The Rise of Healthcare Costs and How it Affects Healthcare Providers
- siricnikku
- Mar 15
- 2 min read
In 2024, an American Hospital Association (AHA) report stated that the government is not maintaining the pace of high costs of drugs, labor, supplies, and the inflation rate. In 2025, the Centers for Medicare & Medicaid Services (CMS) raised payment costs for hospital inpatient and outpatient services by 2.9%, with the agency promoting a 2.83% cut in physician payments. With these costs increasing, healthcare providers must take on efficient healthcare cost management techniques to mitigate losses.
What Factors are Increasing Healthcare Costs
One factor of these rising healthcare costs is reimbursement challenges, defined as the payment hospitals and healthcare providers receive for medical service. Reimbursement delays can occur, leading to healthcare offices facing a financial dilemma.
According to an AHA report, administrative costs are another factor, with more than 40% of total hospital expenses. There are many additional costs due to the specific practices of insurers enforcing prior authorizations and delays in payments.
Additionally, it is understood that healthcare is a focus for cybercriminals, leading to cybersecurity investments emphasized in budgets. Security management costs have increased from 6% to 8% in 2024 and are projected to increase even more in 2025 and later.
Inflation is also a significant factor, with economic inflation growing 12.4% between 2021 and 2023. This percentage increase is two times faster than the Medicare reimbursement for hospital inpatient care. A growth like this has resulted in rising pharmaceutical prices, more medical technology costs, labor shortages, and higher prices for medical services and insurance premiums.
Solutions to Address Increasing Costs
One way providers can combat healthcare costs is by streamlining operational efficiency. This means utilizing automation tools, improving billing systems, and upgrading hospital workflows. An example is practice management software automating administrative tasks, leading to fewer errors systematically and calmer patient interactions.
Electronic forms and appointment schedulers are also another way to help with automation. Building trust through transparency of medical and procedural costs is another easy way to build trust with patients and give them the knowledge to make informed decisions.
Even with these changes, figuring out where healthcare costs are increasing in practice can still be challenging. Advanced electronic health records and data analytics software can help identify issues and better understand business operations.
Preventative care and patient education are other great ways to lower healthcare costs since this can prevent issues from advancing further. For instance, patients participating in blood pressure monitoring programs can reduce heart attacks from 4.9% and strokes by 3.8%, saving approximately $7,794 in healthcare costs per person over 20 years.
In healthcare, cost sharing, which includes co-pays and deductibles, can be shared between patients and providers, taking on some of the burden. Various models require careful balance so as not to overwhelm patients, but there has been success with bundled payment models, high-deductible health plans (HDHPs), or value-based care models. Some models can lower the costs of diabetes by motivating patients to make more knowledgeable choices about their healthcare usage, which can lead to stronger medication adherence.
It can be daunting to figure out solutions to the rise of healthcare costs. Still, with transparency and cost-effective strategies, providers can rise above and make it easier for themselves and their patients.
Thank you for reading,
Siri Nikku
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