Assessment of Cost Trends and Price Differences for U. S. Hospitals March 2011

Margaret E. Guerin-Calvert, Vice Chairman and Senior Managing Director, Guillermo Israilevich, Vice President

ASSESSMENT OF COST DRIVERS AND TRENDS IN HEALTHCARE AND THE HOSPITAL SECTOR

This slideshow requires JavaScript.

Hospital care accounts for a steady proportion of national expenditures on healthcare, approximately 30%, and is projected to remain at this proportion for the next decade. Over the past decade, increased expenditures on labor explain a substantial proportion of overall cost increases experienced by hospitals. In addition, hospitals are facing a growing need to cover shortfalls from insufficient Medicare and Medicaid reimbursement, uncompensated and charity care, and new compliance-related costs for new technologies such as electronic health records. Moreover, reimbursement shortfalls have increased in significance with the increasing proportion of inpatient admissions from Medicare and Medicaid. Overall, hospital revenues have closely tracked cost increases at the national and regional level. This indicates that, on average, hospital margins have not increased substantially.

SPENDING ON HOSPITAL CARE IN THE CONTEXT OF OVERALL HEALTHCARE EXPENDITURES

A useful starting point for evaluating cost trends for hospitals is to put them in the context of broader healthcare costs and trends. Hospital services are one aspect of healthcare expenditures.9 As the following table shows, there are many different expenditure categories accounting for total national healthcare costs.10 As of 2009, healthcare expenditures accounted for 17.6% of the Gross Domestic Product (GDP). Of a total of $2,486 billion in expenditures on healthcare at the national level in 2009, hospital care accounts for $759 billion, or 30.5%. Other major categories include professional services, including physician and clinical services (27.1%), prescription drugs and other medical products (13.2%), nursing home and home health (8.3%), and investment (6.3%).

This slideshow requires JavaScript.

ACUTE CARE HOSPITAL COSTS IN MASSACHUSETTS (FY 2004 TO FY 2008)

Connie’s comments: Hospitals are burdened by Medicare and Medicaid patients and so must compensate for loses. We like that nurses pay increased in some parts of the states. Drug costs and high tech hospital equipment still account for the bigger expense.

We have to ask hospital management. Medicare and Medicaid reimbursements, expensive equipment, labor, and other services add up to hospital costs. They want to stay on the black and not red but more patients come in due to obesity, alcohol, drugs, and tobacco use. About 25% of the expenses are related to the aging population. We can save money if we are all healthy with no addiction to drugs, alcohol, tobacco and sugar.