Increasing Health Care Costs: the
Price of Innovation?
AcademyHealth
Annual Research Meeting
June 7, 2004
Claudia A. Steiner, MD, MPH
Bernard Friedman, PhD, Herbert Wong, PhD, Roxanne Andrews, PhD
Background
 Health care spending in US accelerated
since 1998
 Inpatient care:
– Cost acceleration not as rapid as other
components (pharmacy, high-tech
outpatient), however;
– largest single component of health care
costs
Background (cont’d)
% Increases
Admissions
1991
-0.4%
Av. Cost
Per admit
8.3%
1992
-0.1%
8.1%
8.0%
1993
-0.9%
5.8%
4.9%
1994
-0.1%
1.6%
1.5%
1995
0.7%
-0.2%
0.5%
1996
0.5%
0.1%
0.6%
1997
1.5%
0.6%
2.1%
1998
0.7%
2.0%
2.7%
1999
1.7%
2.0%
3.7%
2000
2.3%
2.1%
4.4%
AHA Annual Survey Trends, 2002
Total inpatient
costs
7.9%
Background (cont’d)
 Possible contributing factors to
acceleration of inpatient costs:
– Insurers less able / willing to restrain admissions,
LOS or cost-increasing technology
– Cost-increasing technology attractive to wellinsured patients
– Cost-per-case higher due to increased co-morbid
conditions
– Cultural, macro-economic changes affect demand
(e.g. older moms, fear of malpractice)
Objectives
 Determine categories of conditions
which contributed most to:
– growth of inpatient costs, 1993 – 2001,
– Acceleration of costs after 1998
 Determine if patient characteristics
contributed to growth of costs
 Consider relative contribution of more
expensive medical technology (new or
increased use of current)
Methods
 Database
– Nationwide Inpatient Sample (NIS),
Healthcare Cost and Utilization Project
(HCUP), Agency for Healthcare Research
and Quality (AHRQ)
– Largest, all-payer discharge data base
– 1993 -2001
– Comparison 1993-1998 to 1998-2001
Methods (cont’d)
 Nationwide Inpatient Sample (NIS)
– Approximates a 20% sample of community
hospitals in US
– Five sampling strata
 Region, bed size, teaching, urban/rural, ownership
– Hospitals sampled from 17 states in 1993, 33 states
in 2001
 captures 85% of US discharges in 2001
– ~ 1000 community hospitals, ~ 7 million discharges
– When weighted, represents estimated 37 million
annual discharges
Methods (cont’d)
 Clinical Classification System (CCS)
– Created and maintained by AHRQ / HCUP staff
– 267 mutually exclusive, clinically meaningful disease
categories
– Principal ICD-9-CM diagnoses grouped into CCS
categories
 Charges
– NIS data include total hospital charge for each
discharge
– Charges discounted to cost using methodology
developed by AHRQ / HCUP economist
Methods (cont’d)
 Analyses
– Contribution of each CCS category to overall increase
inpatient costs = initial share of total costs in 1993 x
percent increase between 1993 and 2001
– CCS categories rank ordered by contribution to
national increase of inpatient costs for 1993 – 2001
– Changes and contribution to cost increases
determined for entire study period (1993-2001) and
1993-1998 vs. 1998-2001
– Changes in severity of illness scores within category
(APR-DRG), average age, average LOS, volume of
discharges investigated
Results
Summary of Discharges and
Growth in Costs, 1993 - 2001
Discharges
Mean
2001
Cost 2001
Total
Increase
Inpatient
Costs,
Cost, 2001 1993–2001
37,175,339 $5,742.97 $231.9 bill.
21.9%
Annual Rate of
Change
1993 - 2001
Discharges
Cost per
Case
0.86%
1.62%
Results
Summary of Discharges and Growth in Costs,
1993 – 1998, 1998 - 2001
Annual Rate of Change
1993 - 1998
Annual Rate of Change
1998 - 2001
Discharges
Cost per Case
Discharges
Cost per
Case
0.09%
0.61%
2.18%
3.33%
Results
 Top 50 CCS disease categories contributes 95%
of overall increase in inpatient costs
 Comparing increase after 1998 to previous 5
years
– 6 of top 50 disease categories had significant growth
of admissions
 Non-specific chest pain, pregnancy, anemia, abdominal pain,
benign neoplasm, connective tissue disorders)
– 29 of top 50 disease categories had significant growth
in cost per case
Results
Changes in Cases and Cost per Case
14
Average Annual % Change
12
10
8
6
4
2
0
-2
1993-1998
1998-2001
ALL
1993-1998
1998-2001
Nonspecific Chest Pain
1993-1998
Pregnancy
-4
-6
Cases
Costs per Case
1998-2001
CCS Categories
1993-1998
1998-2001
Anemia
Results
Changes in Cases and Cost per Case
10
Average Annual % Change
8
6
4
2
0
1993-1998
-2
1998-2001
ALL
1993-1998
1998-2001
1993-1998
Abdominal Pain
CCS Categories
Cases
Costs per Case
1998-2001
Neoplasm
1993-1998
1998-2001
Connective Tissue
Results
Changes in Cases and Cost per Case
9
Average Annual % Change
8
7
6
5
4
3
2
1
0
1993-1998
1998-2001
ALL
1993-1998
1998-2001
Acute MI
1993-1998
Back disc disorders
CCS Disease Categories
Cases
Costs per Case
1998-2001
1993-1998
1998-2001
Cardiac Dysrhythmias
Results
 Average LOS declined more rapidly before 1998
than after (-16.5% vs. -3.6%)
 Increases in average age occurred before 1998
(4.8% vs. .5%)
 Severity of illness within disease categories
(measured by APR-DRG) declined in most
disease categories after 1998
Conclusions
 Hospital costs demonstrate a substantial
contribution to the acceleration of health
care costs
 95% of the increase in hospital costs
between 1993 and 2001 captured in 50
disease categories
 Grouping of conditions allows for more
detailed investigation of contributing
costs
Conclusions
 A minority of the disease conditions
demonstrated an increase in volume of
admissions as the primary contributor to
increase in costs
– Insurers / payers may be less able or less
willing to restrain admissions as managed
care restrictions have eased
– Fear of malpractice may contribute to some
of these disease categories
Conclusions
 Majority of grouped conditions
demonstrated an increase in cost per
case as contribution to increase in
hospital costs
– Several conditions include medical
technology changes
 Introduction of new medical innovation
 Changes in practice favoring more expensive
technology
Conclusions
 LOS, though declining less rapidly post-
1998, continues to decline on average
 Patient characteristics do not appear to
contribute to increase in cost per case
– Average age not increased
– Severity of illness declined for majority of
conditions
Limitations
 Hospital discharge data have limited
additional clinical information to further
adjust severity
 Direct contribution of malpractice
pressures and managed care easing of
restrictions difficult to measure
 Avoidable costs due to inadequate
preventive outpatient services warrant
further investigation
Future Studies
 More detailed study of individual disease
categories to better define where, how
and why cost per case are accelerated
 Local market area analyses, to include
malpractice, payer mix and hospital
concentration and competition, HMO
penetration
Implications for Policy and
Delivery of Care
 In an era of easing managed care and
other payer restrictions, new
technologies and increase use of existing
technology may be very important
 Other contributions to accelerated costs
may be specific to disease categories
and local market areas
– Defensive practice styles, inadequate
preventive outpatient services, hospital
competition, patient demand