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The Cost of Healthcare: Navigating the Inflationary Environment

Updated: Mar 14, 2023



On the heels of the Federal Reserve raising interest rates to curb the highest inflation in 30 years, workers’ compensation loss cost trends - particularly medical inflation - are a concern. To understand the potential impact, let's take a brief look back at the last 20 years.


The Last 20 Years: A Period of Moderate Inflation

Since the 1990s, medical cost trends in workers' compensation have experienced a period of moderate inflation. According to the National Council on Compensation Insurance's 2022 "State of the Line Report," the cumulative change in medical severity on lost-time claims was only 10% in the past decade. This is primarily attributed to reductions in prescription drug costs, moderate physician cost increases, and a decrease in the utilization of medical services and prescription drugs as outlined in the "The Medical Dilemma Report."


The Future of Medical Inflation

While it remains to be seen whether physician and prescription costs will continue these moderate trends, basic economic principles dictate that if the cost to produce a product increases (such as office staff salaries, rent, and utilities), the price of those services will likely increase in the long-term. As an industry, it's important to acknowledge that past trends don't always predict the future.


Facility and Surgical Costs on the Rise

Furthermore, we must examine the NCCI's overall conclusions in more detail. The "The Medical Dilemma Report" shows that in the last decade, inpatient paid per visit has increased by nearly 75%, outpatient surgical paid per visit has risen by almost 40%, and ambulatory surgery paid per visit has gone up by almost 60%. Despite moderate overall medical severity trends, we've seen significant increases in the facility and surgical costs. Given the current environment, this upward pressure on costs is expected to continue.


Impact of Rising Inflation on Hospitals and Health Systems

In April 2022, the American Hospital Association released a report titled "Massive Growth in Expenses & Rising Inflation Fuel Financial Challenges for America's Hospitals & Health Systems," which cited a 20.1% increase in expenses per patient between 2019 and 2021. The press release accompanying the study stated that "hospitals and health systems have repeatedly confronted a range of financial and operational challenges, including historic volume and revenue losses, as well as skyrocketing expenses. When coupled with rising inflation and growth in input prices, these expense increases have been severely detrimental to hospital finances, leading to billions in losses and over 33% of hospitals operating on negative margins." The report itself goes on to note that "by the end of 2021, total hospital expenses were up 11% compared to pre-pandemic levels in 2019. Even after accounting for changes in volume that occurred during the pandemic, hospital expenses per patient increased significantly from pre-pandemic levels across every category."


Solutions for Addressing Inflationary Environment

With these cost increases, we can assume that there will be continued pressure to increase charges and reimbursement amounts. While traditional solutions to address moderate cost trends have been effective for years, examining overall medical costs, as the NCCI did, reveals that specific solutions for addressing facility and surgical costs have not been as successful. At WellRithms, we've taken a new approach by using an innovative methodology that relies on individual facility cost data. Our recommended reimbursement amounts are built from the ground up, including appropriate inflation adjustments and a reasonable profit provision. In addition, we guarantee our reimbursement amount and defend it to ensure our client's savings.


In summary, healthcare costs are likely to increase beyond general inflation rates for the foreseeable future, but there are solutions available to address this inflationary environment. At WellRithms, we prioritize financial wellness and proven algorithms, and our philosophy is to reimburse providers accurately and fairly.


Written By: Glen Pitruzzello


Sources: www.ncci.com/Articles/Pages/AIS2022-SOTL-Presentation.pdf www.ncci.com/Articles/Pages/AIS2022-Medical-Dilemma-Sean-Raji.pdf https://www.aha.org/costsofcaring https://www.aha.org/guidesreports/2022-04-22-massive-growth-expenses-and-rising-inflation-fuelcontinued-financial

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