U.S. Health Care

The first place to start our discussion of health care financial management is to grasp how much the cost of health care is in the United States and what is driving the rapid rate of increase in costs of health services delivery. At the end of 2006, the U.S. tab for health care (hospitals, physicians, pharmaceuticals, nursing home care, and so on) was %2.3 trillion or 16% of gross domestic product (GDP). This represented a 6.9% increase from the previous year and a cost per person of %7,026. By 2016, health care expenditures are expected to reach %4.2 trillion or 20% of GDP. As a result of health reform legislation of 2010, the Congressional Budget Office predicts that the rate of increase in health care expenditures will decrease.

Many external and internal factors drive this rate of expenditure, including technological advancements, growth in the population, changing reimbursement systems, an atmosphere of plenty in the face of the destitution of many, the numbers of uninsured among the U.S. population, incentives for costly services, a history of third-party payment that separates the consumer from the cost of care, an expanding workforce of specialists, and other factors. None of these factors functions in isolation from the other. They lend themselves to the creation of a volatile financial environment. Together they create a complicated and tightly woven web of forces driving up the cost of medical care. (DiMasi, Hansen & Grabowski, p. 165)

Financial and economic volatility has significant impact on hospital leadership just as it does on the leadership of other industries. The 2009 Health Forum and American Hospital Association Leadership Summit led its keynote program with sessions titled “The economic crisis and its impact on healthcare” and “Surviving and even thriving amidst 'the perfect storm.'” In their role of strategically managing through these storms, health care management professionals have been part of cost-cutting initiatives, of creating a highly competitive environment in which expansion and new technologies are undertaken to maintain market share, of strategically managing their payer mix, and of creating integrated delivery systems or networks that bring together under one organizational structure the various venues of medical delivery along a continuum of care to reduce overhead and marshal resources to retain patients within their systems and to expand services. Despite these initiatives, the rate of increase in the cost of medical care continues to outstrip other U.S. economic indicators. (Newhouse, p. ...