Mixed Report on Hospital Expenses

Government breaks down rise in hospitalizations as well as rise in costs per hospital stay

No one should be surprised to learn that hospital costs continue to rise. Even so, recent government data contains some heartening news for supply chain executives … as well as some not-so-heartening news.

On the bright side, among the 10 procedures with the most rapidly increasing hospital inpatient costs, the majority of the rise in costs in recent years has been due to volume increases (that is, more patients), not in cost per stay. On the not-so-bright side, when all hospitalizations are considered, approximately two-thirds of the increase in costs was due to a rise in the mean cost per stay, while just one-third was due to an increase in hospitalizations. (The report did not break down what percentage of cost-per-stay was attributable to supply chain expenses.)

Hospitalization still the biggest expense
Comprising one-third of the U.S. healthcare dollar, hospitalizations are the single most expensive component of the healthcare system, according to the report by the Healthcare Cost and Utilization Project of the Agency for Healthcare Research and Quality. From 2004 to 2007, overall hospital costs grew by 6.3 percent to $344 billion, inflation adjusted. The majority of the increase was due to a 3.9 percent rise in the mean cost per stay. A smaller portion resulted from a 2.4 percent growth in the volume of hospitalizations.

But the picture looks different when viewed from the perspective of the 10 procedures with the most rapidly increasing hospital inpatient costs from 2004 to 2007. More than 1.65 million hospital stays were recorded for those procedures in 2007, with a total cost of $29.1 billion. From 2004 to 2007, total costs for those 10 procedures increased 32.3 percent, while total hospital stays during that three-year period grew 22.2 percent.

The aggregate costs of stays for these 10 procedures ($29.1 billion) accounted for 9.8 percent of the costs of all hospital stays with procedures performed ($296 billion) and 8.5 percent of the costs of all hospitalizations ($344 billion) in 2007.

Other findings from the study:

  • Aggregate costs for stays in which a procedure was performed grew by 7.2 percent between 2004 and 2007, totaling $296 billion in 2007. The rise in aggregate costs of stays with a procedure was predominantly driven by the growth in the volume of such stays (4.4 percent) rather than cost per stay (which grew by 2.6 percent).
  • The procedures with the most rapidly growing costs were bone marrow transplant (aggregate costs grew by 84.9 percent, to $1.3 billion in 2007) and open prostatectomy (aggregate costs grew by 68.6 percent, to $1.0 billion in 2007). The number of stays for these two procedures grew at different rates – 51.3 percent for bone marrow transplants, and 40.8 percent for open prostatectomy.
  • Among the ten procedures with the most rapidly increasing hospital inpatient costs, knee arthroplasty and spinal fusion had the highest aggregate costs in 2007 ($9.2 billion and $8.9 billion, respectively). Aggregate costs for these stays grew by 27.5 percent (knee arthroplasty) and 29.5 percent (spinal fusion) between 2004 and 2007.
  • The percentage increase in aggregate costs was highest for hospitalizations paid for by private insurance, which experienced a 38.3 percent growth in total costs from 2004 to 2007. Nearly one-third (12.3 percent out of 38.3 percent) of the increase in the cost growth for the private insurance stays was driven by growth in cost per stay.
  • Compared to private insurance, there was less growth in the aggregate costs of stays for the top ten procedures among patients covered by Medicare (29.4 percent), Medicaid (24.4 percent) and among uninsured patients (20.1 percent). About one-quarter (6.9 percent out of 29.4 percent) of the change in the growth in costs for Medicare hospitalizations was due to an increase in the mean cost per stay. About one-third of the cost growth for the Medicaid stays was driven by an increase in the mean cost per stay (7.6 percent out of 24.4 percent). For uninsured stays for these procedures, there was actually a decline in the mean cost per stay (minus 2.7 percent vs. 20.1 percent total). The increase in the aggregate costs for this group was driven by the increase in the number of stays with these procedures performed (22.8 percent).

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