Online Healthcare MBA Program

Online Healthcare MBA


Making Healthcare Affordable: A Lost Battle?

There is no denying that providing an adequate healthcare system comes with a price. Costs are in the trillions, continually outpacing economic growth. Just how well are we using this money? A ProPublica investigation suggests that the U.S. healthcare system could be wasting almost $765 billion every year. Possible inefficiencies could stem from drug prescription, unnecessarily discarded supplies, and poor ROIs when spending money on new medical technologies. What exactly are those potential issues, and how can healthcare leaders help to effect real change for system improvement?

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Calculating the Costs

U.S. healthcare spending hit $3.3 trillion in 2016, according to the Centers of Medicare and Medicaid Services. 32% of that money goes to hospital care, 20% goes to physicians and clinical services, and 10% goes to prescription drugs.

However, those aren’t the only areas that require funding. 5% of the pie goes to nursing homes and retirement homes, while another 5% goes to other health, residential, and personal care services such as residential facilities, community centers, or ambulance providers. 4% goes to dental services, 3% is reserved for home healthcare, and another 3% goes to other professional services like physical therapy, podiatry, optometry, and chiropractic medicine. 2% each goes to durable and nondurable medical equipment.

34% of the money for these costs come from private health insurance. 20% comes from Medicare, 17% comes from Medicaid, and 11% is out of pocket funds. These costs are going up, too: Prescription drug spending doubled between 1995 and 2000, and subsequent efforts to contain costs have had little effect. In fact, it’s one of the top three costs, taking 10% of total funding.

Making Sense of These Costs

Healthcare expenditures make up nearly one-fifth of the U.S. GDP, per the Centers for Medicare and Medicaid Services. Most of these expenditures come from drugs, unnecessary treatments, or bad returns on investments.


Money can be inefficiently spent on drugs in several ways. Some of this correlate to myths regarding expiration dates. The law makes hospitals and pharmacies discard expired drugs, but the FDA knows most drugs are safe and effective well after the expiry date. While it’s hard to pinpoint an amount, one hospital alone destroyed $200,000 worth of expired drugs in 2016.

The prescriptions themselves can be inefficient. For instance, eyedrops are too big, and the medicine’s excess trickles down your cheek. It’s hard price this excess, but it is something. In 2016, Market Scope found drug companies make $3.4 billion in the U.S. from drops for glaucoma and dry eyes.

Another inefficient prescription is cancer drug vials, which are filled too full. One 2016 study estimates that 10% of the top 20 cancer drugs are used inefficiently, at a cost of roughly $1.8 billion annually.

Potentially misleading advertising is also a culprit. Sometimes companies merge two drugs into on pill. When this happens, they call it innovation and bump the price. A ProPublica investigation discovered in one case, Horizon Pharma combined Aleve and Nexium to make Vimovo. While it only costs $40 a month to get Nexium and Aleve, that didn’t stop Horizon Pharma from billing insurance $3,252 for Vimovo.

Treatment that May Not Be Necessary

Some of the unnecessary treatments include extra ultrasounds and mammograms, surgeries proven to be ineffective in some cases, and care that’s either too intensive for a patient’s symptoms or nonbeneficial due to the patient’s sickness level. According to the National Academy of Medicine, we’re wasting around $210 billion each year on these services.

Investments Not Fully Thought Out

Technology helps improve healthcare, but it also increases costs. 40 to 50% of annual increases come from medical tech. There’s also a lot of questions surrounding new tech, such as will it help eventually lower costs and improve productivity, or will it make the costs increase.

To stem this, the healthcare industry should prove the ROI. They should also determine what the cost will be in staff time, programmer time, equipment, and business disruptions. Additionally, they should determine the probable expenses for training, support, and other hiccups.

Becoming the Solution

According to Archway Health CEO Dave Terry, healthcare CEOs can play a major role in tracking and improving efficiency. He asserts they should change payment structures, and he explains since Medicare already bundles specialty payment programs – something that helps quality of care and costs – health plans and self-insured employers should follow suit.

Terry also states healthcare CEOs should make it easier for clinicians to participate, but not before conducting an in-depth assessment of how the program should be adjusted to meet different patient population needs. He also says they should focus on value, which could be accomplished by letting patients making their own informed decisions. This could include steps to incentivize patients to pick highest-value options, as long as such steps are transparent.

There are also several options for urgent care and walk-in clinics, such as CVS Minute Clinic, Walmart Care Clinic, and Telehealth. However, these don’t all have the same price tag. Terry says patients should pick where they want to go knowing the price, and premiums should reflect this.

What Can Be Done

Healthcare is evolving, and costs are rising at unsustainable rates. It’s an uphill battle to curb costs. Healthcare leaders need to look closely at their biggest expenses: hospital care, physicians and clinical services, and prescription drugs. They need to track inefficiencies and look for ways to improve their efficiency while ensuring people are still getting the care they need.