The trend in hospital output and labor productivity, 1980-1989

This paper analyzes changes in hospital labor productivity from 1980 through 1989. Our primary measure is called aggregate productivity, defined as the ratio of admissions (after controlling for the complexity of patients treated) to full-time equivalent employees. To scrutinize changes in aggregate productivity more closely, we also developed two component measures. These are intermediate productivity, which examines the labor necessary to produce a set of patient care services, and the intensity of services. The data show that hospitals clearly became more efficient in producing services during the 1980s. However, these gains were overwhelmed by more services being provided, resulting in a decline in aggregate productivity. The pattern of intensity and productivity changes can be associated with some distinct phases of the Medicare prospective payment system.