Examining Burnout, Productivity, and Shortages
Over the long-term, inflation in healthcare generally outpaces the broader economy, however, 2022 saw a reversal. Whether this is a result of the war in Ukraine, COVID-19 and their impact on supply chains is still unclear, but we can expect attention to the issue to grow as consumers and employers struggle with growing inflation.
Workforce shortages and productivity are the biggest drivers of healthcare inflation and will have a direct impact on technology adoption. The clinical staff shortage is having a major impact on hospitals and health systems. Solutions that reduce work burdens of frontline staff as well as improve productivity and job satisfaction are going to be highly sought after for the foreseeable future.
Automating routine tasks that contribute to clinician burnout as well as offer cost savings will likely be a growing market given the economic and financial drivers of inflation in healthcare. The combination of workforce shortages and the supply chain issues that are driving inflation over the past year will likely continue for the next 1-2 years and the maturity of robotic process automation (RPA) tools has the potential to alleviate some of the pressures on hospitals and health systems.
Inflation has become a major challenge for the Federal Reserve as well as policymakers over the past year. Political careers can easily be destroyed in inflationary eras, but very few come out of this type of crisis looking like heroes. In this post, we’ll take a look at the numbers and try to make sense of what the impact of inflation is going to be on health tech spending in the coming year or so. Warning: lots of charts are coming below.
First, how does inflation in healthcare compare to the overall economy? In general, prices for healthcare have exceeded other consumer goods but quite a bit over the long term as we can see in Figure 1 below:
Here we find a nearly 40-point difference over the two year period. The previous 20 years also demonstrated higher medical care costs than the CPI until relatively recently with a few outlier years in the middle of this period (Figure 2).
There appears to be at least a short-term slowdown in healthcare costs during the latter half of 2022. The relative comparisons of the CPI and healthcare can be skewed by the volatility in energy and food prices due to the circumstances of war, a pandemic, and their impact on supply chains.
What drives healthcare costs?
So, what are the sources of healthcare costs and inflation in healthcare? From the analysis above we can see the following breakdown across healthcare spending. In figure 3 we see that health insurance is the outlier, with a 20.6% increase in price, prescription drugs at 2.2% and most other healthcare goods and services hovering between 4-6%. Payers have been doing quite well on the stock market of late and the services they cover appear to have far lower inflation rates.
These charts do not tell us much about the growing challenge of a shortage of healthcare professionals—particularly clinical staff—on health systems and costs. With clinician burnout growing as a direct result of the pandemic (however, many of the drivers of the problem preceded the pandemic), labor costs are a growing issue.
Analyses from McKinsey and AMN Healthcare tell a different story. According to AMN Healthcare, 85% of healthcare facilities face a shortage of allied healthcare professionals. McKinsey is estimating that by 2025, there will be a gap of 200,000-450,000 nurses (10-20% of total) and 50,000-80,000 doctors (6-10% of total). These shortages are having a significant impact on inflation in healthcare (See Figure 4 below).
Clinical labor costs are expected to increase quite substantially over the next five years according to the numbers from McKinsey. Even non-clinical labor costs are substantial; however, the labor shortage is less of a factor in this area. The growing administrative burden for clinicians is becoming a major source of job dissatisfaction and prevents many from spending time on the caring mission that brought them to medicine in the first place. Non-clinical staff can also benefit from automating mundane tasks that contribute little to meaningful work.
Hospitals and health systems will need to look closely at how to simultaneously improve the job satisfaction and productivity of their workforce. This can create a considerable challenge, since technology adoption is rarely a seamless issue. However, the number of mundane tasks that both clinical and non-clinical staff must complete that add to their overall work burden as well as job dissatisfaction has grown in recent years. For many clinical staff, the administrative burden acts to diminish the ethos of care that originally motivated their choice of medicine as a profession.
Chilmark Research is currently working on a deeper dive into robotic process automation (RPA) and offerings in this space that could contribute to lowering clinical workforce burnout, improving patient journeys, and addressing the administrative waste issue. Automation in many fields is fraught with fears of loss of jobs. We find this less of an issue in healthcare where workforce shortages have become a problem. As healthcare costs increase in the coming years due to the workforce, we will need to understand the solutions in the automation space, how workers and organizations understand their reliability and trustworthiness, and the overall economics of AI, RPA and what is often referred to as digital transformation. If you have an RPA solution that you would like to discuss for inclusion in our upcoming report, please contact me at jody at chilmarkresearch.com.
 See the following for the charts and analysis https://www.healthsystemtracker.org/brief/how-does-medical-inflation-compare-to-inflation-in-the-rest-of-the-economy/#Annual%20change%20in%20Consumer%20Price%20Index%20for%20All%20Urban%20Consumers%20(CPI-U),%20October%202000%20-%20October%202022