Evolution of healthcare spending: Where does my healthcare dollar go?
In 2024, healthcare spending grew to $4.5 trillion, or 17.3% of U.S. GDP.2 Given the impact on employee healthcare benefits and family budgets, it’s fair to ask, “Where does my healthcare dollar go?” and “How did we get here?”
The healthcare economy has ballooned since 1970, when national healthcare expenditures totaled $74.1 billion, or 6.9% of GDP. By 2000, healthcare spending grew to $1.4 trillion (13.3% of GDP), and that amount tripled by 2022.3
The most recent data show hospital services make up the greatest share of healthcare spending, consuming 39 cents on the dollar. Physician and clinical services rank second with 22 cents on the dollar. Prescription drugs round out the top three spending categories, claiming 21 cents on the dollar.1
Although in third place, prescription drugs are gaining ground, increasing 8.4% in 2022 (the most recent year data is available) due to rising prescription drug prices and increased utilization of retail prescription drugs. During that time, hospital care spending grew only 2.2% and physician spending grew 2.6%.4
Hospital spending
Hospital care consistently has claimed the largest share of healthcare spending. However, in the last two years, the growth of hospital spending has slowed due to lower reimbursement from Medicare and Medicaid and a decline in private revenues. Slower growth in hospital prices and a drop in hospital days and discharges also restrained spending.2
Hospital revenues have been affected by higher utilization of ambulatory and outpatient settings, diverting patients from traditional inpatient care. Patients and payers are drawn to outpatient settings by convenience, comparable outcomes and lower prices. For example, an average gallbladder surgery costs $12,000 when done at a hospital; the same procedure costs $2,200 at a day surgery center. This example illustrates why outpatient procedures are expected to increase 15% by 2028.5
A recent analysis shows that payers can reduce surgical costs up to 59% by directing members away from hospital settings to ambulatory surgery centers.5 As a result, hospital patient volume is expected to shift toward severe cases, and most routine cases will be handled in outpatient settings.
Blue Cross and Blue Shield of Minnesota utilizes a strategic case management approach that steers patients toward in-network providers and centers of excellence. Blue Care AdvisorSM plays a pivotal role by promoting high-quality, cost-effective care options conveniently located close to home. Through personalized recommendations and real-time guidance, the platform helps members choose outpatient settings over more expensive hospital-based inpatient care, thereby reducing overall healthcare spending while ensuring optimal outcomes.
Even certain types of acute care are moving away from inpatient settings. “Hospital at home,” enables patients to receive care at the bedside, supported by monitoring technology and home visits from providers. Outcomes are equivalent to hospital-based care, and patients benefit from closeness to family and friends, familiarity and comfort of home, and avoiding hospital-based infections. The hospital-at-home market is projected to grow 50% from $200 billion to nearly $300 billion by 2028.6
Blue Cross focuses on guiding members to the most appropriate and lowest-cost settings. These include expansion of home healthcare solutions and virtual care options for urgent care, physical and behavioral health, physical therapy and diabetes management.
Physician and clinic spending
Physician and clinic spending is traditionally the second-highest category of healthcare expenditures. In 2022, the rate of physician spending slowed to 2.6% due to moderate growth in both prices and utilization. This comes after higher growth in 2020 from spending on federal relief programs and in 2021 from the rebound in utilization of medical goods and services following the COVID pandemic.4
The United States faces a significant shortage of physicians. The Association of American Medical Colleges (AAMC) projects a shortage of 86,000 physicians by 2036. A growing demand for medical care will make this shortfall even more serious. By 2036, the U.S. population is projected to grow by 8.4%, with the segment of 65 and older growing by 34%. Since older Americans tend to need more healthcare and access to more physicians, the AAMC predicts this trend will lead to a substantial growth in demand, particularly for the specialists older adults need most often.7
Blue Cross is committed to providing members convenient access to primary care and specialist physicians through its broad local, national and international networks. Geo access reporting measures access to care within certain mileage requirements of member home addresses. This analysis informs the provider network strategy — adding virtual solutions like Doctor On Demand® or expanding the provider network.
Pharmacy spending
From 2020 to 2022, retail prescription drugs were the fastest-growing component of healthcare spending.4 A primary driver of higher costs is specialty drugs, which now account for 51% of total prescription drug spending.8
Medical specialty drugs are prescribed for complex and chronic conditions such as Crohn’s disease, rheumatoid arthritis, multiple sclerosis and cancer. They are delivered by injection or infusion under the care of a healthcare professional, often costing $5,000 or more for a single treatment.
Blue Cross recently announced a specialty drug prior authorization and utilization review program with its pharmacy benefits manager, Prime Therapeutics. Thanks to a proprietary web-based application and automated review process, 60% of prior authorizations are approved in six minutes or less, improving practice efficiency. Prime reports the fast approval process, with fewer appeals and grievances, results in a 98% provider satisfaction rating.9 Read more about Blue Cross specialty pharmacy management.
Another driver of rapidly increasing drug costs is gene and cell therapies. These new therapies are effective against rare diseases such as sickle-cell anemia and spinal muscular atrophy. A single-use treatment can cost $1 million to over $4 million per patient.10 With 25 new therapies expected in the market by the end of 2024,11 total drug spending in this category could increase $12 billion by the end of 2027.12
To protect employers from the financial risk of these high-cost treatments, Blue Cross has made stop-loss protection available to qualifying employers and groups. To learn more about gene and cell therapies and stop-loss coverage, contact your Blue Cross representative.
Administrative costs
Another area of healthcare spending that gets attention is administrative costs. This includes general costs to run the business, including salaries, services, equipment, accreditation and certification fees, rent, legal fees and advertising.13
Blue Cross is committed to driving down administrative costs to deliver affordable healthcare solutions to clients and members. One focus area to enable this is operational excellence. Initiatives include streamlining internal processes and breaking down functional barriers to provide efficient service. By analyzing claims history and population health data to stratify members, Blue Cross helps clients optimize their health plan benefits.
Blue Cross also responsibly leverages artificial intelligence (AI) to improve plan performance and member experience. For example, Blue Care Advisor launched a pilot for an AI-powered chatbot that empowers members to quickly get answers to their questions while reducing care management-assisted calls and related costs. In addition, AI is used to automate the provider experience, including credentialing, claims submission and preauthorization — all with the goal of lowering the cost of care. Read more about how Blue Cross responsibly deploys AI and gets to a “yes” faster.
Evolution will bring further changes
As the population grows older, with higher incidence of chronic conditions, healthcare budgets will be stretched in new directions. Healthcare spending continues to be affected by developments in medical technology, alternative treatment settings, new drug therapies, consumer preferences, and employer benefit strategies.
Traditionally, health plans have addressed affordability challenges in siloes, which leads to piecemeal and overlapping solutions that can cause member confusion. Blue Cross is committed to delivering affordability through a product-led approach that breaks down the silos, ensures we’re all working toward the same end, and embraces affordability as a holistic and enterprise-wide initiative. We are focused on connecting the right teams and solutions to provide the highest value for employers and members.