Hospital Costs

1
Hospital Costs

• Marvin OQuinn
• President and CEO
• Jackson Health System

2
National Health Expenditures are, once again,
growing 3 times faster than the rate of inflation

• Between 1994-2000, total health expenditures
  increased, on average, 5.7 per year, while
  hospital spending grew only 3.8 per year.
• Health care spending began accelerating in 2000,
  increasing 8.7 in 2001, then 8.6 in 2002.
  Estimates for 2004-2008 reflect a 7.2 growth per
  year in overall health care spending.
• Hospital spending experienced the same trend,
  growing 8.3 in 2001 and 7.4 in 2002.
• CMS projects that rate of increase in hospital
  spending will slow to 5.5 in 2003 and 6.1
  between 2004-2008, significantly less than the
  overall growth in health care spending.
• Prescription drug spending grew 13.1 per year
  prior to 2000, then jumped 15.7 in 2001 and
  14.3 in 2002.
• After years of low rate increases, beginning in
  2000, health insurance premiums jumped 8.3,
  followed by an 11 increase in 2001 and 13 in
  2002.

3
Hospital care as a percentage of the total health
spending is shrinking, down from 36 of the total
spending in 1993 to 31 in 2002
1993 Total Health Spending 888 B
2002 Total Health Spending 1,548 B
Source Centers for Medicare and Medicaid
Services (CMS), Office of the Actuary, National
Health Statistics Group, National Health
Accounts..
4
Fixed price payers, such as Medicare, Medicaid,
and managed care represent 85 of total hospital
admissions
Discharges
Other includes Workers Compensation Champus
VA Other state/local government Other
Source AHCA Patient Discharge Data, CY2002
5
More than half of JHSs volume comes from
payersthat pay substantially less than cost
Tax and other subsidies only partially fill this
gap
1.30
1.20
Tax and Other Subsidies1
1.10
Cost
1.00
0.90
.81
0.80
0.70
Payment to Cost Ratio
0.60
0.50
Charity Other33.5
0.40
0.30
0.20
.06
0.10
0.00
0
10
20
30
40
50
60
70
80
90
100
Percentage of Hospital Cost
Source Lewin Group analysis of AHCA filing and
FY 2000 Audited Financial Statements 1Net of
Miami-Dade County funding allocated to primary
care and nursing home operations
6
Since 1997, Florida hospitals saw a 27 increase
in the number of uninsured patients.The
uninsured account for 7 of admissions and 25 of
ED visits.
Sources AHCA Patient Discharge Data,
CY92-02 EBRI Reports, 1992-2002
7
Florida Hospitals absorbed 1.5 billion in costs
associated with treating the uninsured, up 29
from 1997. Uncompensated care represents about
7 of total hospital costs.
Source AHCA Financial Data, 1992-2002
8
Impact of Increasing UninsuredFinancial Losses
by Business Segment

Source JHS Financial Data
9
More than 1/3 of all Floridians were uninsured at
some point during 2001 and 2002 while 18 were
uninsured for the entire year.
Source Going Without Health Insurance Nearly
One in Three Non-Elderly Americans, The Robert
Wood Johnson Foundation, Prepared by Families
USA, March 2003
10
Key Drivers of Growth in Spending on Hospital Care
Total National Spending on Hospital Care (in
billions) 1997 vs. 2001
Share of Growth in Spending on Hospital Care 1997
to 2001
83.6 Billion
Increasing Costs to Provide Care 44.6
More Services Provided 55.4
Source Centers for Medicare and Medicaid
Services (CMS), Office of the Actuary, National
Health Statistics Group, National Health
Accounts..
Source PricewaterhouseCoopers calculations,
February 2003.
11
Increased volume, due to increased use of
hospital services, and population growth were
responsible for 55 of the increase in hospital
spending between1997 to 2001

• Population Growth
• From 1997-2001, the U.S. population grew by
  about 5

21.0

• Increased Use Rates
• Consumerism easing of managed care
  restrictions on access
• Aging Population
• Technology healthcare can do more things for
  more people

34.4
Source PricewaterhouseCoopers analysis, February
2003
12
Floridas population grew 24 over the last 10
years. Floridas aging population, the highest
in the nation, will require more and more
hospital services
16.7
16.3
16.0
15.3
15.0
14.7
14.4
14.1
13.9
13.6
13.4
Source AHCA Financial Filings, FY1995-2001
13
Total Florida hospital use (inpatients, ER visits
and ambulatory surgery) increased 26 between
1997 and 2002
10.3
10.1
9.7
9.2
8.7
8.1
Sources AHCA Discharge Data, CY1992-2002 AHCA
Financial Filings, FY1997-2002
14
Higher costs of providing care accounted for 45
of the total increased spending on hospital
care 1997 to 2001
Wages
31.9
Rising labor costs due to workforce shortage 38.8
Benefits
6.9
Increasing Costs to Provide Care 44.6
Pharmaceuticals
3.4
Rising expenses for devices, drugs, liability
insurance 24.1
Other supplies and services
20.7
-18.3

• Other
• Increased efficiencies
• Unmeasured growth factors

Source PricewaterhouseCoopers analysis, February
2003
15
Labor costs in Florida hospitals grew 11 in
2002, fueled by higher salaries due to workforce
shortages and additional staff needed to care for
increased patient loads. Florida hospitals spent
over 300 million for overtime, temporary or
contract staff in 2002.
Percent change in labor costs
Source AHCA Financial Data, 1990-2001
16
Florida is experiencing a severe shortage of
nurses, radiology techs and pharmacists

• Florida has one of the highest RN vacancy rates
  in the country.
• To ensure safe RN to patient mixes, hospitals
  increased salaries to keep RNs, incurred
  significant overtime expenses, and paid upwards
  of 75 per hour for agency RNs.
• To ensure an adequate supply, hospitals are
  funding faculty positions in nursing programs and
  providing scholarships to train new clinical
  workers.

Source FHA Nurse Staffing Issues in Florida,
2003
17
Other expenses, such as technology,
pharmaceuticals, medical devices, supplies,
medical liability costs, and other operating
overhead grew 11.3 between 2001 and 2002 in
Florida hospitals

• Drug-eluding stents, which reduce the need for
  open heart surgery, cost 3 times more than a
  regular stent, however, Medicare reimburses only
  about 20 more.
• The new heart failure device (with an implantable
  defibrillator) costs 25,000 to 30,000,
  resulting in higher costs to treat heart failure
  patients which are not offset by higher Medicare
  reimbursement.
• There is up to a 1 year delay for Medicare
  reimbursement to be modified to reflect higher
  costs of new FDA approved chemotherapy drugs and
  devices.
• Medical liability costs for hospitals increased
  83 over the last two years.

18
26 Federal, 11 State and 6 voluntary agencies
regulate hospitals
Supreme Court
Federal Circuit Court
Departmental Appeals
Congress

• AHCA
• Licensure
• Medicaid

Centers for Medicare and Medicaid Services
DME Regional Contractors
Medicare Integrity Program Contractors
OIG
State Medicaid
Regional Home Health Intermediaries
PRRB
DOH
Regional Offices
Intermediaries
Carriers
PROs
Board of Medicine
DOI
FDA
Board of Nursing
DOT
HOSPITALS
Other Licensing Boards
OSHA
DOJ
State Local Governments
Labor/ Justice ADA
NRC
OPOs
SEC
IRS
DOL/ Employment
JCAHO
HHS/ NIOSH
HHS/ HRSA
FBI
FCC
FTC
EPA
State Licensure
19
New regulations add additional costs to providing
hospital services

• For every hour of patient care, hospital staff
  spent 30 minutes filling out paperwork to comply
  with the various regulations. In the ED, it is
  one hour for every hour of patient care.
• New Needle Stick Law will increase cost of
  needles 10-30
• HIPAA privacy requirements - 1.2 billion in
  increased costs administrative simplification
  net cost increase of 71 million annually
• New blood handling standards will increase
  hospitals cost to notify patients about possible
  infections and likely add 30-40 to the cost of a
  pint of blood.
• Changes in hospital building and safety codes
  will increase the cost of new construction