Supply and demand issues looming for health care

Over the last few months, supply shortages have plagued the health care industry. And while these shortages have been drivers of costs in the short term, over the longer term, it may be that a shortage of something else will drive costs up even more — a shortage of labor.

So as you are grappling with shortages of supplies in the present and planning for shortages of labor in the future, here are some thoughts about what you can do to put downward pressure on costs.

Hospital material supply shortages

The first thing to do is to better understand the problem.

At the end of May, hospitals in Reno were postponing surgeries. The reason/? Low supplies of iohexol, a dye that helps doctors see clots, tumors, blood vessel injuries and inflammation. The dye is produced by a factory in Shanghai, which was closed for several weeks following a coronavirus outbreak in April.

It’s a scene played out in hospitals and doctor’s offices throughout the United States. As The Washington Post reported, with “medical supplies dwindling because of the manufacturing shutdown halfway around the world — part of stringent Chinese COVID-19 policies that kept workers at home and forced factory closures — doctors at many U.S. health organizations are scrambling.” One cardiologist told the paper, “It’s a crisis that I have never had as a clinician, that I have not had to deal with in my entire career.”

This is a problem affecting nearly every facet of health care, causing new difficulties in a sector already grappling with difficult circumstances. As Forbes reported, the shortages differ from those in the early days of the pandemic: “Back then, shortages might have been more urgent, but today’s problems include a much wider array of equipment.” The problem has many causes, such as lockdowns in Chinese cities where many manufacturers are located, long backlogs at ports, and scarcity of components.

The FDA keeps a long list of medical supplies that have become scarce during the pandemic. At the moment, these include personal protective equipment like gloves and face masks, but also general supplies like pipette tips, saline, and testing reagents.

There are even shortages affecting the sector of components that you might not immediately associate with health care, like computer chips. Medical technology uses about 1% of the global supply of computer chips, and delays in some cases have reached more than a year.

Labor supply shortages

In addition to shortages of material supplies, the health care labor market faces a shortage of workers. In the aggregate, the health care sector may have lost 30% of its workers during the pandemic.

This is true in every category of employment in the health care sector: The U.S. faces a projected shortage of between 37,800 and 124,000 physicians within the next 12 years. More than one-third of nurses in a survey said they were likely to leave their jobs by the end of 2022. (As a result, the United States could face a deficit of 200,000 to 450,000 nurses by 2025.)

Additionally, there are not nearly enough pharmacy techs to go around. According to ASHP, “a majority of pharmacy administrators in a recent survey reported turnover rates of at least 21% in 2021, and nearly 1 in 10 noted they had lost 41% or more of their technicians.” Shortages among lower-wage health care workers such as medical assistants, home health aides, and nursing assistants could run as high as 3.2 million over the next five years. And staffing shortages have also been reported by pharmaceutical companies, mental health practitioners, and even facility management, food and cleaning services.

These shortages will do more than just drive up costs. As Axios recently reported, several recent studies have linked labor shortages with lower quality of care. Patients are feeling the pain too. One recent poll found more than half of all Americans said they’ve felt the effects of labor shortages, from canceled appointments to delayed surgeries.

Demand overruns

As if all of that weren’t enough of a problem, COVID-19 has increased the demand for health care. At the peak of the pandemic, the overloaded health care system could not keep up with demand, and people avoided health care for fear of exposure to the coronavirus.

A meta-analysis found “a median reduction of 37% of services overall” in 2020 and 2021. As the virus has receded, many of those potential patients have returned.

The demand caused by the coronavirus pandemic and delayed care adds to the longer-term trends of increasing demand for health care in the United States. In 2021, the most recent year for which complete data is available, there were 33.4 million admissions in hospitals in the country, a number which has remained roughly stable for decades. But according to one of the most authoritative studies of unmet demand for health care, over the last 20 years, the number of people who did not see a doctor because of the cost increased by 2.7 percentage points.

That’s a trend that has been growing independently of the pandemic, where long-term needs driven by decreasing fertility rates and increased life expectancies have pushed aging populations to consume more care as they age.

Health care is getting more expensive

There are several reasons why health care costs are rising. As we’ve said, the costs of supplies and personnel are increasing due to supply chain issues and inflation. But in addition to the cost of delivering service, the aging population in the U.S. is also contributing to more people requiring expensive care. This increases the burden on insurance providers, employers, and patients.

Additionally, demand has exceeded supply in many areas. For example, a shortage of psychologists has led to rising prices for mental health care. Amid this shortage, 68% of psychologists have waitlists for new patients, yet one-third of respondents in one recent survey said they canceled or decreased frequency of their mental health care because they were concerned about the cost of treatment.

The way health insurance functions in the U.S. contributes to rising prices as well. Many people are limited to what kind of care they can access by what their insurance will pay for. The result is limited competition, which drives up prices for patients. What’s more, the health care system in the U.S. is oriented around treatment instead of prevention. This results in higher costs because “preventing diseases from getting worse is always going to cost less” than treatment, according to Dr. Tyeese Gaines.

Plan for what’s coming

To be honest, much of this is out of your control. Over time, supply chains will adapt. New workers will enter the health care field, although wages are likely to have to rise to attract them. It’s unlikely the national government will take transformative steps to address health care spending, but state governments may be able to play a positive role.

It’s likely that in the short to medium term, costs will continue to rise. Not only will supply costs increase, but health systems will have to raise their pay in addition to seeking expensive staffing solutions like relying more on high-paid traveling nurses.

In the meantime, you should look for ways to save costs while maintaining benefits. Increased adoption of technology can help here, especially those that improve productivity. You may also want to double down on strategies for containing costs, including prescription drug costs (such as utilizing generics and biosimilars), place of service for medical channels, better primary care to reduce avoidable ER visits and admissions, reductions in low-value care, and increased usage of telemedicine.