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The Economics of Healthcare

The United States spent around $3.5 trillion on health-related services in 2017, making the U.S. healthcare industry a leading driver of economic growth and spending for the entire country. That relationship works both ways. Economic downturns and changes in consumer spending can alter certain aspects of how hospitals, clinics and physician groups are funded.

Healthcare administrators must have both the insight to anticipate potential disruptions in funding and the financial skills to help medical practices withstand ups and downs in the U.S. economy. Even in a strong economy, a background in financing can help healthcare administrators pay down debt, limit financial risk and invest for the future growth of their respective medical businesses.

Economic Trends Shaping the U.S. Healthcare Industry

One of the most important tasks that hospital CEOs and upper-level managers at healthcare facilities perform is ensuring that their business remains profitable. Payment for healthcare services occurs through a few different channels:

  • Private insurance companies
  • Out-of-pocket
  • Financing
  • Credit cards
  • Health savings plans
  • Medicaid or Medicare

The relative proportions of these payment methods are always in flux, driven by large market forces and the occasional government healthcare overhaul. Healthcare administrators should stay on top of these trends and plan accordingly. Medical billing statistics provided by MedData highlights several major trends within the healthcare industry.

  • Healthcare-related bankruptcy filings more than tripled in 2017.
  • Healthcare costs have increased by nearly 30% since 2015.
  • Nearly half of employer health insurance plans have a deductible of between $1,000 and $2,999.
  • Nearly 70% of patients failed to pay off their medical bill balances in 2016.
  • More Americans report fearing unexpected healthcare costs than paying off their mortgage.

The Committee for a Responsible Federal Budget reported that federal spending on public health will rise from 5.4% of GDP in 2017 to 6.8% in 2028.

Healthcare Administrators: Applying Economic Theory to Real-Life Healthcare Challenges

Healthcare administrators are tasked with drafting budgets and forecasting changes in funding sources. If rising health insurance premiums are creating needs for alternative forms of funding, a healthcare administrator can anticipate those needs by partnering with patient financing companies like CareCredit, for example.

If the U.S. economy is growing and patients are able to afford the full cost of treatments, hospital CEOs and upper-level managers can use that knowledge to plan ahead by hiring new staff, buying advanced medical equipment or even expanding existing buildings.

The universal law of supply and demand applies to healthcare economics as much as it does to other private sector industries. If there is a shortage of physicians and a high need for their services, physicians can command a higher premium for employment by a hospital. If there is low demand for medical services or if a particular area of a city is economically depressed, it can drive wages down for medical professionals. Weighing the demands of the market against the budgetary realities of funding a hospital is the job of healthcare administrators — and they rely on their formal training in financing and economics to navigate complex situations.

Hone Your Economic and Financial Skills with an MBA in Healthcare Administration

The University of North Carolina at Pembroke’s online Master of Business Administration in Healthcare Administration offers a robust curriculum of accounting, economics, managerial finance, marketing and international business — in addition to healthcare-related courses on health economics, legal issues for healthcare professionals and health administration. The UNCP School of Business holds accreditation from the Association to Advance Collegiate Schools of Business (AACSB), and the fully online MBA program can be completed in as few as 12 months.

Learn more about UNCP’s online MBA program in Healthcare Administration.


MedData: 2019 Medical Billing Statistics

Bureau of Economic Analysis: Health Care

Committee for Responsible Federal Budget: American Healthcare Spending and Federal Budget

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