Blog

Graphic showing the rise in healthcare expenses over time.

Understanding the Rise in Healthcare Costs 

Fierce Healthcare just issued a 2025 healthcare outlook with several key findings, including: 

  • An American Hospital Association (AHA) report published in 2024 finds reimbursement from government payers is not keeping pace with the high costs of drugs, labor, and supplies and the inflation rate. 
  • In 2025, the Centers for Medicare & Medicaid Services (CMS) plans to raise payment rates for hospital inpatient and outpatient services by 2.9% on average, and the agency finalized a 2.83% rate cut in physician payments. 

What do these findings mean for providers? Rising healthcare costs have become a daunting challenge in nearly every facet of the system. It’s more important than ever for providers to adopt effective healthcare cost management strategies.  

This article offers key drivers behind rising healthcare costs and actionable insights into how providers can reduce expenses without compromising quality patient care.   

The Growing Concern of Rising Healthcare Costs   

As stated above, healthcare providers grapple with various factors driving rising costs. We take a deeper dive and list these in more detail below. 

Healthcare reimbursement challenges. It’s no secret that reimbursement challenges weigh heavily on providers’ minds. According to Healthcare Finance News, escalating reimbursement delays and declining cash reserves place health organizations in a shaky financial dilemma.  

The data found that healthcare system accounts receivable are experiencing significant volatility, with fluctuations influenced by irregular reimbursement practices.  

These findings emphasize the need for measures to alleviate financial pressure on healthcare providers to ensure uninterrupted patient care delivery. 

Administrative costs. Administrative costs now account for more than 40% of total expenses hospitals incur in delivering care to patients, according to an AHA report.   

The findings also point out that much of the costs result from the burden and time associated with dealing with specific practices that insurers have put in place around prior authorization and delays in payments. 

Expensive technologies. According to the Alvarez & Marsal’s (A&M) Group, healthcare remains a top mark for cybercriminals. With this understanding, organizations will continue putting expensive cybersecurity tech and investments at the top of the budget.  

For example, nearly two-thirds of chief information security officers report that their budgets have risen from 6% in 2023 to 8% in 2024. Moody reports spending by providers on security management will also continue to rise, with cyber spending as a percentage of total technology budgets climbing to an estimated 7% in 2023 from 5% in 2019.  

Inflation. KPMG reveals that CMS predicts total hospital provider spending will increase by 50 percent between 2022 and 2030. What does this statistic prove? The direct impact of inflation on healthcare is far-reaching.  

Economy-wide inflation grew 12.4% between 2021 and 2023 – two times faster than Medicare reimbursement for hospital inpatient care. This growth has caused rising pharmaceutical prices, increased medical technology costs and labor shortages, resulting in:  

  • Health worker wage increases.  
  • Higher prices for medical services, medications, and insurance premiums directly impact patients’ out-of-pocket expenses. 
  • Reduction in essential health care services, such as emergency care and behavioral health. 

With growing inflation, healthcare organizations must find ways to realize savings now more than ever.  

Doctor reviewing financial data related to healthcare costs.

Cost Control Strategies for Providers  

Despite these growing challenges, adopting structured cost containment techniques can help providers maintain fiscal responsibility while delivering exceptional care.   

Below, we list six effective strategies providers can use to combat and beat rising healthcare costs. 

1. Streamline Operational Efficiency to Reduce Costs   

Operational inefficiencies are often overlooked but have a profound impact on costs. By implementing automation tools, improving billing systems, and upgrading hospital workflows, providers can reduce healthcare operational costs effectively.  

For example, utilizing CollaborateMD’s practice management software can help providers automate administrative tasks, reduce errors, and ensure smooth patient interactions.  

By leveraging CollabrateMD’s patient intake solutions, such as Appointment Scheduler and Electronic Forms, medical staff can transform their intake process into efficient patient-centric care, saving time and money. 

2. Build Trust Through Transparency  

Healthcare pricing transparency is becoming a regulatory requirement, but it also could save the healthcare industry. In a letter to the U.S. Senate, economists, academics, and business leaders cite data indicating: 

“25% of U.S. healthcare spending is administrative waste, overcharging, and fraud. Healthcare price transparency can save the U.S. healthcare system approximately $1 trillion annually by ushering in a competitive market.” 

What does this mean for providers?  

Clear, upfront information about medical and procedural costs increases trust and empowers patients to make informed decisions. Such initiatives can also reduce disputes over payments, leading to faster reimbursements and fewer administrative complications.  

3. Cost Management Begins with Data Analytics 

Investing in the right technology might feel like a higher short-term cost, but the long-term benefits are tremendous. Using advanced electronic health records (EHR) and data analytics software can identify patterns and bottlenecks, eventually minimizing waste.  

For example, CollaborateMD’s medical billing software simplifies billing processes and provides transparent reporting tools to grow practices and streamline revenue cycle management (RCM).  

For example, their Advanced Dashboard Reporting & Analytics tool lets providers get a clear picture of their business operations with over 125 customizable reports. They can build, run, and view multiple reports simultaneously and share data with staff members. 

Healthcare provider discussing cost-saving strategies with a team.

4. Focus on Preventive Care and Patient Education   

One of the most effective strategies to lower healthcare costs involves preventive care. Preventive services include: 

  • Screenings and tests 
  • Checkups  
  • Patient counseling 
  • Vaccines  

Preventive care lowers costs for healthcare providers and systems by identifying and addressing health issues before they begin. This action prevents them from advancing into more serious conditions requiring expensive treatments, lengthy hospital stays, and emergency room visits, ultimately reducing healthcare spending.  

For example, as a risk factor for cardiovascular disease, high blood pressure is a large contributor to increased healthcare costs. About 1 in every 8 health care dollars is spent on cardiovascular disease.  

However, engaging patients in preventative actions such as adopting self-measured blood pressure monitoring programs can reduce heart attacks by 4.9% and strokes by 3.8%. They could also generate an average of $7,794 in savings in health care costs per person over 20 years. 

5. Utilize Cost-sharing Models  

Cost-sharing in healthcare, such as co-payments and deductibles, allows providers to share the financial burden with patients. While this approach requires a careful balance to prevent overburdening patients, it can effectively tackle rising costs.  

Some models include bundled payment models, high-deductible health plans (HDHPs), or value-based care models. For example, some models can help lower diabetes costs by encouraging patients to make more informed decisions about their healthcare usage, potentially leading to better medication adherence. 

This strategy also incentivizes healthcare providers to deliver cost-effective treatments by structuring patient copays based on the value of the service provided, especially when applied to high-cost medications like insulin.  

6. Address Healthcare Reimbursement Challenges   

Delayed or denied reimbursements present a formidable challenge for providers. These outcomes can result in a direct loss of revenue, impact cash flow, and increase admin costs.  

Automating insurance claim processes and leveraging analytics can ensure timely reimbursements, minimizing these revenue challenges. For example, using CollaborateMD’s medical billing software offers solutions such as: 

Claim Generation and Submission 

These features ensure that insurance claims are created accurately, compliant with regulations, and submitted promptly. 

Claims Scrubbing 

This tool can inspect and detect claim errors before submitting them. This scrubbing reduces denial rates and improves data accuracy.  

Claim Control & Task Management 

The feature allows providers to set tasks based on the line-item status of claims to prioritize work and ensure they are quickly reimbursed for every dollar. 

Take The Next Step to Combat Rising Costs 

2025 may bring more healthcare costs to a provider’s doorstep. But with the right solutions, these challenges can be prevented or even thwarted.   

Addressing healthcare reimbursement challenges, implementing healthcare pricing transparency, and employing effective cost-control strategies for providers are just a few ways to rise above and combat financial pressures.  

Are you ready to take control of rising healthcare costs? Start exploring CollaborateMD’s cost-saving solutions today while continuing to deliver the excellent care your patients deserve.   

Subscribe

Categories

Related Blog Articles