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Health care indicators.

Community hospital statistics

The American Hospital Association reported that operating expenses of community hospitals reached $59 billion in the second quarter of 1991 (Table 1), an increase of 9.7 percent from the same quarter of 1990 (Table 2). Although this rate of growth is somewhat higher than that in the first quarter of 1991, it is not as high as the growth experienced in calendar year 1990. If trends continue throughout the rest of 1991, we expect to see slower but still significant growth in community hospital expenditures. Annual growth in hospital operating expenses for 1991 will most likely be about 1 to 2 percentage points lower than for 1990.

As a service-oriented institution, hospitals are labor-intensive, with labor expenses consuming 54 percent of all operating expenses. Labor and non-labor expenses grew at different rates from the second quarter of 1990 to the second quarter of 1991 (growing 9.1 and 10.3 percent, respectively).

The cost-containment efforts of the past several years have concentrated on the largest segment of health care spending--hospital care. These efforts have caused a shift towards more care being delivered in a less costly outpatient setting. In 1983, 86 percent of operating expenses covered inpatient care. By 1984, both private and public financers of hospital care had implemented programs to control costs, which encouraged the shift from inpatient to outpatient care. By 1990, the inpatient share of expenses had dropped to 76 percent. In the second quarter of 1991, inpatient expenses totalled nearly $44 billion and accounted for just under three-quarters of operating expenses, the lowest share ever. For this period, the average cost per inpatient day was $835 and the average cost per admission was $5,375 (Table 1).

Hospital utilization continued to decline in the second quarter of 1991 compared with the same period one year earlier. Although the number of admissions and inpatient days continued to experience declines in the second quarter of 1991 from the same quarter of 1990, the rate of decline was much lower than in the last two quarters of 1990 and the first quarter of 1991. The war in the Persian Gulf affected a large number of people, both military and civilian. The decreasing utilization in the third and fourth quarters of 1990 and the first quarter of 1991 may have been caused by events associated with the war. In addition, the ongoing recession in combination with a light flu season probably contributed to decreased hospital utilization. The rate of growth in number of surgical operations also dropped slightly--0.2 percent--in the second quarter of 1991 when compared with the same period one year earlier (Table 2). During the second quarter of 1991, 5.6 million surgical operations were performed, including both inpatient and outpatient procedures. While growth in this figure has only been negative for the last two periods, it has follwed the same pattern of growth as admissions and inpatient days (Figure 1). People may have been postponing elective surgical procedures because of uncertain economic conditions.

Although both admissions and inpatient days have been decreasing in the past 5 years, the average length of stay for adults has remained around 6.6 days. In the second quarter of 1991, however, inpatient days decreased more rapidly than admissions, resulting in a drop in the average adult length of stay to 6.4 days. An average length of stay this low has only occurred in one other quarter sonce 1980--the third quarter of 1985.

In response to diminishing inpatient utilization, hospitals have gradually been reducing the number of beds since 1983. However, this downsizing has not kept pace with decreasing inpatient days. As a result, occupancy rates have been falling. In the second quarter of 1991, community hospitals operated an average of 913,000 beds with an average of 63.4 percent filled on any given day.

Community hospitals employed more than 3.2 million full-time equivalent (FTE) workers in the second quarter of 1991, an increase of only 0.5 percent from the second quarter of 1990. This increase is the smallest in over 4 years, most likely because of decreasing utilization of hospital care. The number of beds has been decreasing since 1985 while FTEs have grown; therefore the number of FTEs per bed has been increasing. In the second quarter of 1991, an average of 3.6 FTEs were available per bed, the highest ever. This increase may be beneficial, considering the higher level of care patients require as length of inpatient stays have been cut to a minimum.

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Private health sector:

Employment, hours, and earnings

The gap between employment growth in the health service sector and the rest of the economy reached a new high in the second quarter of 1991. The Bureau of Labor Statistics (BLS) reported that employment in private non-agricultural establishments fell 1.5 percent in the second quarter of 1991 compared with the same period one year earlier. At the same time, employment in the health service sector continues to grow, unaffected by what is happening in the rest of the economy. Between the second quarters of 1990 and 1991, employment in private health service establishments increased by 383,200, or 4.9 percent (Tables 3 and 4). This difference in growth rates amounts to 6.4 percentage points, a gap that has been widening over the past 2 years (Figure 2).

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During the first half of 1991, employment in the health sector experienced growth similar to that of 1990. If this rate of growth continues throughout 1991, annual growth in employment in health service establishments will be about 5 percent. In most service-specific health care establishments, employment growth in the first two quarters of 1991 is similar to that of calendar year 1990. Employment in offices and clinics of dentists seems to be the only exception to this trend, with growth slightly lower in the first two quarters of 1991 than in 1990. Dental services are less extensively covered by insurance than are physician and hospital care; therefore consumers may postpone non-covered types of health care during uncertain economic conditions.

The impact of the health care industry on the entire economy can be gauged by computing growth in private sector employment devoid of health sector jobs. If health sector employment is subtracted, employment in the

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private sector would have decreased by 2.1 percent in the second quarter of 1991 (an additional 0.6 percentage point). Considering that the health sector employs only 9 out of every 100 workers, growth in this sector has substantial impact on total private employment.

During the past decade, growth in health establishment employment has outpaced the rest of the private economy. In 1980, 7 percent of private sector jobs were in the health care sector. Since 1980, this share has increased to 9 percent, with no evidence of slowing in sight. The influence of the health care industry on the economy can also be seen in the rapidly growing share health costs have consumed of the gross national product (GNP). From 1980 to 1990, health care spending as a share of GNP has increased from 9.2 to 12.2 percent (Levit et al., 1991).

Within health services, the two institutional services employ the majority of health care workers, with 44 percent in private hospitals (SIC 806), and 18 percent in nursing and personal care facilities (SIC 805), for an institutional subtotal of 62 percent. [1] Offices and clinics of medical doctors (SIC 801) employ 17 percent of health service sector workers, and offices and clinics of dentists (SIC 802) employ an additional 6 percent. The remaining 15 percent of health service workers (not shown separately on Tables 3 through 5) includes those employed by offices and clinics of doctors of osteopathy (SIC 803), offices and clinics of other health practitioners (SIC 804), medical and dental laboratories (SIC 807), home health care services (SIC 808), and miscellaneous health and allied services, not elsewhere classified (SIC 809).

During the second quarter of 1991, employees of private hospitals earned an average of $12.43 per hour, the highest of all workers in health establishments (Table 3). Employees of the other institutional category, nursing and personal care facilities, earned the least of all health workers, $7.52 per hour. In the two professional services, offices and clinics of medical doctors paid workers an average of $11.13 per hour, and offices and clinics of dentists paid workers $10.57 per hour.

In addition to receiving the highest pay per hour, employees of private hospitals also worked the most hours per week, an average of 34.2 hours in the second quarter of 1991. For the same period, these workers earned on average $425 per week ($12.43 multiplied by 34.2 hours). The shortest work-week was found in offices and clinics of dentists where workers averaged only 28.4 hours per week.

Implied non-supervisory work-hours and payroll growth, developed from the BLS establishment survey data, are composite measures of business activity. Implied work-hours are the product of the number of non-supervisory employees and average weekly hours. In the second quarter of 1991, work-huors in all private establishments decreased 2.3 percent from the same quarter in 1990 (Table 5). This is the largest decline since 1982, the last time the general economy experienced a recession. In shapr contrast, work-hours in health service establishments increased 5.2 percent during the same

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period. Work-hours in offices and clinics of medical doctors grew the most quickly of any establishment type within the health sector, up 7.3 percent, with work-hours in nursing and personal care facilities close behind, up 6.3 percent.

Implied non-supervisory payroll (calculated by multiplying implied work-hours by average hourly earnings) for health service establishments has not shown the slowdown seen in other industries. In the second quarter of 1991, payroll in health service establishments increased 11.2 percent from the second quarter of 1990. For the same period, payroll in all private establishments increased only 1.1 percent. For this aggregate measure of all private establishments, most of the sluggish growth is because of declines in employees. Those who still have their jobs are still experiencing increasing hourly earnings. Within the health sector, payrolls in offices and clinics of medical doctors increased the most, up 14.1 percent, and payrolls in nursing and personal care facilities increased 10.8 percent (Table 5).

Prices

Consumer prices

Prices paid by consumers of medical care, as measured by the Consumer Price Index (CPI) for all urban consumers, rose 9.0 percent in the second quarter of 1991 when compared with the same period of the previous year. This continued the trend of medical care prices rising at almost twice the rate of prices for all items less medical care (Tables 6 and 7).

All item purchases increased in price by 4.8 percent during the second quarter of 1991. In 1990, prices experienced higher growth than in the previous 2 years, due in part to the Persian Gulf War and the resulting effect on energy prices in the last two quarters. If energy prices remain stable during 1991, then the CPI for all items should grow at a rate lower than the growth rate in 1990.

Growth in prices for medical care decelerated from the first quarter to the second quarter of 1991. This was the first slowdown in quarterly growth since the fourth quarter of 1987. This movement was consistent among all the medical care components, with the exception of dental services and non-prescription medical equipment and supplies.

Medical care is comprised of two components, medical care services and medical care commodities. Prices for medical care services increased 9.2 percent in the second quarter when compared with the same quarter one year earlier--down from the 9.8-percent growth exhibited during the first quarter. Medical care services are further broken down into professional services, hospital and related services, and net cost of private health insurance. (Net cost of private health insurance, the difference between earned premiums and incurred

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benefits, is not shown separately on the tables.) Prices for professional services grew 6.1 percent from the second quarter of 1990 to the second quarter of 1991. This is the lowest quarterly price growth for professional services since the second quarter of 1985 (Figure 3).

Prices for physician services, a subset of professional services, grew 5.9 percent from the second quarter of 1990 to the second quarter of 1991. This 1.1-percentage-point drop in price growth between the first and second quarters is the largest decline of all the medical components. While price growth for physician services slowed during the first two quarters of 1991, employment and payroll in physicians' offices showed higher growth for the same period. In contrast to physician services, the CPI for dental services grew at 7.2 percent. At the same time, employment in dental offices exhibited slower growth than the rest of medical services. A possible explanation for this anomaly in dental offices is the recession. Demand for dental service is more discretionary in nature than other medical services. As demand slows because of the recession, dentists may have reduced employment and payroll while at the same time charging more for services to cover fixed costs.

Prices for hospital services, another subset of medical care services, grew 10.8 percent during the second quarter of 1991. This growth in prices was slower than in the three previous quarters, however it was still not as low as pre-prospective payment system (PPS) price growth.

The price growth of medical care commodities, another component of medical care, was 8.1 percent from the second quarter of 1990 to the second quarter of 1991. This growth was slightly lower when compared with the first quarter's growth but continued to be within the stable 8.1-8.5 percent growth range exhibited over the last seven quarters. In one of the subsets of commodities, prescription drugs, price growth slowed slightly to 9.7 percent in the second quarter of 1991. The other subset, non-prescription drugs and medical supplies, exhibited price growth of 4.8 percent, also slightly slower than in the previous quarter.

Medical care commodities exhibited price growth that has been relatively constant since the fourth quarter of 1989. This pattern contrasts with that of medical care services which, for the second quarter of 1991, showed a more significant decrease after accelerating throughout 1990. If this trend of decelerating price growth for medical care services continues, then the prices for medical care services in 1991 will not grow as quickly as they had in 1990. Medical care commodities' prices were more stable in growth, and the growth in 1991 should be at approximately the same rate as in 1990.

Background on input price indexes

In 1979, the Health Care Financing Administration (HCFA) developed the hospital input price index, which was designed to measure the pure price changes associated with expenditure changes for hospital services. In the early 1980s, the skilled nursing facility (SNF) and home health agency (HHA) input price indexes, often referred to as "market baskets," were developed to price a consistent set of goods and services over time. They have played an important role in helping to set payment

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percent increases and in understanding the contribution of input price increases to growing health expenditures.

The input price indexes, or market baskets, are Laspeyres or fixed-weight indexes that are constructed in two steps. First, a based period is selected. For example, for the PPS hospital input price index, the base period is 1987. A set of cost categories such as food, fuel, and labor are identified and their 1987 expenditure amounts determined. The proportion or share of total expenditures included in specific spending categories is calculated. These proportions are called cost or expenditure weights. There are 28 expenditure categories in the 1987-based PPS hospital input price index. Second, a price proxy is selected to match each expenditure category. The purpose of the price proxy is to measure the rate of price increase of the goods or services in that expenditure category. The price proxy index for each spending category is multiplied by the expenditure weight for the category. The sum of these products (weights multiplied by the price index) over all cost categories yields the composite input price index for any given time period, usually a fiscal year or a calendar year. The percent change in the input price index is an estimate of price change over time for a fixed quantity of goods and services purchased by a provider.

The input price indexes are estimated on a historical basis and forecasted out several years. The HCFA-chosen price proxies are forecasted under contract with Data Resources, Inc./McGraw-Hill (DRI). Each quarter, one month after the end of a calendar quarter (February, May, August, and November), DRI updates its macroeconomic forecasts of wages and prices based on updated historical information and revised forecast assumptions. Some of the data in Tables 8 through 13 are forecasted and are expected to change as more recent historical data become available and subsequent quarterly forecasts are received.

The methodology and price proxy definitions used in the input price indexes are described in the Federal Register notices that accompany the revisions of the PPS, HHA, and SNF cost limits. A description of the current PPS input price index was published September 4, 1990 (Federal Register, 1990). The latest HHA regulatory input price index was published June 30, 1989 (Federal Register, 1989), and the latest SNF input price index was published April 1, 1991 (Federal Register, 1991).

Current data

Each input price index is presented in two tables: The first is a percent-change table, and the second provides the actual index numbers from which the percentages were computed. The hospital input price index for PPS is in Tables 8 and 9. The SNF input price index is in Tables 10 and 11. The HHA input price index is in Tables 12 and 13.

Data highlight

The PPS input price index has been revised, and a new base year of 1987 has been selected (Tables 8 and 9). Effective October 1, 1990, the new PPS input price index was used to set the fiscal year 1991 market basket value for the update of the prospective payment rates. This revision also included changes in certain variables used for price proxies. Periodically, the various input price indexes are revised so that the cost weights will reflect changes in the mix of goods and services that providers purchase.

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National economic indicators

To put health-related economic issues into perspective, this section shifts focus to discuss national indicators of output, employment, and inflation. In 1990, health care expenditures consumed 12.2 percent of gross national product (GNP), a 0.6-percentage-point increase from 1989. This increase, the second largest since 1960, is a combination of the continued high growth of health care costs and the slowdown in the general economy. Price growth and employment figures from the second quarter of 1991 indicate that, while the health care sector grew at a slower rate than exhibited in the past, it is still outpacing growth in the overall economy. The economy has not begun to recover from the recession that began in the fourth quarter of 1990, and health expenditures are still growing at a fast pace. Indicators from the first two quarters of 1991 suggest that calendar year 1991 will show an increased share of GNP for health.

Output and income

GNP, the most widely used measure of the Nation's output, increased 3.2 percent from the second quarter of 1990 to the second quarter of 1991. The growth of "real" GNP (also called "constant dollar" or "price deflated" GNP) was -0.8 percent in the second quarter of 1991 when compared with the same quarter a year ago. In absolute terms, real GNP remained approximately the same, going from $4,124 billion in the first quarter of 1991 to $4,123 billion in the second quarter of 1991 (Tables 14 and 15).

Personal income rose from $4.7 trillion in the first quarter of 1990 to $4.8 trillion in the second quarter of 1991, a growth of 3.6 percent. Disposable personal income (personal income net of taxes) rose 3.7 percent during the same period, reaching $4.1 trillion. The portion of disposable income that was saved rather than spent (personal saving rate) was 4.2 percent.

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Employment, unemployment, and earnings

The unemployment rate for all workers continued its upward climb for the fourth consecutive quarter. Between the second quarters of 1990 and 1991, the unemployment rate grew 1.5 percentage points, to reach 6.8 percent. The negative growth in the real GNP in the second quarter of 1991 indicates that the economy is still in a recession. The growth in the unemployment rate reflects this continued slowdown in the economy (Figure 4).

As discussed in an earlier section, health services employment continues to grow at a faster pace than total private non-agricultural workers. This supports the position that the health care industry has not suffered as much as other industries from the recession. Health service workers' average weekly hours resumed its positive growth, 0.2 percent between the second quarters of 1990 and 1991, after only one quarter of negative growth.

Prices

The GNP fixed-weight price index, the most comprehensive measure of pure price inflation, grew 4.2 percent between the second quarters of 1990 and 1991. The GNP implicit price deflator (which reflects changes in the composition of output as well as in price inflation) rose 3.9 percent between the second quarter of 1990 and that of 1991. A more limited measure of price change covers only the purchases of consumer goods. This measure, the CPI for all items, increased to 5.5 percent between the third quarters of 1990 and 1991.

CPI measures prices of consumer purchases for a market basket of goods and services. During the last three quarters, the CPI grew at a higher rate than did disposable income, the source of consumer spending. Because income is not keeping pace with prices, consumers experienced reduced purchasing power and have to make tradeoffs on higher priced purchases within the market basket. Medical care, a segment of the market basket, has been growing at twice the rate of overall consumer prices and 2.5 times the rate of disposable income. This puts pressure on the consumer when making purchasing decisions, because one vital segment of the market basket--medical care--is consuming more and more of the resources available.

For inquiries concerning market basekt data, contact Brenda T. Maple, Room L-1, 1705 Equitable Building, 6325 Security Boulevard, Baltimore, Maryland 21207, (301) 966-7954. For all other inquiries, contact Carolyn S. Donham, Room L-1, 1705 Equitable Building, 6325 Security Boulevard, Baltimore, Maryland 21207, (301) 966-7947.

Reprint request: Carolyn S. Donham, Room L-1, 1705 Equitable Building, 6325 Security Boulevard, Baltimore, Maryland 21207.

(1) These numbers were calculated using figures on Table 3.

References

Federal Register: Medicare program; Changes to the inpatient hospital prospective payment system and fiscal year 1991 rates; Final rule. Vol. 55, No. 170, 36043-36050 and 36169-36173. Office of the Federal Register, National Archives and Records Administration. Washington. U.S. Government Printing Office, Sept. 4, 1990.

Federal Register: Medicare program; Schedules of limits of skilled nursing facility inpatient routine service costs; Final rule, Vol. 56, No. 62, 13330. Office of the Federal Register, National Archives and Records Administration. Washington. U.S. Government Printing Office, Apr. 1, 1991.

Federal Register: Medicare program; Schedules of limits of home health agency cost per visit for cost reporting periods beginning on or after July 1, 1988; Notice with comment period. Vol. 54, No. 125, 27742. Office of the Federal Register, National Archives and Records Administration. Washington. U.S. Government Printing Office, June 30, 1989.

Levit, K., Lazenby, H., Cowan, C., and Letsch, S.: National health expenditures, 1990. Health Care Financing Review 13(1):29-54. HCFA Pub. No. 03321. Office of Research and Demonstrations, Health Care Financing Administration. Washington. U.S. Government Printing Office, Fall 1991.
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Title Annotation:community hospital statistics, private health sector statistics, health care prices, and national economic statistics
Author:Maple, Brenda T.; Cowan, Cathy A.; Donham, Carolyn S.; Letsch, Suzanne W.
Publication:Health Care Financing Review
Article Type:Illustration
Date:Jan 1, 1991
Words:4050
Previous Article:Business, households, and governments: health care costs, 1990.
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