Why do healthcare costs increase every year at a rate so much higher than general inflation? Typically, health spending increases at a rate between two and three times that of general inflation.
The answer is complex, but the basic reason is that more people are getting more care. Increasing utilization is driven by many factors. For example, an aging population requires more care, and Baby Boomers (those born between 1946 and 1964, roughly 77 million Americans) began turning 65 last year. Higher incidences of illness also translate into a greater need for care, and we're seeing a greater incidence of diseases like diabetes related to the growing incidence of obesity. In healthcare, the supply of services also tends to fuel demand, and the development of new technology and therapies usually means greater usage (sometimes without a determination about whether the new therapies are more effective than the traditional methods).
Interestingly, the cost of individual units of care-like x-rays-has tended to remain stable or in some cases even decline as healthcare organizations have improved efficiency.
Three basic factors contribute to overall healthcare costs:
- Episodes of care (called "Population Utilization"), like a hospital stay.
- Processes or units of care used within each episode (called "Intracase Utilization"), like how many lab tests or MRIs were used during a hospital stay.
- The cost of each process or unit of care (referred to as "efficiency"), like the cost of an MRI.
Even if hospitals operate very efficiently and reduce the cost of individual units of care like blood draws, costs will still tend to rise if more patients are using more services.
So what is Intermountain doing to help manage cost increases?
"We're addressing all three components of cost," says Joe Mott, Vice President for Healthcare Transformation, who is leading Intermountain's Shared Accountability initiative. "We've been focusing on efficiency since Intermountain was founded back in 1975, and we'll continue to do so. For example, our Supply Chain Organization has significantly improved our efficiency."
Joe says Shared Accountability is helping address the other two components of healthcare costs: "Population Utilization" (the number of cases or demand for services); and "Intracase Utilization" (the number of units of care used in each case). "We're trying to reduce the demand or need for services by keeping patients as healthy as possible," he says. "And we're trying to ensure the appropriate number of units of care are used by focusing even more on best practices and evidence-based medicine."
"The basic techniques of Shared Accountability aren't new to us at Intermountain," Joe says. "We've provided wellness and care management programs for years to help our patients and plan members stay healthy. We've also promoted best practices through our Clinical Programs and Services. But now we're ready to take those efforts to a whole new level. We believe we can make a dramatic improvement in clinical quality and outcomes while reducing the rate of cost increases close to that of general inflation." The time frame? "Our goal is to see these results within the next four to five years-by 2016," he said.
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How will healthcare be different as Shared Accountability develops? "For Intermountain employees, the changes will be more in the degree of our efforts rather than in doing things that are fundamentally different," says Joe Mott, Vice President for Healthcare Transformation, who is leading Intermountain's Shared Accountability initiative. He says employees will see an increased emphasis on:
- Clinical Programs and Services and using best practices to care for patients.
- Prevention and wellness programs.
- Care management programs to help patients follow physician treatment programs and manage chronic diseases.
- Helping patients go to the right places for care and helping them transition from one place to another.
- Explaining to patients the benefits, risks, and costs of different treatment options, and involving patients more in decisions about their care.
"As the new programs and processes entailed by Shared Accountability are developed, we'll all be asked to innovate and do many things a bit differently," Joe says. "But Intermountain employees are always finding better ways to work-our culture has always embraced change and continual improvement."