Estimating the mission-related costs of teaching hospitals.

Academic health centers and other teaching hospitals face higher patient care costs than nonteaching community hospitals face, because of their missions of graduate medical education (GME), biomedical research, and the maintenance of standby capacity for medically complex patients. We estimate that total mission-related costs were dollar 27 billion in 2002 for all teaching hospitals, with GME (including indirect and direct GME) and standby capacity accounting for roughly 60 and 35 percent of these costs, respectively. To assure their continued ability to perform important social missions in a competitive environment, it may be necessary to reassess the way in which these activities are financed.

Drivers of expenditure growth in outpatient care services.

OBJECTIVE: To identify and analyze drivers of costs for healthcare services delivered in outpatient settings. STUDY DESIGN: We estimated 2 regression models of state-level annual outpatient expenditures. The first model uses data on operating costs for hospital outpatient services from hospital cost reports. The second model uses outpatient claims data from a large, national, group health insurer, and covers all varieties of outpatient providers for a specific insured population. RESULTS: Several different cost drivers affected the growth of outpatient costs in the late 1990s. Foremost among the drivers is the change associated with demographics and general economic conditions, and economy-wide inflation, which together accounted for 60% of the growth in outpatient costs. Characteristics directly related to the healthcare sector had a smaller, but still significant role in cost growth. The supply of physicians and specialists accounted for 10% of cost growth, whereas supply and structure of outpatient facilities were responsible for an additional 5% of outpatient cost increase. The health status of the population was associated with 8% of expenditure growth; technology and treatment practices accounted for 7% of growth; and provider operating costs, such as wage levels, were linked to 9% of the growth. CONCLUSIONS: Some level of growth in outpatient care spending may be cost effective, because outpatient services can substitute for more expensive care in other settings. Strategies for limiting growth in the costs of outpatient care will be more effective if focused on enhancing cooperation between payers, providers, and other stakeholders in assuring an appropriate and cost-effective supply of outpatient care resources.

Drivers of healthcare expenditures associated with physician services.

OBJECTIVE: To identify and rank the key contributors to increases in healthcare costs for physician services. STUDY DESIGN: We performed regression analysis using state-level physician cost data from the state health expenditure accounts maintained by the Centers for Medicare and Medicaid Services (CMS) and a national, private (commercial) health insurer. RESULTS: We estimated that during 1990 to 2000, nominal physician expenditures per capita grew 4.7% annually. Forty-two percent of this growth was attributable to general price inflation measured by the gross domestic product price deflator. The category of general economic variables and demographics was the next largest contributor to growth at 17%, followed by physician supply and provider structure (12%) and technology and treatment patterns (11%). Operating costs, health status, healthcare regulation, and health insurance benefit and product design comprised the remaining 18% of the growth. CONCLUSIONS: Because physicians are central to the healthcare system in the United States, efforts to contain physician spending reverberate through all healthcare services. The combined effect of an increase in the number and proportion of specialty care physicians, the continued development of clinical approaches for the control of chronic disease, and an aging population requiring intensive medical care imply that the current increase in healthcare expenditures could continue unabated, unless effective cost-control devices are deployed. To be effective, emerging strategies for influencing the affordability of healthcare services are likely to require a greater level of partnership between payers, providers, and other stakeholders.