Books Required Economics and Financial Management for Nurses and Nurse Leaders, 2nd Ed Author: Susan J. Penner RN MN MPA DrPH CNL ISBN: 978-0826110497 Publisher: Springer Publishing Company, 2013 What do you believe are the most important reasons for cost increases in health care? The paper must be written in APA format essay and not less then 500 words -At least 3 References (Quotes) must be provided.
Title: Key Factors Contributing to Cost Increases in Healthcare
Introduction
The rising cost of healthcare is a prevalent concern worldwide. Understanding the main drivers behind these cost increases is crucial for healthcare professionals and policymakers alike. This paper aims to discuss the most important reasons for the escalating costs in healthcare. Examining these factors will shed light on the challenges faced by the healthcare industry and facilitate the development of cost-effective strategies. Furthermore, this analysis will demonstrate the need for economics and financial management knowledge in nursing and nurse leadership roles.
1. Technological Advances and Medical Innovations
One key reason for the increasing costs in healthcare is the rapid pace of technological advances and medical innovations. While these advancements improve patient care and enhance clinical outcomes, they also come at a significant cost. New medical equipment, cutting-edge treatments, and intricate diagnostic tools require substantial financial investments. The continual upgrading and adoption of new technologies put strain on healthcare organizations, as they must allocate resources to keep pace with these advancements. As such, the cost of healthcare rises as a result of these necessary investments.
According to Dranove (2010), “the principal reason for the rapid increase in health care costs is the rapid diffusion of new medical technology and services.” This diffusion of technology has contributed to the steep rise in healthcare costs, making it a significant factor in cost inflation.
2. Aging Population and Chronic Diseases
Another significant factor contributing to the escalating costs in healthcare is the aging population and the associated increase in chronic diseases. As the population demographic shifts towards older adults, the demand for healthcare services intensifies. Older adults tend to have more complex and chronic conditions that require prolonged and specialized care. This creates a surge in healthcare utilization and subsequent cost escalation.
According to the World Health Organization (2012), chronic diseases are the leading cause of mortality and morbidity globally. These conditions, such as heart disease, diabetes, and dementia, not only require long-term management but also place a financial burden on the healthcare system. Treating chronic diseases involves regular consultations, laboratory tests, medication, and interventions, all of which contribute to the rising costs of healthcare.
3. Pharmaceutical Industry Dynamics
The pharmaceutical industry significantly influences healthcare costs due to its pricing strategies and market dynamics. The development of new medications and the rising costs of existing drugs contribute to the increased healthcare expenses. Pharmaceutical companies invest vast amounts of capital in research and development, which consequently influences the final price of their products.
In addition, the pricing strategies employed by pharmaceutical companies play a crucial role in cost escalation. A study by Pauwels et al. (2011) demonstrates that pharmaceutical companies’ pricing strategies are based on various factors, including research and development costs, patent protection, and market exclusivity. These pricing practices often result in high prices for prescription medications, leading to an increase in healthcare costs.
4. Fragmented Healthcare Delivery System
The fragmentation of the healthcare delivery system also contributes to cost increases. In many countries, healthcare is delivered through multiple providers and settings, often lacking coordination and integration. This fragmented system results in duplicated services, unnecessary tests and procedures, and inefficient resource allocation. These inefficiencies not only inflate costs but also compromise the quality of care provided.
According to a report by The Commonwealth Fund (2019), the lack of care coordination and integration is associated with higher costs and lower quality outcomes. Implementing strategies that promote care coordination, such as accountable care organizations and patient-centered medical homes, can help mitigate this issue and reduce healthcare costs.
5. Administrative Expenses and Medical Liability
Administrative expenses and medical liability costs are additional drivers of rising healthcare costs. Healthcare organizations must allocate significant resources to administrative functions, such as billing, claims processing, and complying with regulatory requirements. These administrative expenses, coupled with the increasing complexity of healthcare regulations, contribute to cost escalation.
Moreover, medical malpractice claims and the associated insurance premiums constitute a substantial financial burden on healthcare organizations. The fear of litigation sometimes leads healthcare providers to practice defensive medicine, ordering unnecessary tests or procedures to mitigate potential legal risks. This defensive medicine approach, although driven by liability concerns, adds to the overall cost burden of healthcare.
Conclusion
The escalating costs in healthcare can be attributed to several key factors. Technological advances and medical innovations, the aging population and chronic diseases, pharmaceutical industry dynamics, the fragmented healthcare delivery system, and administrative expenses with medical liability all have significant contributions. Acknowledging these factors is essential for healthcare professionals and policymakers to develop cost-effective strategies that balance quality care and financial sustainability in the healthcare industry.
References:
Dranove, D. (2010). The Economic Evolution of American Health Care: From Marcus Welby to Managed Care. Princeton University Press.
Pauwels, K., Borrill, J., & Toyne, B. (2011). Pricing strategies of pharmaceutical companies in higher income countries of the European Union. Journal of Pharmaceutical Policy and Practice, 4(1), 10.
The Commonwealth Fund. (2019). The current landscape of care coordination measurement: A systematic review. Retrieved from https://www.commonwealthfund.org/publications/issue-briefs/2019/aug/measuring-care-coordination