Recent trends in hospital expenditures Hospitals have become the most expensive component of the health care system. Over $147 billion was spent on hospital care in 1983, representing about 4.5 percent of the GNP. Hospital expenditures increased from about 38.4 percent of personal health expenditures in 1960 to about 47 percent in 1983.50 Spending for community hospital inpatient care represented almost 75 percent of total community hospital spending in 1982. Such expenditures amounted to $99 billion in 1982 and are projected by HCFA to rise to about $123 billion in 1984 and to $226 billion by 1990. Expenses per inpatient stay in community hospitals tripled from $729 in 1972 to $2,489 in 1982, and are projected by HCFA to rise to over $5,000 by 1990, as shown in table 4. In 1983, AHA reported that expenses per inpatient stay were $2,789 and per inpatient day were $369.51 aHistorical data for community hospitals are from AHA. bcosts are adjusted to eliminate expenses associated with outpatient care. Source: Health Care Financing Administration, Bureau of Data Why has the supply of community hospital beds increased? Numerous factors have contributed to the increase in community hospital beds, including (1) a growing demand for hospital care and (2) the availability of grant and/or low-cost construction funds made available through federal programs and tax policies. Increased demand for hospital care. A variety of factors have stimulated an increased demand for hospital care in recent years. As life expectancy increased, a higher percentage of the population reached the elderly category and therefore had a greater need for more hospital care. In addition, more people could afford to obtain hospital care primarily because of the greater number of people who had their hospital expenses covered by health insurance or through the Medicare and Medicaid 52 programs. Furthermore, new and more complex medical technologies have been developed to diagnose and treat diseases. These new technologies often require the use of elaborate equipment or special knowledge that is available only in the hospital setting. Also, the growing specialization of physicians has increased the proportion of physicians that are hospital-based or conduct much, if not most, of their medical practice in the hospital setting. Federal programs and tax policies. The federal government, primarily through certain programs and policies, has played a major role in increasing community hospital beds. In the 1940's, the supply of general hospital beds was considered to be inadequate and inappropriately distributed. To address this issue, the Congress passed the Hospital Survey and Construction Act (commonly known as the Hill-Burton Act, Public Law 79-725) in 1946 to provide federal funds to match those raised by local communities for new hospital construction and for modernization and replacement.54 55 The act, which was in effect until 1974, increased the total number of community hospital beds and resulted in the building of many small rural hospitals where none existed before.56 According to an estimate by the AHA, of the 856,400 community hospital beds in 1974 (exclusive of for-profit hospitals which were not eligible for Hill-Burton funds), the Hill-Burton Program played a role in the construction of 365,250, or about 43 percent.57 A direct federal expenditure subsidy is still available through the Section 242 program* administered by the Department of Housing and Urban Development. Also, hospitals in rural areas (population under 10,000) with no other sources of funds can obtain low-interest, long-term loans through the Farmers Home Administration of the Department of Agriculture. The Appalachian Regional Commission and the Department of Commerce's Economic Development Administration also provide limited subsidies to institutions that qualify for assistance. Another federal subsidy which has contributed to the increased number of community hospital beds is the use of tax-exempt bonds to finance construction projects. Current law allows private hospitals, particularly tax-exempt, nonprofit hospitals, to obtain low interest loans for capital projects through the issuance of tax-exempt bonds. These bonds now represent the largest form of federal government support for hospital and other medical institution construction. It has been estimated by the Congressional Budget Office (CBO), for example, that in 1980, the federal government subsidized hospitals with $400 million through the tax-exempt provision. In 1982, about one-half of all hospital construction was 59 financed by tax-exempt bonds, according to CBO. Further, in 1982, capital investment subsidies in the form of tax-exempt bond issues for health projects nearly equalled the subsidies for cities, counties, and special districts, reaching an all-time high of $9.7 billion, or 12.6 percent of all long-term tax-exempt bonds.60 Do we have too many hospital beds? Several studies published primarily in the 1970's found that there are more hospital beds than are needed in the United States and that this contributes to rising health care expenditures. For example, a 1976 Institute of Medicine (IOM) † report61 recommended that at least a 10-percent reduction in the bed-to-population ratio should be made by 1981 with further sizable reductions thereafter. To achieve this decrease, IOM called for "a reduction from the current national average of *The Section 242 program provides federal mortgage insurance to finance construction or rehabilitation of nonprofit and proprietary hospitals. †The IOM was chartered in 1970 by the National Academy of Sciences to examine policy matters pertaining to the health of the public. approximately 4.4 non-federal short-term general hospital beds per 1,000 population to a national average of approximately 4.0 beds This determination was largely the basis for HHS' national health planning guidelines, which recommended four such beds for each 1,000 persons in a health service area, except under extraordinary circumstances. 62-th Many health care experts argue, however, that the target level of 4 beds per 1,000 population is entirely arbitrary. Also, the IOM study was prepared prior to the introduction of the Medicare prospective payment system. As larger percentages of hospital costs are reimbursed prospectively, it is reasonable to assume that market forces may play a greater role in determining the optimal number of hospital beds. Table 5 summarizes the major studies on excess capacity. Because the studies used different assumptions and bases for determining excess beds and were conducted over different time periods, the extent of the excess ranged from about 69,000 to 264,000 beds. The studies generally based their estimates on methodology established under the Hill-Burton program, such as (1) target occupancy rates (i.e., occupancy as a percentage of capacity) or (2) target number of beds or patient days per 1,000 persons in the general population (e.g., 4 beds per 1,000 persons or 1,100 patient days per 1,000 persons).63 The study that estimated the largest number of excess beds assumed, however, that one-third of patient days were unnecessary. 64 Originally, Hill-Burton defined criteria in terms of beds per thousand population. In the 1960's, other criteria were added, such as (1) current and projected population, (2) current utilization rates, and (3) an occupancy factor (initially set at 80 percent for short-term general hospitals but increased to 85 percent in 1972). 65 Most state health planning agencies use some variant of the Hill-Burton methodology. In a number of cases, however, they have rejected the fixed occupancy factor because the size and location of the hospital, the population served, and the number of other hospitals in the service area seem to be more appropriate criteria for evaluating bed needs.66 Source: Literature summary presented in the President's Private The exact costs associated with these estimates of surplus hospital capacity vary; however, many believe that extensive savings could be realized if capacity were reduced to more appropriate levels. Some contend that closing entire hospitals rather than reducing beds within institutions is the only feasible way of reducing hospital costs. 67 Although there is currently a debate as to whether hospitals should reduce excess capacity, changes in the health care marketplace are encouraging hospitals to act on their own. These pressures include --revised reimbursement based on diagnosis-related groups for Medicare patients; --increased competition resulting from use of outpatient services and other alternatives to hospitalization, such as surgicenters, emergicenters, hospice programs, and health maintenance organizations; and -less generous health insurance coverage for hospital Reductions in hospital capacity may also lead to reductions in access to and quality of care. |