Cost Factors - Economic pressures on doctors, hospitals

While health care would seem like a service industry, it is still a business venture that comes with the same, bottom-line concerns that other industries face. Doctors and hospitals are under economic pressures that force them to find ways to lower their expenses or increase revenue by providing more services.

For example, they are receiving lower payments from government-funded programs. At the same time, they are paying more for malpractice insurance. Health care providers and hospitals face a growing number of lawsuits and million-dollar verdicts. According to PriceWaterhouseCoopers and Jury Verdict Research, recent analysis reveals that since 1994, the average jury award in medical malpractice has tripled to $3.5 million. Win or lose, these lawsuits cost millions of dollars to defend.

These lawsuits play two roles in driving up health care costs. First, premiums for malpractice insurance increase, and that cost is passed on to consumers. Second, health care providers often do more tests and procedures than necessary in order to defend themselves from lawsuits.

Other economic pressures health care providers face include a nationwide shortage of nurses and other non-physician professionals. This means doctors and hospitals must pay higher wages to recruit and retain employees. Also, patient demand for state-of-the-art treatment means they must invest in the latest medical technology.

In addition, hospitals must find other sources of revenue as they compete with stand-alone specialty hospitals. These smaller, specialized hospitals drain patients from traditional hospitals but don’t offer all the same services. The playing field is not level because traditional hospitals must offer a full-scope of services, including 24-hour care and emergency trauma services.

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