Healthcare Costs

1. Costs are out of control
2. Demand is higher than capacity to deliver
3. Inefficiency & Quality problems
4. Productivity must increase from current assets in order to meet current demand, improve profitability and fuel growth

Trends facing Home Healthcare today:

A. Costs are out of control

• Home Healthcare is in an environment that Ernst & Young refers to as the “The Perfect Storm”.¹
• US healthcare system intrinsically more expensive than peer countries, even adjusted for wealth.²
• US now spends more on healthcare than it does on food.²
• With skyrocketing costs along with downward pressure on revenue, providers must find internal opportunities.
• The costs associated with treating chronic conditions are staggering and burdening healthcare systems worldwide. In the United States, treating chronic conditions accounts for more than 75% of the nation's $2.3 trillion health expenditures.³
• About 45% of Americans suffer from one or more chronic illnesses.⁴

Top

B. Demand is higher than capacity to deliver

Aging Boomers¹

• By 2030, the 65+ population is expected to triple.
• By 2030, the healthcare use rates of current 65+ population will double and their spending impact is due to increase from $1.7 trillion to $16 trillion.
• By 2030, more than 6 of every 10 boomers will manage more than one chronic condition.

Top

Labor Shortage¹

• By 2020, the demand for registered nurses is forecasted to increase by 40%, while the number of nurses will have risen by just 6%.
• Currently, 90% of long-term care organizations lack sufficient nurse staffing to provide even the most basic care.
• Home healthcare agencies often refuse new business because of lack of resources & capacity.
• The high cost of nursing turnover adds to a reduced bottom line. The cost of filling a vacated nursing position is about 100% of a nurse’s salary.
• Shortages of healthcare labor impede patient safety and quality of care efforts.

C. Inefficiency & Quality problems

Hospital Re-admittance

• Continuity of Care problem.
• Hospital readmissions are a major cost and quality issue.⁵
• 18% re-admittance to a hospital within 30 days of discharge.
• 101,000 deaths could be prevented each year, if the US raised standards to benchmark performance levels achieved abroad.
• Successful reduction efforts by some suggest possibility to reduce rates.

Top

D. Productivity must increase from current assets in order to meet current demand, improve profitability and fuel growth

Ernst & Young reports¹

• Operational efficiency offers immediate costs savings, improved profitability, and financial leverage.
• For each $1M an organization saves in operations, it can expect to enhance its capital potential by $7-9M--creating enhanced borrowing power for reinvestment in strategic initiatives, technologies, equipment, plant, etc.

Top

1) E&Y, Health care’s Perfect Storm, Navigating in a World of Reduced Margins, 2007. VHA, Inc., a healthcare provider alliance.

2) McKinsey & Co., Accounting for the Cost of Healthcare in the US, 2007.

3) IDC Healthcare Industry Insights, 2009.

4) Partnership to Fight Chronic Disease, September 17, 2008, citing Wu and Green, “Projection of Chronic Illness Prevalence and Cost Inflation,” RAND, October 2000; also Centers for Disease Control and Prevention, Chronic Disease Overview, http://www.cdc.gov/nccdphp/overview.htm, accessed September 17,2008.

5) The Commonwealth Fund, Healthcare Quality Improvement & Efficiency, 2009.