The list of factors contributing to mounting healthcare costs

February 19, 2021 6:43 am Published by:

Technology adoption, patient centricity, and the latest trigger, COVID, have all been equally responsible for mounting medication costs. With the lockdown only increasing digital dependence, healthcare firms have quite the fight ahead of them. The challenge of countering the ever-increasing cost while ensuring no compromise on the quality of treatment has rattled the think-tanks of many clinics in the Managed Care industry. It goes without saying that those who counteract this challenge with some clearheaded thinking are the only ones who will be part of the future of healthcare, in the US and around the world.

Weighing in on your healthcare ecosystem

Before looking at cost per se, it is critical to weigh in on the existing healthcare ecosystem and possibly understand where it is headed. The healthcare ecosystem usually comprises two components:



The value chain, technology adoption and the ultimate healthcare value generated will all be directly or indirectly related to capabilities. The aim, obviously, is to improve both customer and stakeholder experience consistently.

Technology Adoption

Technology adoption exponentially improves the efficiency of multiple touch points on the value chain:

c-Service Providers

While all the four are equally important, this piece confines itself to discuss the Customer touch point. Now, even by itself this component is huge and so, further narrowing it down further to a discussion about Patient Centered Healthcare Ecosystem helps.

Patient Centered Healthcare Ecosystem

Patient Centered Healthcare ecosystem screams data at every touch point. Usually, the ecosystem is built from the ground up with these building blocks:

i-Financial Data
ii-Payment Structuring
iii-Digital and automatic payments
iv-Savings Accounts
v-Benefits/ Insurance coverage

It is important to understand the group of factors contributing to increased costs of the healthcare industry in a patient centric ecosystem:

Source: KPMG

Pricing Pressures and Increased Competition

Thanks to the advent of AI, things like  The Human Genome Project  have taken center stage in a data and technology driven patient centric healthcare industry. This disruption means one thing: low barrier for entry! With increased competition, comes pricing pressure. No one wants to take part in that race to the bottom. That is why it is so important to analyze and identify the weak link in value chain as far as costs are concerned. More often than not, medication cost stand out as the weak link for many healthcare clinics.

Volume vs Value Debate

This seems to be the Catch 22 situation most healthcare practitioners find themselves in right now. Unless there is enough volume, you cannot ensure sufficiently good value to health care, managed care and patient care. Unless there is sufficiently good value provided by a health care practitioner, there is never going to be enough volume to drive revenue growth. So, providing value in the healthcare industry is not a question of what will happen tomorrow, it is a question of what is happening today and more recently, what is happening now!

Relationships with Buyers

Proximity, convenience and pricing have become the most important parameters that ensure patient/customer loyalty in a disrupted healthcare industry. While proximity and convenience can be out of your circle of control, pricing can still be managed. Even identifying simple devices like pill cutters to cut out excess costs can go a long way into staying on top of pricing and thereby edging out the competition. What’s more, with pricing in control, there will be no compromise on patient care which in turn means you can deliver good value which will increase volume, ensuring growth in revenue and profitability.

Attrition and Retention

The healthcare employee vs patient is not always a healthy ratio everywhere. Again, this comes down to simple math: if you have enough savings to pay your employees in a lean year, they are going to stick around with you when things are not going well, else they will go about their ways. So, you need ways to reduce costs and pass those savings to help increase retention and reduce attrition.

Need for investment on Technology

Technology has become an operational expense with CXOs being involved in the deployment of AI and ML at multiple levels in an organization. If these costs are inevitable because every company has to keep up with the healthcare Joneses out there, the only way to stay in the running is by taking care of pricing components you can control, like medication costs, supply costs, and the like. Sometimes, the solution can be as simple as a pill cutter.

Impact of increased healthcare costs

Impact on Technicians 

Every organization has technicians who take care of work behind the scenes. The job of these technicians is underrated and overwhelming at times thanks to their low numbers. Any increase in costs can result in these healthcare employees being underpaid which will eventually mean increased attrition costs and eventually, increased hiring costs.

Impact on Customers

Besides the obvious decrease in value that the patients/customers may not see coming, there is also the factor of increased costs they have to bear. This means a double blow to the patient: they end up bearing the burden of extra cost for a service that is marginally worse than what they were receiving earlier. After a point in time, they will stop pointing fingers at the out-of-pocket expenses and they will start blaming the healthcare organization they are frequenting. Customer loyalty will start fading.

Impact on the organization

Gone are the days where healthcare organizations could say, ‘Different companies come and go in the IT industry, but in the healthcare space, everyone goes on forever.’ Without managing costs in a streamlined manner, you might have to pull down the shutters or worse, your customers might do the honors for you.

The Future: There is Hope

Like most issues, the issue of costs has multiple solutions, if you are willing to look for them. The solutions can be as simple as buying a pill cutter to reduce medication costs, to a sustained investment in Artificial Intelligence systems. While the former may help you start realizing profits almost immediately, the latter, understandably, is a long term solution which will bear results after a few good years. In the meanwhile, you need to survive which means your solution should have both short term and long term options. 

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