Cost Disease

At Society Health, we wake up every day focused on helping healthcare providers do more with less—and do it better. In our pursuit, one challenge looms large: rising costs in healthcare that don’t match productivity. This phenomenon, known as Baumol’s cost disease, is both a warning sign and a call to action for our industry.

Understanding Cost Disease

Baumol’s cost disease is a fancy term from the 1960s, but it explains a very real issue we see every day in healthcare. Here's how it works: jobs like therapy, nursing, or counseling take about the same amount of time today as they did 20 years ago. A 60-minute session is still 60 minutes. But wages keep going up, not because we’re more productive, but because we need to compete with high-paying industries like tech.

This becomes a big problem for healthcare providers, especially smaller ones. In Wisconsin, for example, case managers now earn $30–$40 an hour, but they’re not seeing more patients than they did five years ago. Costs rose 15% between 2019 and 2023 (DHS data), while margins shrank to 5–10%. That’s a red flag.

We see the results: long waitlists, cutbacks in services, and providers forced to make impossible decisions. Just look at the 1,500 families on the Family Care waitlist in Wisconsin last year.

How Do We Measure Productivity in Healthcare?

Healthcare isn’t like making widgets. You can’t just crank out more units per hour. Still, we need solid ways to measure productivity. Here’s what we focus on:

• Patient Encounters per Provider: Easy to track, but doesn’t tell the whole story.

• Relative Value Units (RVUs): Adjusts for time, skill, and complexity. It’s one of the best measures we’ve got.

• Cost per Case: Shows how much it costs to treat each patient. If you can lower it without hurting quality, that’s a win.

• Quality Metrics: Think patient satisfaction, readmission rates, or clinical outcomes.

But even with these tools, it’s hard. A simple check-up isn’t the same as complex surgery, and we must account for that.

Our Big Bet: Agentic AI

Here’s where I get excited. Technology—especially agentic AI—can finally tip the scales. This isn’t just automation. It’s AI that acts, learns, and makes decisions. Think of it like a digital teammate that handles admin work, helps with diagnostics, and manages patient flow.

Imagine freeing up 10-20% of a provider’s time by automating scheduling, billing, and data entry. That’s more time for patients, more encounters, and more revenue. Agentic AI also boosts RVUs by speeding up diagnosis and helping manage complex care cases.

Case in point: GE Healthcare used agentic AI to cut administrative time by up to 30%. Valley Medical Center used it to improve case reviews from 60% to 100%. That’s the kind of impact we need.

What Society Health Recommends

So, what’s the way forward?

1. Start With Cost Transparency: Understand what each service costs. Use RVUs and baseline cost analysis, like we’ve seen outlined in AMA’s recommendations​.

2. Invest in AI and Automation: Don’t wait. There are affordable tools out there. You don’t need a massive IT team to get started. Even modest AI use can recover $10,000–$50,000 per site per year in productivity gains​.

3. Pilot AI Across 50 Providers: We’re urging DHS and others to invest in early pilots—just $40,000 total—to prove the model. The ROI is clear.

4. Partner with Payers: Push for simplified workflows and demand the data you need to make smart decisions. If a payer isn’t paying fairly or sharing data, maybe it’s time to reconsider that contract.

5. Train for the Future: Value-based care is here to stay. Build internal analytics or partner with groups that can help. From inventory management to accrual-based accounting, it’s time healthcare adopted business discipline​.

Finally

If we want to tackle rising costs and stagnant productivity, we must act boldly. We need AI that does more than analyze—we need AI that acts. We need financial systems that show us what’s working and what’s not. And we need a culture that welcomes data and innovation, even if it means doing things differently.

Baumol’s cost disease isn’t going away on its own. But together, with the right tools and the right mindset, we can fight back—and build a healthcare system that’s sustainable, smart, and centered on care.

Let’s get to work.