Strategies To Reduce Healthcare Costs
Did you know that America has one of the highest healthcare costs per person in the world? A recent Peter G. Peterson study reported that the United States spends nearly $13,000 on healthcare per person. In 2021, healthcare spending reached $4.3 trillion in total. The COVID-19 pandemic also had a strong impact on healthcare costs, exacerbating an already inflated market. Many healthcare organizations recognize the need to find ways to control the rising cost of healthcare with strategies to reduce healthcare costs.
Many hospitals operate as nonprofits, meaning that they gain nothing from the high cost of healthcare. The American Health Association’s Fast Facts on U.S. Hospitals in 2023 reported that almost 60% of hospitals are non-government nonprofit hospitals. 19% of hospitals are owned by the state and local government, and 24% are investor-owned for-profit hospitals.
While nearly a quarter of hospitals are for-profit (and therefore actually benefit from high healthcare costs) the vast majority of hospitals are nonprofit. Hospitals are also not the only kind of healthcare organization – family practices, specialists, pharmacies, and more are also healthcare organizations that have their own unique economies. However, they all share one thing in common: they are likely out of reach for the average American.
According to a study by West Health and Gallup, 44% of American adults are struggling to pay for healthcare. 93% of Americans reported feeling that the quality of the care is not worth the cost that they paid. There are several reasons that it is in the best interest of healthcare organizations to find ways to reduce healthcare costs.
Lowering healthcare costs is crucial to the long-term success and sustainability of healthcare organizations, not to mention the American people. Healthcare organizations that utilize strategies to reduce healthcare costs also have a competitive advantage over healthcare providers that do not. Cost-efficient organizations can attract more patients, insurers, and contracts by offering competitive pricing and focusing on value-based care.
Here are a few hospital cost reduction strategies that may help healthcare organizations optimize their prices and reduce costs while effectively increasing quality.
- Value-based care
Healthcare organizations should shift towards value-based models to focus on delivering high-quality care while controlling costs. Organizations that implement care protocols, clinical pathways, and evidence-based practices can optimize outcomes and reduce unnecessary interventions, thereby lowering costs.
- Focusing on preventative care and wellness programs
Investing in preventative care can make a big difference in healthcare costs. If preventative care is easily accessible, patients of many kinds may come to see healthcare providers. Their issues may be diagnosed sooner when they are easier to treat, instead of later on in the disease or injury’s progression.
- Health Information Technology
Health information technology solutions such as electronic health records, computerized provider order entry, and qualitative solutions such as Authenticx can automate and provide insight into many healthcare processes in order to increase efficiency.
Reducing Costs And Improving The Quality Of Healthcare
Many healthcare organizations have the opportunity to find innovative ways to reduce healthcare costs without a government mandate or intervention. Rather than ask, “How can the government lower health care costs?” Many healthcare organizations can take matters into their own hands and align quality improvement initiatives with cost-saving measures. In fact, reducing costs and improving the quality of healthcare can often go hand in hand. This is because many methods of cost-reduction require healthcare staff to be more collaborative, increasing communication and teamwork. This in turn can improve patient outcomes, providing a higher quality of care. Many individuals seek to answer the question “How can the government reduce healthcare costs?” with policy reform and government mandates. However, there are ways to lower healthcare costs that hospitals and other healthcare organizations can put in place without a government mandate.
Some methods of cost reduction in healthcare that hospitals and other organizations can practice right now are:
- Data analysis and cost identification
Organizations should continuously be auditing and analyzing their healthcare expenditures to identify cost drivers and areas for potential savings. This can be done by examining claim data, utilization patterns, and cost variations across different services and providers.
- Care coordination and transitions
Improving care coordination and transitions between healthcare settings (like from hospital to hospice, for example) can enhance efficiency and reduce costs. Organizations can implement care management programs, employ care coordinators, and ensure effective communication to prevent fragmented care and avoidable readmissions.
- Automating tasks and streamlining workflows
Healthcare leaders wondering how to reduce healthcare costs in hospitals can also look at administrative processes and find ways to automate repetitive tasks and streamline workflows, allowing for higher productivity and efficiency. Healthcare organizations can also use health information technology to identify customer disruptions in their patient journeys and use those insights to make meaningful changes in their processes, lowering healthcare costs over time as a result.
Benefits Of Reducing Healthcare Costs
The benefits of reducing healthcare costs are many for both patients and healthcare providers. As we mentioned briefly before, healthcare providers are incentivized to provide high-quality care at low costs. This is because healthcare organizations that offer lower costs without sacrificing quality have a competitive advantage over other healthcare providers. In addition, stabilizing healthcare costs leads to financial sustainability for healthcare organizations as well. Some government intervention already exists to provide healthcare organizations with motivation to lower their costs. Regulatory bodies and government agencies often encourage or impose requirements on healthcare organizations to reduce costs. These requirements can be tied to eligibility for specific reimbursements or participation in government-funded healthcare programs. Compliance with these regulations can incentivize healthcare organizations to lower healthcare costs so that they can continue to participate in these government programs.
Lowering healthcare costs can also help to mitigate the burden placed on healthcare systems in times of crisis, such as natural disasters or pandemics. Low and controlled healthcare costs contribute to the overall sustainability and resilience of the entire healthcare system.
Lowering healthcare costs for patients means improved affordability and increased access to care. When healthcare costs are reduced, it makes it easier for individuals to afford necessary medical care, treatments, and medications. This includes traditionally underrepresented groups, people who are facing extreme financial hardship, and uninsured populations. This can result in reduced financial stress for patients and their families. Medical expenses can be a significant burden, especially for individuals without adequate insurance or limited financial resources.
What are some of the most prevalent cost-reduction strategies in healthcare organizations? Many healthcare organizations focus on streamlining administrative processes, strategic sourcing and supply chain management, and utilization management.
Cost reduction strategies for healthcare organizations can also lead to a healthier population as a whole. Lower costs can encourage patients to engage in preventative care. Operational efficiency as a result of lowering costs can increase to more effective use of time and resources, leading to a higher quality of care and better-served populations.