Inflation and rising labor costs will increase US national healthcare spending by $370 billion in the next five years, according to a McKinsey report.
Consumer prices are rising faster than healthcare inflation, but general inflation has recently driven up healthcare supply input costs.
Between 2019 and 2022, labor costs per adjusted hospital discharge rose 25 percent, pharmaceutical costs increased by 21 percent, supplies grew 18 percent, and services rose 16 percent. These costs have somewhat stabilized in 2022, but they remain high above the norm.
Significant labor costs and the ongoing clinical labor shortage are the main contributors to the projected $370 billion increase in healthcare spending expenditures by 2027. McKinsey researchers estimate a shortage of 200,000 to 450,000 registered nurses and 50,000 to 80,000 doctors by 2025.
In addition, clinical labor costs are expected to grow by 6 to 10 percent over the next two years, which is 3 to 7 percentage points higher than the prevailing inflation rate.
Workforce shortages will likely get worse due to increasing demand and decreasing supply, the report noted. The annual demand for registered nurses may increase by 7 to 10 percent between 2021 and 2025. Attrition rates and retirements will also exceed the number of new licensures.
Clinical labor shortages may account for $170 billion of the healthcare spending increase expected by 2027. Labor shortages could also negatively impact care access due to potential closures or increased wait times.
Due to clinical labor shortages, nonclinical workers, such as personal care aides, may be burdened with additional tasks. This could make it harder for practices to retain nonclinical staff, the report said.
Researchers predicted that nonclinical wages would be 3.1 percentage points above baseline expectations over the next several years. While wages should return to baseline expectations by 2025, these increases could still result in a $90 billion increase in healthcare spending expenditures by 2027.
Supply chain issues will likely continue in the US, causing nonlabor costs to increase by up to $110 billion in the next five years.
The rising costs due to inflation are mainly affecting providers currently. Due to contracting and renewal cycles, public and private payers may not experience impacts for a few years.
For example, providers’ ability to pass on increased costs to employer-sponsored health plans is governed by contracting life cycles that typically last for three years. Thus, higher costs associated with commercially insured consumers will not reach payers for one to three years.Revcycle Intelligence