How the cost of care is changing for hospitals: 4 things to know

Georgina Gonzalez - Tuesday, November 2nd, 2021

Hospitals and health systems have to carefully balance cost efficiency and patient care, ensuring they meet financial targets while providing the best health outcomes. An Oct. 25 report from the American Hospital Association outlines some ways the cost of care has changed. 

1. Increased service use and intensity has driven costs.  

The aging population, a high-use group, has increased 60 percent in the last 20 years. Over half of American adults have also been diagnosed with at least one chronic health condition that requires continual care. 

2. Insurance premiums have increased. 

Hospital leaders have carefully controlled costs, with an average annual increase in price of 2 percent between 2010 and 2020, while health insurance premiums have increased 4.4 percent within that same time frame.

3. Increasing input prices can undermine hospital cost efficiency.

Salary of staff makes up 56 percent of costs for inpatient hospital services, reflecting the huge importance of people. Drugs and other products make up 18 percent of the total; thus, increases in drug prices and other services can strain hospitals.

4. The pandemic heightened existing pressures.

Patient care complexity increased because of declines in general patient volume and surges in COVID-19 infections. Staffing shortages hit hospitals hard, to the tune of $24 billion. Many healthcare workers have also struggled with their mental health after witnessing the devastating effects of the pandemic firsthand.