Soaring deficits spur U.S. healthcare providers to make cost reductions

As the federal government wrangles with a soaring budget deficit, economists assert the mounting costs associated with Medicare and Medicaid payments are unsustainable. This contention has prompted public officials to increasingly push physicians to reduce business costs.

Such a concept may seem counter-intuitive when it is applied to the management of medical care, but business classes are not components in the curriculums of the vast majority of medical schools, leaving many physicians struggling to run their own practices.

Businesses often work with procurement consultants to overhaul their strategic sourcing operations, but the healthcare sector has only recently come under pressure to cut expenses. Healthcare economists assert it is critical that costs come down over the next few decades, with many warning the failure to achieve business cost reductions within the industry could effectively bankrupt the U.S.

Though initially hesitant, many doctors say they now understand the dire need for efficiency improvements. This has led many physicians to more carefully balance the exceedingly difficult and nuanced act of simultaneously serving their patients, and keeping a close eye on spend management.

The latest government data underscores the need for such an overhaul. U.S. expenditures on healthcare jumped past $2.3 trillion in 2008, far outpacing real wage and inflation gains. Analysts working at the Centers for Medicare and Medicaid Services found 2008 healthcare expenditures were more than 300 percent higher than the $714 billion the government spent in 1990. Compared to the $253 billion paid out in 1980, healthcare costs continue to soar.

The precipitous uptick in the costs of healthcare are putting a drag on the economy, economists assert, and have contributed to the economic slowdown experienced over the past five years. The government is incongruously spending on healthcare procedures, draining its coffers during a period of depressed tax revenue.

Physicians, however, are actively endeavoring to reduce their costs, potentially saving billions of dollars each year.

"Overhead continues to go up, but your ability to raise prices is very limited," former president of American College of Physicians Fred Ralston Jr. said. "Never in that time - which included the 1918 flu epidemic, two world wars and at least one depression - have we been as challenged as we are now in the changing world of health care."

Medical practices are accomplishing their goal of achieving cost reductions through a myriad of ways, experts assert. One of the easiest methods they use to cut costs is eliminating personnel. Doctors are increasingly taking vital signs, greeting patients when they arrive for visits and improving their efficiency. This has helped many clinics to vastly reduce overhead costs, experts say.

Adding doctors to medical practices is similarly helping clinics to negotiate better rates with insurance companies. What's more, the economics of a larger organization are more conducive to cost-cutting measures, as fixed costs are more readily stretched when more physicians are working.

Instead of a single doctor running a practice, working roughly 40 hours per week, an increased number of practicing physicians effectively raises the facility's utility, as the same amount of square-footage begets more revenue.

The New York Times reports that the transition toward electronic medical records has also helped to boost productivity and efficiency at the nation's hospitals and healthcare clinics. The 2009 federal stimulus incentivized healthcare providers to upgrade antiquated record-keeping systems; those who fail to implement such a system by mid-decade face the threat of reduced government payouts.

By keeping indirect spend payments down and implementing other cost-cutting measures, healthcare providers can help to keep soaring healthcare costs from further ballooning, industry analysts assert.