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HEALTH CARE EXPENDITURES AND PRICES

ISSUE BRIEF-NUMBER IB77066

AUTHOR:
Price, Richard James
Education and Public Welfare Division
Lundy, Janet Pernice

Education and Public welfare Division

THE LIBRARY OF CONGRESS
CONGRESSIONAL RESEARCH SERVICE

MAJOR ISSUES SYSTEM

DATE ORIGINATED 05/03/77
DATE UPDATED 11/12/82

FOR ADDITIONAL INFORMATION CALL 287-5700

lll2

CRS- 1 IB77066 UPDATE-ll/12/82

ISSUE DEFINITION

National health expenditures have increased for decades. By 1981, total
health spending in the United States had reached $286.6 billion, or about
9.8% of the Gross National Product. The price of medical care as measured by
the Consumer Price Index has also increased rapidly. These factors have
focused increasing congressional attention on costs in the health sector,
particularly on hospital costs. This issue brief provides background data on
health care expenditures and prices, including data on hospital expenses and
utilization.

BACKGROUND AND POLICY ANALYSIS

a. National Health Expenditures

National health expenditures have increased for over 50 years in aggregate
terms, on a per capita basis, and as a percent of the Gross National Product

(GNP). The growth in national health expenditures is shown in the following
table.
TABLE 1: Aggregate and per capita national health expenditures,
and percent of Gross National Product, selected years, 1940-1981
National Health Expenditures

Calendar Total amount Per capita Percent

year (in billions) % increase amount of GNP
1940 $ 4.0 NA $ 30 4.0
1950 12.7 NA 82 4.4
1960 26.9 NA 146 5.3
1965 41.7 NA 211 6.0
1970 74.7 NA 358 7.5
1971 83.3 11.5 394 7.7
1972 93.5 12.3 438 7.9
1973 103.2 10.3 478 7.8
1974 116.4 12.8 535 8.1
1975 132.7 14.0 604 8.6
1976 149.7 12.8 674 8.7
1977 169.2 13.1 755 8.8
1978 189.3 11.9 836 8.8
1979 215.0 13.6 938 8.9
1980 249.0 15.8 1075 9.5
1981 .286.6 15.1 1225 9.8

Source: Gibson, Robert M. and Daniel R. waldo. National Health
Expenditures, 1981. Health care financing review,
September 1982: 1-35.

 

                 

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CRS- 2 IB77066 UPDATE-ll/l2/82

National expenditures for hospital care and for physicians’
services have exceeded expenditures for all other health services.
Hospital care expenditures are the major component of the Nation's health
spending (representing 41.2% of total health spending in 1981),
and have risen annually at "double-digit" rates for an entire decade.
During 1965 (the year prior to the beginning of the Medicare and
Medicaid programs), national expenditures for hospital care amounted to
$13.9 billion. By 1981, annual expenditures had reached
$118.0 billion, more than eight times the 1965 amount. Physicians‘
services, which represented 19.1% of national health expenditures in
1981, experienced more than a six—fo1d increase from 1965 to 1981.

TABLE 2. National expenditures and % increases for hospital care and
physicians’ services, selected years 1940-1981
National Health Expenditures
(billions)
Hospital care Physicians‘ services

7 Amount % increase Amount % increase
1940 31 $ 1.0 NAt $ 1.0 NA

1950 3.9 NA 2.7 NA

1960 9.1 NA 5.7 NA

1965 13.9 NA 8.5 NA

1970 27.8 NA 14.3 NA

1971 30.8 10.8 15.9 11.1
1972 34.9 13.3 17.2 8.2
1973 38.7 10.9 19.1 11.0
1974 44.8 15.8 21.2 11.0
1975 52.1 16.3 24.9 17.5
1976 59.9 15.0 27.6 10.8
1977 67.8 13.2 31.9 15.6
1978 75.7 11.7 35.8 12.2
1979 86.1 13.7 40.2 12.4
1980 100.4 16.6 46.8 16.4
1981 118.0 17.5 54.8 16.9

Source: Gibson, Robert M. and Daniel R. waldo. National Health

Expenditures, 1981. Health care financing review,
September 1982: 1-35.

 

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CRS- 3 IB77066 UPDATE-ll/12/82

Unlike other goods and services for which the consumer pays the
provider directly, health care payments are often made by other
entities including private health insurance and public programs which
act as insurers. The following table shows the major sources of
national health expenditures including private sources, such as
private health insurance and direct consumer payments, and public
sources, such as the Medicare and Medicaid programs and other
Federal, State and local governmental sources of funds. In 1940,
the percentage allocation of national health expenditures from
private and public funding sources was 80.0% private and 20.0% public.
By 1981, the distribution was 57.3% private and 42.7% public, with
29.3% of total national health expenditures coming from Federal
sources.

TABLE 3. National health expenditures by major source
of funds, selected years, 1940-1981

National Health Expenditures
(in billions)

Public expenditures

Private
expenditures Total Federal State/local

1940 $ 3.2 $ .8 -- --

1950 9.2 3.4 1.6 1.8
1960 20.3 6.6 3.0 3.6
1965 30.9 10.8 5.5 5.2
1970 46.9 27.8 17.7 10.1
1971 51.6 31.7 20.3 11.3
1972 58.1 35.4 22.9 12.5
1973 63.9 39.3 25.2 14.1
1974 69.3 47.1 30.4 16.6
1975 76.5 56.2 37.1 19.1
1976 86.7 62.9 42.6 20.3
1977 99.1 70.1 47.4 22.7
1978 109.8 79.5 53.9 25.7
1979 124.4 90.6 61.0 29.5
1980 143.6 105.4 71.1 34.3
1981 164.1 122.5 83.9 38.6

Source: Gibson, Robert M. and Daniel R. Waldo. National health
expenditures, 1981. Health care financing review,
September 1982: 1-35.

 

 

 

 

 

 

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CRS- 4 IB77066 UPDATE-ll/12/82

b. The Price of Health Care, as Measured by the CPI

Until recently, increases in the price of health care, as
measured by the Consumer Price Index (CPI), consistently exceeded
price increases in the rest of the economy. A major
exception in this trend occurred during the Economic Stabilization
Program (August l97l-April I974 for health) when medical care prices
increased at lower rates than general price levels. After
these controls were lifted, medical care prices
increased faster than all consumer prices.

TABLE 4. Annual rates of change in consumer price index(l) and selected

medical care components, selected periods, June l959 - June I982
Economic Post
stabilization controls
program period
6/59-6/66 6/66-8/71 8/71-4/74 4/74-6/82
CPI, all items 1.5 4.5 5.3 9.0
CPI, all services b 2.5 «6.l 5.1 I 10.5
Medical care, total 2.9 s.7~ 4.3 10.4
Medical care services 3.5 7.9 4.9 10 7
Hospital room(2) 6.1 l4.7 5.7 13.7
Physicians‘ services 3.0 6.9 4.0 ' 10.4
Medical care
commodities(3) -0.5 0.9 0.7 8.3

(1) 1978-1981 CPI data are from the CPI for all urban consumers.
(2) Prior to 1/78 included only semi—private room charge.
(3) Prior to 1/78 included only drugs and prescriptions.

Source: CPI, various publications.

In 1979, the increase in health care prices as measured by the
several medical indexes of the CPI indicated in Table 5, except for
the hospital room index, began to rise less rapidly than the overall
CPI. In 1981 and the first three quarters of I982, the increases in
all of the medical care indexes indicated in the following table
were higher than the rate of increase in the CPI.

The following table illustrates the trends since I965:

CRS- 5 IB77066 UPDATE-11/12/82

TABLE 5. Percent change in selected components of CPI(1),
1965-1981 annual averages, and quarters ending in 1982
over same quarters in 1981

CPI, all Medical
CPI items less care Hospital Physicians‘
all items medical care Total room services

1965 1.7 1.5 2.5 5.6 3.6
1966 2.9 3.0 4.4 10.0 5.8
1967 2.9 2.4 7.1 19.8 7.1
1968 4.2 4.1 6.1 13.6 5.6
1969 5.4 5.4 6.9 13.4 6.9
1970 5.9 5.8 6.3 12.9 7.5
1971   4.3 4.1 6.5 12.2 6.9
1972 3.3 3.3 3.2 6.6 3.1
1973 6.2 6.4 3.9 4.7 3.3
1974 11.0 11.1 9.3 10.7 9.2
1975 9.1 8.9 12.0 17.2 12.3
1976 5.8 5.5 9.5 13.8 11.3
1977 6.5 6.2 9.6 11.5 9.3
1978   7.7 7.6 8.4 11.0 8.3
1979 11.3 11.4 9.3 11.4 9.2
1980 13.5 13.6 10.9 13.1 10.6
1981 10.4 10.3 1078 14.8 11.
1982

1st qtr. 7.6 7.1 12.0 16.7 10.8
2nd qtr. 6.8 6.5 12.0 16.6 9.9
3rd qtr. 5.8 5.5 11.4 15.8 9.1

(1) CPI index for all urban consumers, unadjusted figures.
Source: U.S. Department of Labor, Bureau of Labor Statistics,
Consumer Price Index, various publications.

CRS- 6 IB77066 UPDATE-11/12/82

c. Hospital Expenses

The American Hospital Association (AHA) compiles detailed measures of
expenses of the Nation's community hospitals, which are defined as all
non-Federal short-term general and other special hospitals (excluding after
1971 hospital units of institutions) whose facilities and services are
available to the public. The following table shows historical expense data
for community hospitals from the AHA's National Hospital Panel Survey. The
Survey is a monthly survey of a randomly selected sample of about 1,800 of
the approximately 5,800 community hospitals.

For community hospitals, total expenses in 1981 were $94.2 billion, which
is over ten times greater than the 1965 amount of $9.2 billion. The average
cost of a day of hospital care in 1981 was $299, which is more than seven
times the 1965 figure of $41. Increases of similar magnitude have occurred
in community hospital expenses per admission, or "cost-per-case," which has
risen from $315 in 1965 to $2,155 in 1981.

Generally, the four measures of hospital expenses shown below in Table 6
indicate that the rate of increase in hospital expenses rose from 1965 until
1970 or 1971. During the period of economic controls under) the Economic
Stabilization Program (1971-1974), hospital expense increases declined. The
rate of increase in expenses jumped upward in 1974 and continued to rise
through 1975 Or 1976. During the period 1976 through 1978 or 1979, hospital
expense increases again declined, which some claim was due perhaps in part to
the initiation in 1978 by the American Hospital Association and other health
organizations of a Voluntary Effort to control health care costs. Hospital
expense increases rose again in 1979, 1980, and, in. 1981 generally reached
the highest levels since 1975 or 1976.

 

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CRS- 7 IB77066 UPDATE-ll/12/82

TABLE 6. Selected community hospital expense data,
totals and percentage increases, 1965-1981.1

Adjusted(l)
expenses per

Adjusted(2)

expenses per Inpatient

Year Total expenses inpatient day admission expenses
Amount % Amount % Amount % Amount %
(billions) Chg. Chg. Chg. (bi11ions)Chg.
1965 $9.220 8.6 $41 7.5 $315 8.1 $8.414 8.7
1966 10.497 13.8 46 11.4 356 13.1 9.611 14.2
1967 12.624 20.3 53 15.3 425 19.1 11.551 20.2
1968 14.720 16.6 59 11.5 482 13.4 13.371 15.8
1969 17.247 17.2 68 15.5 551 14.5 15.635 16.9
1970 20.261 17.5 78 13.7 608 10.3 18.328 17.2
1971 22.496 11.0 87 12.3 670 10.1 20.269 10.6
1972 25.223 12.1 96 10.3 729 8.8 22.622 11.6
1973 28.248 12.0 105 9.2 784 7.5 25.173 11.3
1974 32.759 16.0 118 12.3 873 11.4 29.077 15.5
1975 38.492 17.5 138 16.4. 1,017 16.5 33.971 16.8
1976 45.842 19.1 158 15.0 1,168 14.8 40.321 18.7
1977 53.006 15.6 181 14.3 1,312 12.3 46.437 15.2
1978 59.802 12.8 203 12.1 1,466 11.8 52.131 12.3
1979 67.833 13.4 226 11.5 1,618 10.4 59.060 13.3
1980 79.340 17.0 256 12.9 1,836 13.5 68.962 16.8
1981 94.187 18.7 299 16.9 2,155 17.4 81,651 18.4

(1) Adjusted to account for the volume of outpatient visits.

Source: National Hospital Panel Survey, American Hospital Association.
The rate of increase in measures of community hospital
expenses in 1982 is as follows:

TABLE 7: Percent change in selected community hospital expense data, 1982

1982
Percent change over same month previous year
Jan. Mar. May July Sept. Nov. Dec.
Total expenses» 15.2 18.4 16.4 15.6
Adjusted expenses (1)
per inpatient day 19.7 16.1 15.9 17.1
Adjusted expenses(1)
per admission 18.3 16.2 15.2 18.1
Inpatient expenses(2) 15.1 18.0 16.2 15.3

(1) Adjusted to account for the volume of outpatients visits.
(2) Used by the AHA to track the Voluntary Effort.
Source: National Hospital Panel Survey, American Hospital Association.

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CRS- 8 IB77066 UPDATE-ll/12/82

d. Hospital Utilization

A number Of indices are reported as measures Of hospital utilization:

admissions, patient days, outpatient visits and hospitals beds per 1,000
population; average length of stay in days; and occupancy rates. The data
for Tables 8-10 are from the American Hospital Association's most recent
Annual Survey of Hospitals, a yearly survey of the approximately 7,000
AHA-registered hospitals, with responses received from approximately 6,400
hospitals in 1980.

Admissions, patient days, outpatient visits and hospital beds per 1,000
population provide measures of hospital utilization adjusted for changes in
the size of the population. From 1965 to 1980, admissions per 1,000

population increased by approximately 16%.
increased 13% during the same period.

Patient days per 1,000 population
Growth in outpatient utilization was

more dramatic. Since 1965, community hospital outpatient visits per 1,000
population have increased 86%. Hospital beds per 1,000 population have

increased 13% since 1965.

TABLE 8. Admissions, patient days, and outpatient visits per

1,000 population--community hospitals
selected years 1965-1980
Inpatient Outpatient Hospitals

Year Admissions days visits beds

1965 138 1,073 A 483 3.9
1970 145 1,198 662 4.2
1971   148 1,188 727 4.2
1972 149 1,174 788 4.3
1973 152 1,191 832 4.3
1974 157 1,217 901 4.4
1975 158 1,219 . 902 4.5
1976 160 1,224 945 4.5
1977 160 1,215 925 4.5
1978 159 1,211 933 4.5
1979 161  1,214 910 4.5
1980 160 1,211 897 4.4

Source: Hospital Statistics, 1981 Edition, American Hospital

Association.

The average length of stay increased in the years immediately following
enactment of the Medicare and Medicaid programs, but has declined since 1968.
It has remained the same since 1977:

CRS- 9 IB77066 UPDATE-11/12/82

TABLE 9. Average length of stay in days-—community hospitals

selected years 1965-1980

Year Average length of stay,

1965
1970
1971
1972
1973
1974
1975
1976

 1977
1978
1979
1980

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Source: iHospita1 Statistics, 1981 Edition, American Hospital

Association.

The occupancy rate provides a measure of the average percentage of

beds filled throughout the year. The occupancy rate increased
in the 1965-1970 time period, declined through 1978, and increased in 1979
and 1980.

 

SOUFCE:

TABLE 10. Occupancy rate--community hospitals
selected years 1965-1980
Year Occupancy rate
1965 76.0
1970 78.0
1971 76.7
1972 75.4
1973 75.7
1974 75.6
1975 75.0
1976 74.6
1977 73.8
1978 73.6
1979 73.9
19807 75.6

Hospital Statistics,
Hospital Association.

1981 Edition,

American

CRS-lO IB77066 UPDATE-ll/12/82

ADDITIONAL REFERENCE SOURCES

American Hospital Association. Hospital statistics, 1981 edition.
Chicago, 1981. 236 p.

U.S. Dept. of Health and Human Services. Health Care
Financing Administration. National health
expenditures, 1981 [by] Robert M. Gibson and Daniel R. waldo.
[Washington] Health care financing review, September 1982: 1-35.

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