Hospital Productivity Better Than Thought

By Christine Kern, contributing writer

A recent study finds productivity rates have implications for Medicare payments to hospitals.

Existing evidence suggests hospitals have not made productive gains recently, sending a message that healthcare is lagging behind other industries economically. But new research, published online by the journal Health Affairs, has found hospitals saw real productivity gains during the first decade of this century that have not been recorded as a result of challenges economists face tracking performance in healthcare. The study asserts other research has not adequately addressed quality of care or severity of patient illness in their assessments.

The study, U.S. Hospitals Experienced Substantial Productivity Growth During 2002-11, adjusted for trends in the severity of patient conditions and health outcomes and found rates of annual productivity growth were 0.78 percent for heart attack, 0.62 for heart failure, and 1.90 percent for pneumonia, countering the unadjusted productivity growth rates that were negative.

When the authors John Romley, Dana Goldman, and Neeraj Sood calculated productivity growth rates without factoring in trends in the severity of patient conditions or outcomes achieved after hospitalization, they calculated the following rates: -0.64 percent for heart attacks, -0.91 percent for heart failure, and -0.39 percent for pneumonia.

According to the authors, these rates were the result of rising treatment costs during the study period. They further found the productivity trend line became more positive over time, conceivably related to relatively slow growth in health spending in the United States in the later years being studied.

The study authors write, “These finding suggest that productivity growth in U.S. healthcare could be better than is sometimes believed, and may help alleviate concerns about Medicare payment policy under the Affordable Care Act.”

The study, conducted by University of Southern California economists with Medicare data, did not include physician costs when doctors were not employed by the hospital.

“The pattern of growth documented here suggests that in recent years, hospitals have not suffered from a so-called cost disease, where heavy reliance on labor limits opportunities for efficiencies stemming from technological improvement,” Health Affairs quotes from the report.

The paper could have implications for how hospitals are reimbursed by Medicare, which adjusts for productivity, according to Romley, a USC economist and public policy professor. Hospitals may be more productive than believed, he said, and therefore better able to operate as Medicare squeezes payments.

The study cohorts ranged in size from 403,253 patient stays at 3,315 hospitals for heart attack diagnoses to 906,918 stays at 3,621 hospitals for those with heart failure.

The study also suggests “concerns about linking provider payment to economy-wide productivity growth may be overstated, at least in the inpatient setting.” Further, “innovative payment and delivery approaches under the ACA and among private payers may increase the incentives of hospital leaders and managers to achieve productivity gains in the future.”

According to Modern Healthcare, Romley said the adjusted figures suggest “that the old system overpaid” hospitals, so the ACA's cuts “are not the dagger at the heart of providers that one might fear.”