AHA: Labor is Biggest Factor in Hospital Cost Growth

Janice Simmons, for HealthLeaders Media , March 12, 2010

While hospital care accounts for one-third of dollars spent in healthcare, overall spending for hospital care has shown the slowest growth among healthcare services, according to a new American Hospital Association report that examines spending growth on patient care.

From 2007 to 2008, spending for hospital care rose by 4.5%, which was less than health insurance premiums, the report said. During this time, the rising costs to hospitals for goods and services purchased to provide care accounted for 64% of overall growth in spending on hospital care; the remainder was related to changes in the number of services provided (34%) and intensity and other factors (2%).

The single most important factor driving up costs was labor, accounting for about 35% of overall growth. Labor was also responsible for more than half of the growth in the costs of purchased goods and services, according to the data in the report that was obtained from the Centers for Medicare & Medicaid Services and the AHA annual survey data for community hospitals.

These increases are occurring while hospitals are facing shortages of registered nurses, pharmacists, medical technicians, and other clinical workers, AHA said. The high vacancy rates for registered and licensed practical nurses are largely related to a declining number of students seeking careers in nursing and competition with non hospital employers, the report added.

These continued workforce shortages—during a period of rising service demand—likely will put additional cost pressures on hospitals, the report said.

The rising demand for care accounted for about 34% of the overall growth in spending on hospital care between 2004 and 2008. That demand is related to rising population growth and an increase in use per person of hospital services.

The aging population is driving part of this increase: as people age, they generally use more health services. Between 2000 and 2050, the population aged 65 and older is expected to grow from 12% to 21%, as the baby boomer generation ages and life expectancy rises. As the population ages, many individuals may also encounter multiple chronic conditions.

The remainder of the growth—about 2%—is related to the  increased intensity of hospital care, such as hospitals using more resources to care for patients. Increased intensity can be related to a variety of factors, including sicker, more complex patients as well as the high costs of advances in technology.

Janice Simmons is a senior editor and Washington, DC, correspondent for HealthLeaders Media Online. She can be reached at jsimmons@healthleadersmedia.com.

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