Admittedly crude, this methodology shows that additions to units of service

contributed less to the revenue rise in 1974 than in 1972-73.

The Hospital Service Charge component of the CPI is not the only routine source of so-called "pure" price data. From Hospital Administrative Services, a special Price Index of Hospitals (PIH) was added in May 1974. The PIH, like the BLS measure, is specific price oriented and includes 6 of the 10 components found in the Hospital Service Charge component. The PIH, although based on the self-selective participation of the HAS system, is generated on approximately 10 times the number of hospitals as surveyed by the Bureau of Labor Statistics. From May 1974 to December 1974, the PIH increased 9.0 percent. This can be compared to the 9.7 percent rise over that same time span for the Hospital Service Charge component.

While the PIH and the BLS index track reasonably well over this period, it should be noted that the percentage change in any given month between both indexes has been, by and large, considerably different.

2. Inputs and Factor Prices

This section of the paper examines factors affecting recent hospital unit cost and price performance. An essential issue in this review is an understanding of the elements that contributed to the upturn in the rate of in

12

labor,

crease in unit costs and prices in 1974. The review is best carried out by looking at the role of four components of hospital cost increases: nonlabor items, wages, and nonlabor prices.

Labor

Labor is the essence of hospitals' production of care and, as was shown earlier, also represents the majority of hospital expenses. Furthermore, additions to the employment complement place considerable upward pressure on costs. Displayed in Table 9 are full-time equivalent personnel and full-time equivalent personnel per 100 patients from 1968 to 1974.

The data show that full-time equivalent personnel increased 4.5 percent in 1974.

This increase in personnel, which was the third highest of the years displayed, occurred despite the fact that unemployment in the economy was increasing. (The unemployment rate in 1974 for the economy was 5.6 percent, compared to 4.9 percent in 1973.) This was not an unexpected finding, because hospital employment historically has been unaffected by recessions, much as has been the case with hospital output.

- 13

Although

Because full-time equivalent personnel is a computed figure, based on parttime and full-time workers, it should be mentioned that, in 1974, part-time workers showed the largest relative gains in hospital employment. full-time equivalent employment increased 4.5 percent, part-time workers rose just about double (8.9 per cent) for a total of 574,984 workers.

Aside from buoyancy in employment, it is equally interesting to examine trends in the labor-output ratio. Full-time equivalent employees per 100 patients registered a 1.6 percent increase in 1974. Although this is .3 percent more than the 1972-73 change in employment levels, it still represents the second smallest rise recorded in all the years under investigation. The statistic, however, presents somewhat of a biased picture, insofar as it neglects full-time equivalent personnel devoted to outpatient care. Therefore, Table 10 presents the percentage change in full-time equivalent personnel per 100 adjusted patient days from 1968 to 1974.

These data suggest a more substantial downturn over the period in the rate

of increase than when outpatient visits were not considered.

Furthermore,

in the 1973-74 period, the reversal of this trend was not as pronounced as the data shown in Table 9, which were measured for inpatients only.

Although the labor-output ratio was increasing, this does not necessarily imply that productivity was decreasing. The per diem measures, as has

been mentioned, do not reflect changes in the quantity of services provided per day. The most comprehensive routinely collected productivity data come from Hospital Administrative Services. Here, five specific activities are central service line items per man-hour, meals served per man-hour, laboratory tests per man-hour, pharmacy line items per man-hour, and laundry Data for December 1973 and December 1974 are displayed

reviewed:

pounds per man-hour.

During the period, all productivity measures increased, with laboratory tests per man-hour showing the largest rise (7.9 percent).

Based on the expendi

tures of each department, a composite rise of 4.4 percent was found for the period. It should be noted, however, that although these departments represent about 20 percent of all hospital expenses, they are also relatively capital intensive.

It would be premature, therefore, to suggest that all

15

hospital departments recorded productivity increases of the order suggested here or indeed registered productivity increases at all.

Capital

The other principal component in hospitals' production arrangement is capital, and a widely used indicator of hospitals' capital accumulation is the relative change in the bed supply. The numbers of community hospital beds and the relative changes in these figures are shown in Table 12.

In 1974, the community hospital bed supply increased 2.1 percent, slightly 10

more than the relative increase registered in 1973. Although a complete

data series does not appear in the above table, it is noteworthy that the rate of bed supply expansion in the '70s is considerably below that recorded in the '60s.

10

While the community hospital bed supply continues to grow, the number of hospital beds in many noncommunity hospitals has been decreasing to the extent that total hospital beds declined for each year between 1965 and 1973. See "Are There Too Many Hospital Beds", AHA, Chicago. March 1975.