With the spotlight on hospital costs growing hotter, the country's two leading hospital lobby groups released a joint study last week saying that greater demand for hospital services and higher labor costs are the causes of the recent rise in hospital expenditures.
The study, commissioned by the American Hospital Association and the Federation of American Hospitals, came one week after the federal fiscal 2003 omnibus appropriations bill largely ignored pleas by hospitals for more relief, although rural and some small urban hospitals will receive $300 million in additional funding. President Bush signed the bill last week.
Congress also is mulling a recommendation from the Medicare Payment Advisory Commission to increase inpatient reimbursements by 0.4% less than inflation despite cries from hospitals for a full update.
Many of the findings from the AHA-FAH study have been reported elsewhere, but the focus of this study and the timing of its release suggest that its aim is two-pronged: to get the attention of lawmakers and to counter other reports that paint hospitals as the main culprit in skyrocketing healthcare costs.
"We find ourselves at a very unique point in our history where the impact of a series of forces are all hitting at the same time and all contributing to increases in the cost of caring for patients," said Rick Pollack, executive vice president of the AHA.
If the study struck some as a way to pass the buck, it was at least partially intentional.
"Many of these cost drivers for hospitals are beyond the control of our institutions," said federation President Chip Kahn. "We will continue to provide the care our patients need, but we are not immune to cost pressures that affect spending for that care."
But Paul Ginsburg, president of the Center for Studying Health System Change, said hospitals cannot shed complete responsibility. "Hospitals traditionally have said they have no control over patient volume, (but) these days they are promoting more and more of their services" in print and television ads, he said.
Several other organizations also have issued reports detailing similar findings. Last fall, the Blue Cross and Blue Shield Association put out a 400-page document that firmly put the blame for rising healthcare costs on hospital consolidation and health systems' overuse of medical technology (Nov. 25, 2002, p. 4).
Soon after that report, the federation confirmed that it was doing its own report in response. federation spokesman Richard Coorsh said last week's study was not meant to counter the Blues report. "We have an ongoing research agenda," Coorsh said.
The national Blues association responded to last week's study, saying it applauded "the efforts (of the AHA and the federation) to examine the rising cost of hospital care in the United States." Saying it complements the Blues association's own research, it added the study "is an important addition to the body of research on this complex issue, especially since it represents the hospital industry's own examination of the contributing factors."
While the AHA-federation study tries to explain the reason behind rising hospital expenses and references looser managed-care policies as a factor, it ignores any mention that hospitals have been able to negotiate better contracts from health plans, cited by many as a significant factor in rising hospitals costs and overall healthcare spending.
"It's not surprising they would much rather turn to more accepted drivers of cost such as the nursing shortage," said Gail Wilensky, former HCFA administrator and now senior fellow at Project HOPE.
Said Mary Grealy, president of the Healthcare Leadership Council, a Washington-based trade group for healthcare executives, "I see this as ... making a case to Congress to make sure we have adequate Medicare payments. ... Congress always asks someone who wants anything to `Show me the data.' "
In recent years, spending on hospital services has been gaining attention as overall healthcare expenditures rise sharply again. While prescription drugs once received most of the attention as the driving force behind higher spending, hospitals have become the new whipping boy in the discussion about rising healthcare spending.
Earlier this month, the Centers for Medicare and Medicaid Services reported that hospital spending accounts for 27.1% of the projected increase in total healthcare spending for 2002 (Feb. 10, p. 16). And last week, the U.S Bureau of Labor Statistics Producer Price Index reported wholesale prices for general medical and surgical hospital services rose 0.8% in January, the biggest one-month jump in three years.
According to the AHA-FAH report, prepared by PricewaterhouseCoopers, expenditures for hospital services shot up by $83.6 billion from 1997 to 2001, with the growth in spending beginning to accelerate in 1999. After peaking in 2001 when hospital spending rose 8.3%, the rate of growth is expected to decline to 7.4% for 2002 and 5.5% this year.
Most of the spending increase was caused by greater use of hospital services by more people, said the study authors. Of the $83.6 billion spending increase, 55.4% is attributed to an increase in volume, which includes population growth (21% of the expenditure increase) and greater utilization on a per-capita basis (34.4% of the cost increase).
After a drop in hospital admissions from 1990 to 1994, the number of inpatient admissions began to climb steadily, reaching a 2% growth rate in 2000 and 2001. On an adjusted basis, which combines both inpatient and outpatient data, the rate of admissions has grown at least 3% each year since 1996, with the exception of 1998 when admissions rose 2%, according to the study.
The study's authors attribute the volume increase to a number of factors including: an aging population requiring more services; lack of effective patient-care management and patient education; and less restrictive rules by health plans.
Meanwhile, the costs of goods and services accounted for the balance of the overall growth in hospital spending. The study cited wages and benefits as the most significant factor in the rise in costs of goods and services, accounting for 38.8% of the increase in that category.
Wages and benefits eat up 56.7 % of a hospital's total costs, and with the shortage of nurses and other workers, hospitals have had to increase wages, offer signing and retention bonuses, and absorb other nonwage expenses to meet staffing requirements, the study said.