Nineteen seventy-four represented a year of diverse pressures emanating from within and external to the hospital economy. Few periods in the recent history of the industry can match the intensity and the number of the influences that were at work last year. Some of the more conspicuous factors were: Demise of the Economic Stabilization Program Acute economywide inflation Deepening economywide recession Minimum wage step-up Removal of National Labor Relations Act exemption Tight money market The purpose of this paper is to review, in some detail, how the hospital economy performed in 1974, with particular attention paid to the various factors present. By and large, the analyses employ calendar year time series trends drawn from the Association's overall monitoring system. To facilitate this review, the paper is divided into three main topics: 1. Output, unit costs, and unit revenue 1 1. For a complete discussion of this monitoring network, see Guide to the American Hospital Association's Program for Monitoring the Hospital Economy. Chicago: AHA, Oct. 1974. - 2 The analyses are limited to community hospitals, i.e., nonfederal, short term general and other special hospitals. 1. Output, Unit Costs, and Unit Revenue Output For the most part, hospital volume has demonstrated continued growth since the Association began keeping detailed statistics. 1974 was no exception. The conventional measures of hospital volume are admissions, inpatient days, 2 adjusted patient days, and outpatient visits. Displayed in Table 1 are the percentage changes in each of these output gauges from 1968 to 1974. On the inpatient side, hospital volume registered substantial increases in the past year. The 3.7 percent increase in admissions was the largest recorded since the 1969-70 period (6.3 percent). This is also the case with the growth of inpatient days, which at 2.9 percent, was only slightly below the highest rate of increase (3.0 percent) marked in 1969-70. 2. Adjusted patient days are inpatient days plus an approximation of the number of outpatient visits that are equivalent to an inpatient day. The conversion is accomplished through revenue apportionment. - 3 Yet the strength of inpatient volume in 1974 was not shared by the ambulatory component. Although outpatient visits rose in 1974, the 4.8 percent increase was the slightest rise ever recorded. Unfortunately, the observation is not readily explained, although some have argued that, of the two principal components of hospital output, outpatient visits might be the one most affected by a recession, because this aspect of hospital care has disproportionately lower coverage by hospitalization insurance. The question of hospitals' output response to the current recession is examined more thoroughly in the following chart. To determine the sensitivity of hospital output, a special output index based on admissions was constructed. The index has a pre-recession base of 1972 = 100.0 Deseasonalized quarterly index values were computed and plotted (dotted line) on chart 1. Also on the chart are deseasonalized quarterly index values of the real Gross National Product (GNP). Sources: National Hospital Panel Survey Economic Outlook U.S.A., Survey Research Center, University of Michigan. 3. "Recession Implications for Hospitals" - unpublished AHA working paper. - 4 As the chart indicates, the third quarter of 1973 marks the beginning of di vergence between hospitals' output and that of the economy. While the real 4 GNP declined from the third quarter forward, the index of hospital output continued to increase. As of the fourth quarter of 1974, the historical finding that hospital output is relatively insensitive to downturns in the economy continued to hold. rate. The occupancy rate is a key statistic in measuring the inpatient utilization More recently, this statistic has taken an added meaning, insofar as it has been pointed to as showing that the hospital industry has too many 5 facilities and beds relative to usage. Displayed in Table 2 are community hospital occupancy rates from 1968 to 1974. Because utilization of capacity is a common statistic for other industries as well, Table 2 also includes the utilization rate of all U.S. manufacturers and manufacturing firms involved only in advanced processing. 5. The current recession will probably be identified as beginning in A Statistical Profile of Short-Term Hospitals in the U.S. as of 1972, - 5 Two important points can be drawn from this comparison. First, the hospital occupancy rate increased in 1974 for the second consecutive year, reversing the decreases recorded in 1970-72. Second, in the '70s so far, the utilization rate of hospitals and that of other industries have been quite similar. The largest disparity appeared in 1973, when manufacturing utilization was 7.9 points above that of hospitals. Aside from the bed supply, which will be discussed in the input and factor price section, a major determinant of inpatient utilization is the average length of patient stay. In the post-Medicare era, the average length of patient stay has generally been falling. Table 3 presents the average length of stay, from 1968 to 1974, for all community hospital admissions and for admissions for patients over 65 years of age. The average length of stay for all admissions, 7.4 days, showed no change from 1973. On the other hand, the length of stay for patients over 65 continued to decline, although the reduction was not as large as recorded in previous years. |