Presentation on theme: "Cost of Caring: Key Drivers of Growth in Spending on Hospital Care Executive Summary Presented to: The American Hospital Association and the Federation."— Presentation transcript:
Key Findings Acute industry shortages for certain clinical specialties have resulted in manpower inflation in excess of reimbursement trends. Carl Schindelar, CEO, Franklin Square Hospital, Baltimore
2 Key Findings Spending on hospital care is a declining share of National Health Expenditures (33.6% in 1997 to 31.7% in 2001) and private health insurance payments (31.8% to 30.7%). Of the total increase in spending on hospital care from 1997 to 2001: –55.4% can be attributed to increases in the number of services provided to patients. –44.6% can be attributed to increases in the costs of goods and services hospitals purchase to provide care, with wages as the most important factor. Payment rates have not kept pace with rising costs, and hospital total margins fell from 6.7% in 1997 to 4.2% in 2001. The federal government believes that the growth in spending on hospital services peaked in 2001 and will slow to an average of less than 6% for the remainder of this decade.
Background and Methodology
4 The recent acceleration in the growth of healthcare spending and premiums has gained national attention.
5 While spending on hospital care has grown more slowly than other types of healthcare spending…
6 …it is the still the largestthough shrinking percentage of a quickly growing pie. Percent of Total National Health Expenditures by Category, 1991 versus 2001 * Administration for government programs and the net cost of private health insurance (premiums less benefits) which reflects underwriting gains/losses. Source: Centers for Medicare and Medicaid Services (CMS), Office of the Actuary, National Health Statistics Group, National Health Accounts.
7 After a period of relatively low growth in the mid- 90s, a recent uptick in spending on hospital care has occurred.
8 This study looks in depth at the sources of growth from 1997-2001when growth began to accelerateand then looks forward to 2003. Analyzed data from public and private sources. –Centers for Medicare and Medicaid Services data: –National Health Expenditures by category, historical and projected –The Market Basket Index (measures the amount that hospitals pay for the goods and services they purchase to provide patient care) –U.S. Bureau of the Census data on population, demographics, hospital construction –Bureau of Health Professions data on the nursing shortage –Bureau of Labor Statistics data on wage rates and employment trends –National Center for Health Statistics (CDC) data on hospital utilization rates –American Hospital Association data on hospital volume (admissions, days, outpatient visits) and finances –Other publicly available surveys, data, literature, and media reports Supplemented data analysis with interviews of hospital leaders.
Major Findings Between 1997 and 1998, we started to see the spike in utilization. Every one of the insurers in our community dramatically reduced their utilization management activities. Greg Poulsen, Vice President of Strategic Planning, Intermountain Health Care, Salt Lake City
10 From 1997 to 2001, the most important source of growth was volumemore people using more hospital services. More Services Provided 55.4% Increasing Costs to Provide Care 44.6%* Total National Spending on Hospital Care (in billions) 1997 vs. 2001 Share of Growth in Spending on Hospital Care 1997 to 2001 $367.6 $451.2 19972001 Source: Centers for Medicare and Medicaid Services (CMS), Office of the Actuary, National Health Statistics Group, National Health Accounts. $83.6 Billion
11 Increasing volume reflects both population growth and increased use rates (number of services used per capita). Population Growth From 1997-2001 the U.S. population grew by about 5% Increased Use Rates Backlash: easing of managed care restrictions on access Aging population Technology: healthcare can do more things for more people 21.0% 34.4% Share of Growth in Spending on Hospital Care 1997 to 2001 Source: PricewaterhouseCoopers analysis, February 2003. More Services Provided 55.4%
12 Compensationwages and benefitsis the most important driver behind increasing costs of goods and services purchased by hospitals. Wages Benefits Pharmaceuticals Other supplies and services Other Increased efficiencies Declining margins Unmeasured growth factors 31.9% 6.9% 20.7% -18.3% 3.4% Rising labor costs due to workforce shortage 38.8% Rising expenses for devices, drugs, liability insurance 24.1% Share of Growth in Spending on Hospital Care 1997 to 2001 Source: PricewaterhouseCoopers analysis, February 2003. Increasing Costs to Provide Care 44.6%
13 The impact of labor is not surprising. Nearly 60% of hospital costs go to the wages and benefits of caregivers and others.
14 Growing volume should be good for hospitals, but payment rates have not kept pace with rising expenses; and financial performance has declined. Margin is the difference between the amount collected from payers, patients, and other sources and the amount hospitals spend to provide care. Some margin is necessary for a hospital to remain open at all. A sufficient margin allows hospitals to keep investing in their people and facilitiestechnology, equipment, and spaceto meet the escalating needs of patients.
Breakdown of Recent Growth in Spending on Hospital Services, 2001- 2003 Were going to be dealing with a progressively older and older population. This is going to be a time when hospitals make significant investments in plants and equipment to meet demand. Thats quite appropriate if were going to meet the demand were already seeing. Jack O. Bovender, Jr., Chairman and CEO, HCA, Nashville, Tenn.
16 Current estimates show that growth in spending on hospital care is moderating. According to the latest forecasts, growth in spending on hospital care declined from 8.3% in 2001 to 7.4% in 2002, and is expected to be 5.5% in 2003. 1 Hospitals share of national health spending is estimated to decline from 31.7% in 2001 to 30.8% in 2003. 2 Labor costs will account for the largest share of growth in hospital spending from 2001 to 2003. 1.Centers for Medicare and Medicaid Services (CMS), Office of the Actuary, National Health Statistics Group, National Health Accounts. 2.Ibid.
17 Labor costs are expected to account for 38% of the increase in hospital spending from 2001 to 2003. Source: PricewaterhouseCoopers analysis, February 2003. Population Growth 20% Increased Use Rates 16% Labor Costs 38% Pharmaceuticals 3% Other Supplies & Services 18% Technology 5% Regulatory Changes 4% Construction 1% Other - 5%
Latest Government Forecasts Unless people have access to a primary care physician, theyll utilize the ER. And, with 40 states reporting budget deficits, well see more people become uninsured through the loss of Medicaid. Ronald Anderson, M.D., President and CEO, Parkland Memorial Hospital, Dallas
19 The latest government forecasts predict that growth in spending on hospital services will hover around 6% throughout the next decade.
For Information Contact: Sandy Lutz Research Director, National Healthcare Practice (214) 754-5434 Jack Rodgers, PhD Director, Health Policy Economics Practice (202) 414-1646