Health Care Spending

SUBJECT: Health Care Spending

Health care spending globally has been on the rise tremendously over the past decades and in turn, affects the citizen’s ability to access quality healthcare services. This increase has influenced an increase in the premiums charged by medical insurance providers. Between the year 1990 and 2000, both public and private healthcare spending rose from $696billion to $1.3 trillion in the United States of America (General Accounting Office). It is one of the fastest growing constituents of state budgets. Healthcare spending comprises of costs from both hospital outpatient and inpatient costs. The factors that contribute to increased cost of healthcare spending include;

New Technology

Technological advancements in the medical sector provide the badly needed solutions to save lives and enhance healthcare services. This, however, is accompanied by huge costs since the price of acquiring such technology is remarkably high. The need to purchase the techno-survey machines for use in diagnostic procedures in hospitals is driven by the increasing demand for state of the art treatment (Rosenthal, 2008). Most governments in developing countries are forced to provide the medical equipment to state funded hospitals because the largest percentage of its population is not able to seek medical services in high-end hospitals due to financial constraints. For instance, a state may be compelled to provide dialysis machines to government hospitals since the kidney patients from low income earning families are not able to fund the cost of dialysis in privately owned hospitals. As a result, patients are able to receive medical services at a subsidized fee that is affordable to them. In order to put this into perspective, one can compare the cost of health care services between a hospital equipped with state of the art machines and one that is not equally furnished.

Increasing demand for services

The rapid growth in the population of both the young and elderly necessitates a significant amount of investment in the health sector in order to be able to meet their demands. For example, this may require the state to increase the human resource required to attend to the patients without being overworked and they must be provided with appropriate working conditions. The costs associated with such investments increase the cost of service delivery which is, in turn, moved to the final consumer (Rosenthal, 2008). A rise in the number of people seeking treatment for chronic illnesses also contributes to the high costs since they take up a large chunk of the budgetary allocation set for health services. The continuing growth of the aging population has an impact on the cost of healthcare since the baby boomers require twice as much health care as the younger generation.

Medical Malpractice Liability

There has been an increase in healthcare provider costs and malpractice insurance premiums due to the rising number of jury awards in medical related lawsuits. The costs of defending the accused parties are very high and are often moved to those seeking medical services. The incentives not only increase cost but also make it difficult to succeed in attempts seeking to minimize medical errors and enhance quality service delivery. In a bid to avoid such litigations, doctors use defensive medicine which results in unrequired tests and issuing referrals which are not obligatory thus increasing the cost of healthcare spending.

Prescription drugs

A rise in the cost of prescription drugs and the frequency of use ultimately results in an increase in healthcare spending. The cost of drugs is influenced by price inflation, increased use of high-value drugs and written prescriptions. The costs incurred by pharmaceutical industries in implementing their promotional strategies are spread across to the final consumer through an increase in the cost of drugs. The growing demand for new and advanced drugs contributes to this increase because most often than not new drugs have a relatively high cost compared to the existing type. The cost of prescription drugs has a direct impact on the insurance providers who in turn cater for those costs by increasing the premiums charged. A rise in the cost of medical insurance covers translates to an in increase health care spending.

Cost shift arising from under-funded public programs

Under-funding of government programs such as Medicaid contribute greatly to the rising costs of healthcare since the service providers shift the burden of such budget shortfalls to insurance providers. The insurance companies are then forced to recover the money by increasing premiums charged to those seeking medical covers which ultimately results in increased health care spending. The inefficiency of such reimbursement programs affects not only cost but also the public’s ability to access medical care since physicians do not take new Medicare patients.

The healthcare payment and delivery models are increasingly advancing so as to offer quality and cost effective health services to the public. The system does not provide high-value care due to repetitive medical errors, ineffective spending and underutilization of efficient treatment procedures. The increasing cost of healthcare coupled with poor quality service delivery has necessitated the use of new methods of paying health care bills. These techniques seek to offer incentives to medical practitioners who deliver high-quality healthcare services. They include payments to patient centered medical homes, global and bundled payments.

 The patient centered medical home delivery model ensures that patients receive health care services when the need arises and in a manner clearly outlined and known to them (Green, 2014). This helps to eliminate costs that are associated with unnecessary treatment procedures that are of no importance to the patient. Additionally, the model allows for the provision of quality medical services by the designated physician. The global payment model permits an institution to receive payments for contracts and adjust the physician’s fee so as to provide the flexibility required to offer all inclusive quality care. The center for Medicare and Medicaid Services (CMS) allows for the payment of the provider based on the bundle of services rendered at a specific time. The Accountable Care Organizations (ACO) ensures the provision of quality health services since the physicians involved are only paid extra amounts after demonstrating that quality is achieved which ultimately translates to a reduction in the cost of medical services (Omachonu & Einspruch, 2010). The ACO model is combined with other reforms in the payment and delivery system in order to ensure they are effective. 

It is important for state legislators to establish effective approaches aimed at controlling or curbing the increasing cost of healthcare. This can be achieved by assessing the sum effect of new legislation before its implementation and critically evaluating demand for supplemental health care mandates. Additionally, the state should ensure that there adequate budgetary allocations for state funded programs in order to curtail the cost shift burden to the private sector. Legislators should also enact laws that impose limits on the amount awarded during medical lawsuit proceedings.


Green, E. P. (2014). Payment systems in the healthcare industry: an experimental study of physician incentives. Journal of economic behavior & organization106, 367-378.

Omachonu, V. K., & Einspruch, N. G. (2010). Innovation in healthcare delivery systems: a conceptual framework. The Innovation Journal: The Public Sector Innovation Journal15(1), 1-20.

Rosenthal, M. B. (2008). Beyond pay for performance—emerging models of provider-payment reform. New England Journal of Medicine359(12), 1197-1200.

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