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HOW HOSPITALS SPEND THEIR "HEALTH CARE DOLLAR" BY Michael V. Sack

As a hospital CEO, I spend a good part of most days worrying about the cost of health care and specifically how the rising costs affect my hospitals.

The cost of health care is something everyone, from patients to providers to payers, need to be concerned about. As an employer, I also know the impact that costs have on our insurance premiums and utilization. We understand that an aging population, and pressures by insurers to hospitalize only the sickest patients, means today’s patients are sicker, older, and have conditions that require more sophisticated and increasingly expensive care. So, what is the answer? There are no simple ones.

Let me give you a sense of what goes into a “hospital dollar”. Almost two thirds, 65 percent, of the cost of running a hospital is spent on labor – physicians, nurses, and the scores of support personnel who make up the hospital staff. We couldn’t provide care without them. Massachusetts has a high cost of living and has one of the highest labor costs of any state in the country. A higher living cost, coupled with a growing workforce shortage, helps drive up the cost of the health care we provide.

Another nearly 20 percent is spent on drugs and medical supplies. Again, both are essential to the operation of a quality hospital. Our country’s increasing dependence on the use of medications, numerous new medications and procedures, and the fear of liability for not offering state-of-the-art practice push our costs even higher.

That’s just a snapshot.

Other costs, like utility expenses, maintenance, etc. make up the rest. All of these are important in the overall discussion of controlling the rate of growth of health care spending.

What’s clear is that this is not simple. There are many parts and people who are involved – the insurers, the state and federal government, the physicians, the hospitals, the pharmaceutical companies, and yes, the patients. And it is a “shared responsibility”, just like the shared responsibility that is the hallmark of health care reform. What does that mean? It means insurers and providers should work together to find ways to standardize billing and coding. It means the state and providers must establish a common framework for measuring quality and cost. It means all involved must come up with innovative ways to fill the workforce shortages, by supporting our educational system and by providing on the job training. It means we must find ways to avoid duplication and inefficiency.

Many hospitals are already working to reduce the rate of spending growth while improving the quality of care; all are adopting electronic medical records systems, and shifting care out of the hospitals and into outpatient care settings. But there is obviously much more that must and can be done - and we must work together. We should not forget that when you look at health care across the United States, Massachusetts ranks among the leaders in both quality and access. Both of these make us the envy of the nation. We are leading the way on the first phase of health reform – getting people covered. And now we have the obligation to preserve these achievements by together tackling health care spending and once again leading the nation.

Michael V. Sack
President and CEO, Hallmark Health

This program aired on September 28, 2007. The audio for this program is not available.

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