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Not different, just bigger.

Not Different, Just Bigger

In addition to reporting the numerical information discussed in some detail below, the May 3 news release from DHHS played the growth rate in total health care expenditures heavily:

"The nation's spending on health increased 10.4 percent in 1988, resuming a double-digit growth rate after a period of more moderate increases.... National health spending of $539.9 billion in 1988 was 117 percent greater than the sum spent in 1980. Health spending in 1988 translates into $2,124 for each person, a 100-percent increase in per capita spending since 1980. National health expenditures in 1988 accounted for 11.1 percent of the gross national product (GNP), up from 9.1 percent in 1980, 7.3 percent in 1970, and 5.3 percent in 1960...."

The news release puzzled me. Although it had been a year and a half since the news release on November 18, 1988, announcing the 1987 numbers, I had this vague sense of deja vu. I seemed to recall on that prior occasion the suggestion that the health care sector was running amok. "National health expenditures in calendar 1987 reached $500 billion and continued to consume an increasing share of the gross national product....spending for health claimed 11.1 percent of the gross national product in 1987." (I've often wondered why when health care, in contrast to automobile or computer sales, generates GNP, DHHS characterizes its contribution as a "claim" or as "consumption.") I also remembered repeating that $500 billion figure many times in talks and seminars, and $540 billion for 1988 certainly didn't look like a 10 percent increase to me; it looked a lot more like an eight percent increase. I was, of course, wrong.

The 1987 $500 billion in health care expenditures had been compared to 1986's $456 billion, indicating a 9.8 percent growth rate, just shy of the 10 percent rhetorical threshold. But with 1987 GNP at $4,524 trillion, health care indeed contributed 11.1 percent of the nation's economic productivity.

But, carelessly, I had failed to read immediately the penultimate sentence at the bottom of the second page of the May 3, 1990, press release: "The national health expenditures report for 1988...includes revisions of estimates previously published for prior years."

Without so much as a hint of an apology for the November 18, 1988, press release and the ensuing 18 months of misinformation, we now learn that the actual 1988 expenditures were only $488.8 billion; not an increase of 9.8 percent over 1987 but only 8.5 percent above a revised $450.5 for 1987; not 11.1 percent of GNP but 10.8 percent. Of course, the 2.3 percent downward revision in 1987 expenditures requires comparison of 1988's $540 billion with a lower base, and, voila!--double-digit crowth emerges.

The data revisions referred to above actually appear sound and desirable, notwithstanding their short-term exploitation for political purposes. There is every reason to believe that we now have more comparable longitudinal data, at least through 1987 (inasmuch as the 1988 numbers are themselves subject to later revision). The revisions have been carried back to 1960 and therefore provide both pre- and post-entitlement program benchmarks. (It is unfortunate that they were not carried back an additional decade to encompass the period before and after the exemption from personal income tax of employer-paid (fringe benefit) health insurance premiums for employees.)

As a result, we can now characterize the financing and delivery structures of the industry as well as trends in those structures with a higher degree of confidence over the 1960-1987 period.

For example, since 1970 (the earliest year for which detailed data are available), hospital outpatient activity has grown from 7 to 16 percent of total hospital revenue. During the same period, inpatient occupancy in nonfederal hospitals has declined from 77.6 percent to 64.1 percent. In community hospitals, inpatient days have declined absolutely from 235.3 million to 223.4 million, even as available beds have increased from 831,000 to 955,000. Average length of stay has declined by 15 percent.

The number of persons aged 85 or older has been growing nearly two percent per year faster than the growth in long-term beds. But aggregate spending by all payers, public and private, for home health care has grown at an annual compound rate of nearly 23 percent for the 1970-1987 period.

While per capita health care expenditures in real terms have more than doubled since 1955 (and gone up nearly five-fold in nominal dollars), the proportion of disposable income used for out-of-pocket health care expenditures is literally unchanged at 3.3 percent. Thus, virtually all of the real increase in consumption of health care and medical care services during the past third of a century has been financed through third-party mechanisms: entitlement programs and the extension of private insurance.

What is most notable in the statistics, however, is the absence of fundamental change during the 1980s. It is not that many things have not changed. We've endured TEFRA, the implementation of the prospective pricing systems, fee freezes and MAAC, and a serious flirtation with catastrophic coverage, all just within Medicare. Medicaid has often piggy-backed on Medicare mechanisms. Employers and private insurers have pushed managed care in general and HMOs (staff, group, and IPA models) and PPOs in particular. Deductibles and copayments have burgeoned in the private sector. State-level price and quantity regulation permeate the Northeast. The West Coast proceeds apace with brave experiments in explicit rationing.

Yet, for all of this and much more, our appetite for health and medical care services continues to grow exponentially, with large pockets of pent-up demand still untapped (e.g., the 40 million or so uninsureds and underinsureds). As we approached the end of the 1980s, the structure of the industry--where health care dollars came from and how they were spent--was virtually unchanged from the beginning of the decade. Government at all levels remains the source of 42 percent of all funding (42.2 in 1980 versus 42.1 in 1988). For all of the initiatives from the White House during the decade to constrain the federal share of health care outlays, there was actually a small (probably statistically insignificant) increase of that share from 68.4 to 69.4 percent. Private sector health insurance continued to provide 32 percent of all funds (88.3 percent of which actually went to providers of health care and medical care services), and 21 percent of all funds came directly from individuals in out-of-pocket payments to providers/suppliers. The remaining five percent came from philanthropy, profits on nonhealth services produced by providers, transfer payments from foreign governments, direct spending by business on in-house provision of health services, and privately financed construction.

While the mix of financing remained totally static during the decade, there was one change in the distribution of those funds. Hospitals' share declined from 42 percent to 39 percent and physicians' share increased from 16.5 percent to 19.5 percent. But, the combined hospital/physician share of the health care dollar remained stable at about 59 percent. The three percentage point shift of activity from hospitals to physicians is attributed by most to Medicare's prospective pricing incentives to move care from an inpatient to an outpatient setting. While hospitals captured some of these patients in their outpatient departments, physicians were the primary beneficiaries.

The "new kid on the block," home health care, grew enough during the eighties to warrant its own line item on the new tables. Even with its tremendous percentage growth, having started from a tiny base, it weighed in at only eight-tenths of one percent of all expenditures in 1988.

Otherwise, the structure of care as measured by expenditures remained totally static during the 1980s. Long-term care (8.0 percent), medication (7.8 percent), dental services (5.4 percent), third-party administrative costs (4.9 percent), other professional services (4.2 percent), and medical durables (2.0 percent) continued to represent 32 percent of all expenditures, with less than a one percentage point change in any of the individual categories.

Thus, except for the hospital/physician swap and the emergence of home health care as a bit player, the health care industry hasn't changed much since 1980. It's just two and one-half times bigger in nominal dollars and one-third bigger in real terms.

Hugh W. Long, PhD, is Associate Professor of Health Care Management, A.B. Freeman School of Business, Tulane University, New Orleans, La.
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Title Annotation:national health care expenditures
Author:Long, Hugh W.
Publication:Physician Executive
Date:Sep 1, 1990
Previous Article:'Other health care' no longer forgotten.
Next Article:'90s to be expansionary for medical management.

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