Hospital, Employment, and Price Indicators for the Health Care Industry: First Quarter 1999

Health Care Financing Review, Fall, 1999 by Mary Lee Seifert, Stephen K. Heffler, Carolyn S. Donham

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KEY TRENDS

* The decline in employment in home health care services has slowed, falling 6.6 percent in the first quarter of 1999 after a fourth-quarter decline of 8.1 percent. Non-supervisory employment also declined, down 6.7 percent in the first quarter of 1999, driving a 4.7-percent decrease in this industry's implied payrolls. (Implied payrolls are calculated by multiplying the number of non-supervisory workers by their average weekly earnings. Average weekly earnings are average weekly hours times average hourly earnings.) Home health care service employment and payroll decreases began in the first quarter of 1998, following public sector actions to control Medicare spending growth and detect fraud and abuse.

* Employment in all private and government hospitals increased by 1.3 percent in the first quarter of 1999, driven by a 1.5-percent growth in private hospital employment and a 1.7-percent increase in local government hospital employment. Employment in Federal Government hospitals continued to decline.

* Inpatient days increased by 0.8 percent in the third quarter of 1998, compared with the same period of the previous year. This increase is the second in three quarters and only the second in a 6-year period. An increase of 1.2 percent in hospital admissions was tempered by a 0.4-percent decline in the adult length of stay, the 36th consecutive quarterly decline.

* Hospital Insurance (HI) Trust Fund assets rose 8.3 percent in the first quarter of 1999. Estimates in the 1999 Annual Report of the Board of Trustees of the Federal Hospital Insurance Trust Fund indicate that, given current law and trends, the Part A trust fund will be exhausted in 2015.

* Consumer Price Index (CPI) medical price growth, which appeared to have reached a trough in the fourth quarter of 1997 at 2.6 percent, increased 3.5 percent for the third consecutive quarter in the first quarter of 1999.

* Faster growth in medical prices over the past year was attributable to accelerating drug and hospital price growth.

* Producer Price Index (PPD growth for both skilled nursing facility (SNF) and home health care services fell to near historical lows in the first quarter of 1999.

HOSPITAL OCCUPANCY RATES

Reversing a second quarter decline, the adult occupancy rate again increased, rising 0.8 percentage points in the third quarter of 1998 (Figure 1). Inpatient days rose 0.8 percent from the same period of the previous year, and staffed beds decreased only 0.6 percent. The adult occupancy rate represents the ratio of the average daily hospital census (inpatient days divided by the number of days in the year) to the average number of staffed hospital beds. The adult occupancy rate has decreased about 14 percentage points over the long term, from 73.1 percent in the second quarter of 1983 to 58.7 percent in the third quarter of 1998. The number of staffed hospital beds has fallen about 18 percent, from 1,005,718 in the second quarter of 1983 to 824,630 in the third quarter of 1998. With the exception of the first and third quarters of 1998, the number of inpatient days has decreased every quarter since the first quarter of 1990. A 33.4-percent decline in inpatient days since the second quarter of 1983 has been the main reason for the long-term decline in the adult occupancy rate.

[Figure 1 ILLUSTRATION OMITTED]

HOSPITAL ADMISSIONS AND OUTPATIENT VISITS

Hospital admissions rose 1.2 percent in the third quarter of 1998, compared with the same period of the previous year, while outpatient visits rose more rapidly, increasing 7.7 percent (Figure 2). The pace of growth in outpatient visits picked up from the 6.4 percent posted in the second quarter of 1998 and appears to be accelerating.

[Figure 2 ILLUSTRATION OMITTED]

For the third quarter of 1998, operating expenses increased 4.0 percent, compared with the same period of the previous year, and hospital revenues were up 3.0 percent. The 1.0-percentage-point difference in growth rates is the largest gap between expense and revenue growth rates in more than 9 years. Inpatient revenues increased by 1.1 percent but inpatient expenses grew by 1.9 percent. Outpatient revenues grew by 7.2 percent and outpatient expenses rose by 8.0 percent. On a per utilization basis, however, the expense per inpatient admission increased by 0.7 percent, while the expense per outpatient visit increased only 0.2 percent.

MEDICARE TRUST FUND OPERATIONS

Total Medicare outlays (the sum of Part A and Part B outlays) decreased 4.3 percent in the first quarter of 1999. Although Medicare Part A outlays rose 1.0 percent, Part B outlays dropped 12.3 percent. The HI Trust Fund income grew 9.9 percent, and, by the end of the first quarter of 1999, the level of assets in the HI Trust Fund increased 8.3 percent from the same period 1 year earlier (Figure 3). This was the fourth consecutive quarterly increase in assets and was attributable to the 9.9-percent income increase coupled with only a 1.0-percent increase in outlays. A strong economy with low unemployment continued to boost HI Trust Fund income, while outlays slowed for reasons similar to those explaining lower outlays in 1998: Lower Medicare hospital updates for reimbursement rates for 1998 and 1999 under the Balanced Budget Act of 1997 and continuing efforts to combat fraud and abuse. Estimates found in the 1999 Annual Report of the Board of Trustees of the Federal Hospital Insurance Trust Fund indicate that, given current law and trends, the Part A Trust Fund will be exhausted in 2015.