Unfortunately, there is no single way to look at healthcare cost drivers. Cost drivers can be approached from many directions (see Table), adding confusion to any discussion about rising costs. As a result, multiple explanations for rising healthcare costs can be true simultaneously. For example, it is perfectly correct to say that rising costs are associated with increasing rates of obesity (health condition driver), higher spending on new treatments (line item driver), and hospital market power (policy), but these explanations could all be referring to the same spending.
Table: Cost Drivers Take Many Forms
|Type of Cost Driver||Description|
|Segment Drivers||Highlights segments of the healthcare industry where spending has been increasing, like outpatient care|
|Demographic Drivers||Measures of the population, society, and general economy that appear to result in more spending on healthcare, like the aging of the population or increases in per capita income.|
|Health Condition Drivers||Measures of illness or other health conditions that have changed over time in excess of general demographic trends, like the increasing prevalence of diabetes.|
|Line Item Drivers||Increasing amounts actually being spent by healthcare providers in their operating budgets, like increased spending on new medical technology.|
|Policy Drivers||Public policy and health system practice can contribute to the cost of healthcare, like allowing hospital consolidations that result in near monopolies.|
Adapted from Doug Hall, Will the Real “Cost Drivers” Please Stand Up? The Problem of Identification, November 2004.
In a 2010 report, the Institute of Medicine (IOM) concluded that no single issue dominates healthcare spending growth, and that it is the result of multiple forces at play in a fragmented delivery system. We agree. But to cut through the clutter, consider these key take-aways: