Question

From an industry perspective, competition in health care has been affected by multiple factors. Identify three critical elements that are shifting the landscape of the competitive environment on a macro level. Explain why you think they are critical.

Answer 1

The study looked at five factors that drive healthcare spending: population growth, population aging, disease prevalence or incidence, service utilization, and service price and intensity. As expected, population growth and aging were found to be significant factors driving healthcare spending. The increase in the United States population from 1996 to 2013 accounted for a 23.1% increase in spending, amounting to $269.5 billion. Aging accounted for an 11.6% increase, totaling $135.7 billion. The JAMA study revealed that the U.S. is simply spending more money on more people, due to population growth and due to the fact that more people are qualifying for Medicare and Medicaid, two of the U.S.’s major payers in healthcare spending.

In 2017, 57.6 million people were enrolled in Medicare. That number is expected to increase to 73.7 million people by 2026. Additionally, 72.7 million people were on Medicaid in 2017, and that figure is expected to rise to 81.3 million by 2026 (CMS). The fundamental reality of population growth means that more money will be spent on health care for more people, and as Americans live longer, getting older and sicker, healthcare spending will continue to rise.

Price and Intensity

In addition to population growth and aging, the JAMA study also revealed that the primary driver of healthcare spending from 1996-2013 resulted from pricing and intensity increases, which resulted in a 50% increase in spending, totaling $583.5 billion. Simply put, Americans were charged more for their healthcare products and services, and they experienced an increase in the amount of technically complex, advanced services to address care needs.

Ongoing data confirms that the United States continues to pay higher prices for healthcare products and services than any other country in the world, and as the intensity of care increases, so do overall costs. George Isham, MD, Senior Advisor at HealthPartners, Inc., offers a strong response to higher prices arguing that “price is two-thirds of the reason we spend more in this nation than any other nation. We need to start characterizing this as price gouging. We need a new ethic for healthcare financial management. We need to get rid of personal, institutionalized, legitimatized greed” (NRHI). Experts agree that addressing price is a fundamental starting point if the U.S. hopes to get healthcare costs under control, but doing so is a formidable task, because the underlying components driving price are complex and numerous.

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