Hospital cost drivers: an evaluation of 1998-2001 state-level data

To evaluate the determinants of increased hospital inpatient expenditure growth since 1998.

Multivariate regression analyses were estimated for 1998-2001 utilizing state-level information from nationally representative population sources, US government agencies, and aggregate expenditures estimated from a nationally representative large health insurance plan (LHIP).

During 1998-2001, LHIP inpatient expenditures per member increased by an average of 5.9% annually, twice the 2.9% annual rate of inflation. Overall level of economic activity, price-level variation, hospital technology, hospital market, and healthcare labor force are the most important drivers of recent trends in inpatient expenditures. Inpatient costs were responsive to hospital market characteristics. Each 1% increase in for-profit and medical system (chain ownership) hospital percentage was associated with approximately a 2% increase in inpatient expenditures. Each 1% increase in network (shared purchasing or other arrangement, but not ownership) hospital percentage was associated with a 1% decrease in inpatient expenditures. Each 1% increase in the gap between registered nurse demand and supply led to a 0.5% to 1% increase in hospital inpatient expenditures per capita.

Many characteristics contribute to inpatient expenditure growth, such as local area wages and incomes per capita, and physician market characteristics, but are not directly influenced by hospital market policies. Hospital technology and market structure are the 2 factors that are most directly amenable to healthcare policy intervention. Hospital occupancy and case-mix severity also have substantial effects on inpatient expenditure growth. With the nurse supply shortage projected to increase by 40% between 2000 and 2005, upward pressures on inpatient costs will remain.