize access for all citizens. Hybrid systems strike a balance among public, nonprofit and for-profit elements with cost-sharing mechanisms and regulated access.