Financial Concerns Faced by Healthcare Institutions and How to Solve Them

Healthcare institutions in the United States are facing a cost crisis. According to the Harvard Business Review, “U.S. healthcare costs currently exceed 17% of GDP and continue to rise.” Aging populations and new, more expensive treatments are driving some costs up, but fundamental structural issues in the health care system are also causing difficulty. For instance, insurance companies and the government pay based on the services provided instead of the outcomes achieved. In the end, this means that the United States’ healthcare system only makes money when the people are sick.

Adding to this issue is the fact that healthcare costs are misunderstood. Here are some of the biggest financial concerns facing healthcare institutions today, paired with actionable solutions.

Costing Systems

Image via Flickr by Nguyen Vu Hung (vuhung).jpg

Image via Flickr by Nguyen Vu Hung (vuhung)

Poor costing systems are damaging in any industry. To improve the system, you have to understand how much it costs to get a certain outcome and where those costs originate. Cost containment initiatives seek to limit healthcare spending, but many of those efforts rely on administrative simplification or some other blanket effort for reducing operating costs, like reducing man-hours or staff compensation, instead of looking at the inefficiencies in the costing systems themselves.

For example, this approach fails to consider whether something like lab work or a certain piece of equipment should cost as much as it does, or to look at whether limiting service in one aspect, like preventative care, causes additional costs later, like after the patient becomes ill and treatment is more expensive. The problem is big, but the solution is simple — improve costing systems to tie those sums to the outcomes they produce.

Regulatory Requirements

According to the National Conference of State Legislatures (NCSL), national spending on healthcare is bound to increase as America’s uninsured seek to gain coverage through the Affordable Care Act and the health insurance exchanges it created. In addition, many individuals now have a wider variety of coverage options, including the ability to raise coverage to fit individual needs. This increases some healthcare costs, like insurance premiums, while decreasing others, like out-of-pocket spending.

Moreover, as new regulatory requirements are introduced, some states are opting to make refinements that address local healthcare issues. Implementing these initiatives carries additional costs for healthcare institutions. One solution for this is for public administrators to become involved with understanding the healthcare costing system.

Getting Payment

As costs for providing care increase, healthcare organizations have to find new ways of making sure they receive timely payment to cover operating costs without having to reduce the level of care provided. To this end, the National Conference of State Legislatures has identified a few options. There are fixed prepayments, like global payments, that are issued monthly to cover the cost of patient care over the course of a year, as well as accountable care organizations (ACOs), which are voluntary collectives of providers that work together to offer coordinated care to Medicare beneficiaries and share the cost savings from exploiting economies of scale.

Healthcare is a complex industry, but it is also a business at heart. That means that healthcare institutions have to contend with industry-specific issues, like new healthcare regulations, while managing common business concerns, like costing jobs properly.

For more information please visit USC’s Executive Master of Health Administration Online program.