Benefits September 25, 2002

Hospital Service Costs Skyrocketing

September 25, 2002 (PLANSPONSOR.com) - Hospital service costs are rising faster than other healthcare costs, a study found.

Reported by

Fred Schneyer

Washington-based legal publisher BNA said spending on inpatient and outpatient hospital services accounted for more than half of a 10% increase in health care spending in 2001, quoting a report by the Center for Studying Health System Change (HSC).

Outpatient hospital care spending – the fastest growing component of overall spending – grew 16.3% in 2001. Outpatient hospital care accounted for 37% of the overall spending increase, according to the study.

Spending on inpatient hospital care increased 7.1% in 2001, accounting for 14% of the overall increase. HSC said inpatient care spending grew at almost three times the 2000 rate, continuing a reversal from 1997, when inpatient spending decreased 5.3%.

The study attributed two-thirds of the increased spending on hospital care to growing use of services and one-third to higher payment rates for hospitals, due to their increased bargaining clout with health plans.

Effects of Payroll Costs

In the area of labor costs, the study found that hospitals faced 8.6% increases in payroll costs in 2001, more than double the 3.7% increase in 2000. The study attributed the payroll cost increase to hikes in both wage rates and hours worked.

The average hourly hospital wage rose by 6.1% in 2001, nearly double the 2000 pace. HSC said the increase provides evidence of “the financial pressures on hospitals from the severe shortage of nurses and other skilled employees.”

Spending for physician services, which the study said increased by 6.7% in 2001, accounted for 28% of the overall health care spending hike.

Spending on prescription drugs slowed for the second straight year, but still accounted for 21% of the overall health care spending increase reported in the study. HSC said drug spending rose by 13.8% in 2001.

HSC’s study used data from the Milliman USA Health Cost Index, the Kaiser Family Foundation/Health Research and Educational Trust survey of employer health plans for 1999-2002, and the KPMG survey of employer based plans for 1991-1998. The study also used data from the Bureau of Labor Statistics to track payroll costs and hospital prices.