There's good news and bad news in the medical-care inflation figures released this month by the Labor Department.
The good news is that medical inflation continues to moderate. In March, overall consumer prices rose only 0.3% and medical-care costs increased just 0.2%-that's the smallest monthly rise in 10 years. It's apparent that competition and the specter of national healthcare reform have pushed hospitals, physicians and suppliers to find ways to cut costs.
But a closer look uncovers some troubling numbers. For example, the cost of outpatient care, which is one of the fastest-growing sectors of the healthcare industry, increased 0.8% in March. While hospital room fees showed no monthly increases, inpatient ancillary services rose 0.8%. And despite efforts to hold physician costs in check, the cost of physician services increased 1.2% in March-four times the rate of general inflation.
With healthcare services moving rapidly to outpatient settings and physicians performing more services in their offices, these trends foreshadow the possible continuation of the healthcare price spiral that has alarmed patients, employers and government policymakers.
One important measure of how well hospitals are performing-productivity-continues to nosedive. The number of full-time-equivalent employees per 100 adjusted census has risen steadily during the last decade, jumping from 353 in 1982 to 437 in 1992, according to American Hospital Association data. In part, these numbers reflect the fact that sicker patients are being admitted to hospitals today, but the industry cannot permit the growing complexity of patient care to provide an excuse to allow productivity to slide.
Hospitals that want to compete in a cost-efficient environment need to lower their labor costs as a percentage of revenues. A period of moderate inflation also can allow healthcare institutions to capitalize on lower costs for the goods and services it must buy.
As Bruce Vladeck, HCFA administrator, told attendees at the Federation of American Health Systems annual convention in Orlando, Fla., this month, the coming decade may be the healthcare industry's last chance to show it can operate more productively without extensive micromanagement by government.
Moderation in medical costs must continue so other forces aren't tempted to resort to radical reforms. As R. Clayton McWhorter, chairman of HealthTrust-The Hospital Co., noted recently, giving the government primary responsibility for running the healthcare system would be a sure way to guarantee continued overcapacity and waste. One need only look at the difficulty of closing military bases or veterans hospitals to see a scenario for the future.
Savvy healthcare executives understand the future is in their hands. While politicians puff and posture, these execs are undertaking work-redesign efforts, cross-training more personnel, outsourcing work, and seeking to reduce overcapacity and eliminate duplication of services. Such activities require making difficult decisions that affect the livelihoods of many. Still, they offer the best opportunity for effective reform of the healthcare system.