HEALTHCARE INFATION

The reasons and its impact

SHERIF BASHER AUC ID#600220861 13/06/2022

Introduction

T
he main causes of general inflation
he term ‘medical inflation’ refers to

T medical trends and developments,

and the increase in cost to support
them. This often includes the cost of
are changes in macroeconomic
variables, production, liquidity, price
indices of imported goods, and exchange
rate.
advances in treatments and procedures, and
the increased availability and usage of them. New drugs, new treatments, new technology
- these lifesaving innovations are great news
The COVID-19 pandemic has led to sharp and help to make healthcare more effective.
increases in inflation. Potential causes It all comes at a cost.
include increasing consumer demand,
supply chain constraints associated with Average unit cost
labor shortages, the challenges of operating Average unit cost trend reflects the change
under new pandemic safety regulations, and in the amounts paid per unit of service to
the influx of millions of dollars into the hospitals, physicians, pharmacies, and other
economy from relief packages and stimulus providers prior to any member cost sharing
checks. Overall, the cost of goods has like deductibles, copays, or coinsurance.
increased in the past year. This is primarily driven by changes in
Many factors that affect the cost of provider contracts but can also reflect the
healthcare: currency change, a growing mix of services due to changing treatment
population, aging seniors, disease patterns or health plan steerage (e.g., greater
prevalence or incidence, medical service use of freestanding facilities vs. hospitals or
utilization, and service price and intensity. use of prescription drugs vs. medical
treatment) and/or the mix of providers (e.g.,
The healthcare industry is now battling its more services done by certain hospitals).
own unique impacts due to inflation,
particularly in the hospital setting impacting
care delivery and staffing as for providers,
patients and workers.

https://www.aha.org/guidesreports/2022-04-22-massive-growth-expenses-and-rising-inflation-fuel-
continued-financial

https://www.milliman.com/en/insight/why-inflation-has-limited-impact-on-healthcare-trends
Population:
Population trend reflects changes in
morbidity due to factors such as aging, mix
of members by geography or industry, or
adverse selection due to premium rating
actions.
The global population is ageing often comes
illness, so with such a large proportion of
the global population over the age of 65, we
expect to see more people relying on their
health insurance to help with their
conditions as they get older.
Unhealthy lifestyle
The healthier alternatives are often
overlooked. Obesity and a lack of physical
activity is commonplace in many countries
around the world but it also adds extra
pressure to healthcare systems, costing them
more and more each year.
Utilization:
Utilization trend reflects the change in the
consumption of healthcare services (e.g.,
hospital admissions, office visits, and
prescriptions) due to external influences like
alternate treatments, catastrophes,
geographic access, health plan utilization
management, new prescription drugs, new
technology, or pandemics.
I
nflation, even medical price inflation,
can contribute to higher healthcare
trends, depending on how the economy
responds. So the short-term and long-term
impact should be considered. Expenses
should be monitored, and contracts reviewed
to understand the timing, impact, and need
for change.
Employers, providers, and health plans are
also businesses with capital needs,
labor/wage costs, maintenance costs, and
vendor costs. Providers face the inflationary
pressures of the recent economy like any
other business except their ability to pass the
higher costs on to their customers (e.g.,
health plans and government agencies) is
hindered by their contracts. Because
contracts with health plans may have longer
terms, the providers may not be able to
negotiate higher reimbursement rates until
the contract’s next renewal.
Employers and health plans face rising
healthcare trends as the risk-taker and must
deal with the impact of inflation on
administrative costs.
Like providers, employers and health plans
also have contractual limitations. As
healthcare trends and administrative costs
increase, employers and health plans may
not adjust the employee contributions and/or
premium rates until the next contract period.
Higher costs entail higher insurance
premiums (lowering the affordability of
private insurance) while increasing out-of-
pocket costs for the uninsured. Insurance
companies may also seek to limit
expenditures by curtailing the procedures
they reimburse. If private insurers pick up
less of the bill, this could mean decreased
revenue for hospitals.
Excessive inflation is bad for all industries,
especially for the health care system and the
patients it seeks to care for. One way to
combat expensive care is to restructure the
way our health care system works.
Specifically, we have to hedge against
inflation in medicine. This may mean
revisiting our fee-for-service structure and
replacing it with something better. However,
deciding on what’s better is not easy, and is
a lengthy conversation on its own.

Conclusion

E
xcessive inflation is bad for all
industries, especially for the health
care system and the patients it seeks
to care for. One way to combat expensive
care is to restructure the way our health care
system works. Specifically, we have to
hedge against inflation in medicine. This
may mean revisiting our fee-for-service
structure and replacing it with something
better. However, deciding on what’s better is
not easy.
Many hospitals can reduce business costs by
evaluating the required staff on call at any
given time. Looking at trends within a
particular hospital can help leaders
determine and plan the best staffing strategy.
Examine trends in your hospital's data.
Below are some common ways in which
employers are reducing their healthcare
costs:
*Boosting employee contributions
*Adding high-deductible plans to the menu
*Promoting healthcare spending education
programs.
*Reducing administrative costs.
The bottom line is that healthcare will
remain a challenge, but business leaders
shouldn’t be rattled by any predictions of
employer healthcare costs continuing to rise.