Technology drives healthcare costs

Bangalore: According to an American Hospital Association survey of its members, labor costs have been the largest component of hospital expenditures from 2004-2008. The AHA report states that 'about two-thirds of every dollar spent by hospitals goes to the wages and benefits of caregivers and other staff.'

Also 64 percent of the hospital spending is attributed to 'the cost of goods and services' (which goes far beyond labor,) 34 percent to increased utilization (partly because of population growth) and just two percent to intensity and other. This the AHA says can be attributed to a variety of factors, including sicker, more complex patients as well as the high costs of advances in technology.

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Additionally, many experts attribute about half of the increase in health spending to the use of new medical technologies. Since those technologies are most often employed in hospitals, they must be a major driver of hospital cost growth. In 2004, only two percent of hospital operating budgets went to technology, but new technology purchases account for more than half of hospitals' capital spending, and those new devices and imaging machines get used. Perhaps hospitals find it more politically correct to say that they're spending money on nurses, lab techs, and physical therapists than to admit that they're investing millions in cold hard equipment that requires additional tests and procedures to achieve a return on investment.

According to Bnet, increasing use of new technology is at the core of Massachusetts' high hospital costs. A report co-authored by Alan Sager, a professor of healthcare finance at Boston University, reveals that in 2007, the average hospital cost per patient in Massachusetts was $3,015, about 55 percent higher than the national average of $1,941. Among the factors in the high spending level was the state's heavy reliance on teaching hospitals and an 'elaborate and expensive pattern of clinical services.' In other words, Massachusetts has the latest cutting-edge technology, and its doctors are not afraid to use it.