Nursing home bed supply increased more slowly (an estimated 2.9 percent) between 1976 and 1980 when compared to an average annual growth rate of 8.1 percent between 1963 and 1973. 105 Part of the reason for the recent slowdown of nursing home beds has resulted from the desire on the part of many states to constrain the growth of Medicaid expenditures. 106 The estimated number of licensed nursing home beds per 1,000 persons age 65 and older did not change nationally from 1976 through 1980, remaining at about 54 (although there was extensive diversity in bed/population ratios across states). As a result, the elderly population and the supply of nursing home beds grew at approximately the same rate during this period.107 However, the nursing home bed supply has not kept pace with the rapidly growing population age 85 and over; those most likely to need nursing home care. During the middle to late 1970's, the nursing home bed supply increased at an annual average rate of 2.9 percent while the age 85 and over population increased at an average of 4.5 percent. The size of the population age 85 and over is significant because its rate of institutionalization is many times greater than the rate for those aged 65 to 74.108 According to estimates by the National Institute of Mental Health, nursing homes are also the largest single repository for the care of the mentally ill.109 Latest data available (1977) showed that 750,000 persons with mental problems were living in nursing homes.110 The Mental Retardation Facilities and Community Mental Health Centers Act of 1963 (42 U.S.C. 2689) contributed to this by reducing the resident population of public mental hospitals. (This is discussed further on pp. 136-137.) Court ordered deinstitutionalization also was contributing factor to the number of patients discharged from mental hospitals. 111 Is the supply of nursing home The number of nursing home residents in the United States has risen as the population has become older. The number of residents per thousand population has risen from 3.4 in 1950 to 6.0 in 1980.112 The proportion of elderly who are using nursing home services has also grown from 2.3 percent of all elderly in 1960 to 5 percent in 1977.113 Despite the growth in the number of nursing home beds, most of them are operating at or near full capacity. Nursing home occupancy rates have historically been very high (estimated at 92.4 percent in 1980), which has created difficulties for some individuals in gaining access to care. 114 The excess demand for nursing home care has, in many instances, resulted in long waiting lists and patients remaining in acute care general hospitals.115 The demand may also result from a lack of in-home and community-based care and the financing to pay for these services.116 The shortage in the supply of nursing home beds seems to stem from two fundamental factors: --Avoidable nursing home admissions of persons who could have been cared for in less costly settings which inflate the patient population. 117 --The growth in nursing home beds which has not kept pace with increases in those most likely to need nursing home care, persons over the age of 85.118 Overall, unless major breakthroughs in the treatment of chronic diseases occur, extended life expectancies, with greater likelihood of chronic disabling diseases and a reduced number of family members able to provide informal care, will lead to a net increase in the population most likely to need nursing home services. 119 What is the impact of nursing home Nursing home care has become the third largest expenditure for health in the country. 120 Less than 50 years ago, the nursing home industry was virtually nonexistent. By 1960, $500 million was spent nationwide on these services, which constituted only 2.1 percent of total personal health care expenditures.12 By 1983, this increased to 9.2 percent (or $29 billion) of personal health care expenditures.122 In 1975, In Because of the limited coverage under other federal and private programs, Medicaid has become the predominant payer of nursing home care nationally.123 Nursing home services represent the largest single Medicaid expenditure.124 Medicaid paid approximately 47 percent of all nursing home 125 126 in 1983, it paid about 43 percent of such care. care; fiscal year 1983, Medicaid supported 574,000 patients in skilled nursing homes at a cost of $4.6 billion. Also, in that year Medicaid supported 944,000 patients in intermediate care facilities at a cost of $9.5 billion. of this amount, $4.1 billion was paid for the care of 151,000 patients in intermediate care facilities for the mentally retarded. 127 In regard to the apparent shortage of nursing home beds, it is difficult to estimate the additional overall financial costs, not to mention the human costs, incurred by the nation that may result from this situation. Nevertheless, data are available which show that patients are unnecessarily kept in acute care hospitals due to a lack of an available nursing home bed or adequate home health care. For example, in 1979 Medicare and Medicaid paid for between 1.0 million and 9.2 million days annually of inpatient hospital care when only skilled or intermediate facility care was required but a nursing home bed was unavailable (referred to as "backup days"). These hospital backup days represented between 1 percent and 7 percent of all Medicare and Medicaid inpatient hospital days in 1979.128 The net cost of this unnecessary hospital care is difficult to estimate because the care is covered under both Medicare and Medicaid and because the alternative cost of caring for these patients in nursing homes, had they not been in hospitals, must be considered as well.129 On the other hand, many persons remain in nursing homes when other, less expensive forms of care may be appropriate.130 These circumstances make it difficult to determine the sufficiency of the current supply of nursing home beds and the unnecessary expenditures resulting from the inappropriate placement of patients. What efforts have been undertaken to deal Some states have limited spending through either moratoria or "capital caps" on nursing home construction. A moratorium prohibits approval of new construction. A capital cap generally establishes an overall ceiling on the value of approved projects in a given year. 131 We did not identify any recent studies that have evaluated the impact of moratoria or capital caps on health care costs. Health care providers, however, have indicated that their impact on controlling costs had been mixed. For example, a provider in Wisconsin said that the state's moratorium did not significantly affect the number of projects approved because of the ease with which applicants qualified for exceptions to the law. One provider in New York, on the other hand, believed that the impact of the state's moratorium on capital expenditures greater than $1 million would simply be to delay such expenditures and would not yield major savings in the long run. Others have pointed out that moratoria have different impacts on different types of institutions. For example, according to a Missouri provider, the competitive positions of nonprofit and profit institutions may be affected differently by moratoria because of differences in their financial operations. Moreover, preferential treatment for nonprofit hospitals placing for-profit hospitals at a competitive disadvantage. 133 Finally, other health care experts believe that tighter may be restrictions on capital expenditures through moratoria or capital caps may stimulate mergers, incorporations, reorganizations, and diversification of health care facilities.134 MEDICAL TECHNOLOGY Medical technology has been considered by many to be a significant contributor to rising health care expenditures in general and hospital spending in particular. Studies that have attempted to assess the impact of technology on health care expenditures have been inconclusive. It is clear, however, that certain individual technologies have been expensive, and that the past several decades have brought about rapid expansion in the area of medical technology. Open-heart surgery, including the recent implantation of an artificial heart; computed tomographic (CT) and nuclear magnetic resonance (NMR) scanners; organ transplants; renal dialysis; respiratory therapy; and many other innovations have been part of the revolution in what the health care system can provide and in what the public expects. However, such technological advancements may be a mixed blessing. While the benefits derived from these advances are often clear and convincing, the contribution of certain medical technologies to increased health spending has attracted increased attention in recent 135 136 years. In addition to the expense of medical technology, there are concerns about the disparate manner in which medical technology is introduced and disseminated. Until very recently, no single organization has been responsible for assessing medical technology from either an efficacy or cost/benefit standpoint, although some individual efforts have been undertaken, such as the Food and Drug Administration's process for approving drugs and medical devices. The consequences of the lack of an overall medical technology assessment process can be significant. The introduction of some beneficial new technologies may have been hampered while other obsolete technologies may not be retired quickly enough.137 Overview of medical technology development A large part of the growth in health care spending in recent years has been due to the enormous quantity of resources used in providing medical care. Much of these added resources have taken the form of new, but frequently expensive, technologies which have produced innumerable health benefits. 138 In a relatively short span of years, medical technology, including medical and surgical procedures, has developed at a rapid rate, presenting new ways to prevent, detect, and treat disease. Advances, such as the development of antibiotics and vaccines, have removed infectious diseases as leading causes of death in industrialized nations. Most notably, however, have been the changes in hospital practice resulting from advances in medical technology. 140 Such advances allow the restoration of a damaged heart or replacement of a failing kidney. CT and other advanced scanners can reveal more clearly than prior techniques the existence of abnormalities. Coronary bypass surgery has benefited many persons suffering from coronary artery disease.141 However, the benefits resulting from many technological advances have been expensive. For example, CT scanners cost about $0.5 to $1.2 million to purchase.142 Nuclear magnetic resonance scanners can cost more than $2.5 million each.143 Anecdotal cost estimates for heart and liver transplants have been reported to average about $100,000 per patient in 1985, exclusive of annual costs of antirejection drugs. However, because most states do not maintain data on transplant costs or have performed so few of them, little accurate information is available in this area. 144 Besides their expense, some technologies pose risks to patients. Some risks are intrinsic to the technology itself, while others are related to the skill with which it is applied. 145 Also, according to the Office of Technology Assessment (OTA), even though a new technology is not necessarily an improved technology, its use can spread rapidly. Only later may research reveal the efficacy of the new technology. 146 What factors have led to the development of technology? In a series of studies completed in 1982, OTA noted that reimbursement policies, particularly third-party payments for medical care, can profoundly affect the adoption and use of medical technologies by providers. Reimbursement policies. Third-party payments have generally covered the full costs of new technologies, including purchase, maintenance, operation or leasing of equipment, or the facilities and equipment needed for procedures. According to OTA, several studies have confirmed that this has led to increased adoption of technologies and that hospitals have received increased revenues from third parties by adopting expensive technology. example, the use of cobalt therapy, electroencephalography, and open-heart surgery occurred faster as the level of insurance coverage rose. It was also found that increased adoption of cobalt therapy, intensive care beds, and diagnostic radioisotopes escalated Medicare's hospital costs. 147 For |