Cost of Caring
March, 2011
Research and analysis by
Avalere Health
Hospital care is shrinking as a share of total health
care spending.
Chart 1: National Expenditures for Health Services and Supplies(1) by Category,
1980 and 2009(2)
$235.6B
$2,330.1B
Other,(3) 15.5%
Other,(3) 11.4%
Nursing Home Care, 6.5%
Other Medical Durables and
Non-durables, 5.9%
Prescription Drugs, 5.1%
Home Health Care, 1.0%
Other Prof essional,(4) 7.1%
Nursing Home Care, 5.9%
Other Medical Durables and
Non-durables, 3.4%
Prescription Drugs, 10.7%
Home Health Care, 2.9%
Other Prof essional, (4) 7.3%
Physician Services, 20.3%
Physician Services, 21.7%
Hospital Care, 42.7%
Hospital Care, 32.6%
1980
2009
Source: Centers for Medicare & Medicaid Services, Office of the Actuary. Data released January 6, 2011.
(1)
Excludes medical research and medical facilities construction.
(2)
CMS completed a benchmark revision in 2009, introducing changes in methods, definitions and source data that are applied to the entire time
series (back to 1960). For more information on this revision, see
http://www.cms.gov/nationalhealthexpenddata/downloads/benchmark2009.pdf.
(3)
“Other” includes net cost of insurance and administration, government public health activities, and other personal health care.
(4)
“Other professional” includes dental and other non-physician professional services.
Research and analysis by Avalere Health
Spending on hospital care has lagged growth in
health insurance premiums and pharmaceuticals.
Chart 2: Cumulative Percentage Change in National Spending for Hospital Services, Health
Insurance Premiums(1) and Pharmaceuticals, 2000-2009
120%
100%
80%
60%
Hospital Care
40%
Insurance Premiums
Pharmaceuticals
20%
0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
Sources: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics
Group. (2011). National Health Expenditures Aggregate, Per Capita Amounts, Percent Distribution,
and Average Annual Percent Growth, by Source of Funds: Selected Calendar Years 1960-2009, and
The Kaiser Family Foundation and Health Research & Educational Trust. (2009). Employer Health
Benefits: 2009 Annual Survey. Washington, DC.
Research and analysis by Avalere Health
(1) Average annual premiums for family coverage.
2009
Advances in medicine contribute to longer lives.
Chart 3: U.S. Life Expectancy at Birth, 1940-2007
77.9
76.8
Age in Years
75.4
73.7
70.8
69.7
68.2
62.9
1940
1950
1960
1970
1980
1990
2000
Source: National Center for Health Statistics. (2010). Deaths: Final Data for 2007.
Hyattsville, MD. Access at http://www.cdc.gov/NCHS/data/nvsr/nvsr58/nvsr58_19.pdf.
Research and analysis by Avalere Health
2007
Breast cancer mortality has decreased as breast
imaging use has increased.
Chart 4: Breast Cancer Mortality Rate and Breast Cancer-related Imaging Scans,(1) 1996
and 2006
Age-adjusted Mortality Rate
(Per 100,000 Population)
20
16
12
1996
2006
8
Number of Imaging Scans
100,000
80,000
60,000
1996
40,000
2006
20,000
4
0
0
Mortality Rate
Breast Cancer-related Imaging
Scans
Source: Lichtenberg, F. R. (2010). Has Medical Innovation Reduced Cancer Mortality? Cambridge, MA.
Access at http://www.nber.org/papers/w15880.
(1) Includes breast cancer-related imaging scans captured in the MEDSTAT MarketScan Commercial
Claims and Encounters Database, which includes private sector health data from approximately 100
payers. It is not a nationally representative sample and it does not include Medicare beneficiaries.
Research and analysis by Avalere Health
Emerging technologies advance care delivery, but
can be costly.
Chart 5: Operating Room Costs(1) per Case for Three Radical Prostatectomy Techniques
$5,410
$3,876
$1,870
Open Radical Prostatectomy
Laparoscopic Surgery
Robot-assisted Prostatectomy
Source: Joseph, J., et al. (2008). The Cost of Radical Prostatectomy: Retrospective Comparison of
Open, Laparoscopic, and Robot-assisted Approaches. Journal of Robotic Surgery, 2(1), 21-24.
(1)
Measured at one institution, the University of Rochester Medical Center.
Research and analysis by Avalere Health
Individuals age 65 years and older, the fastest
growing segment of our population, use more health
care services.
Chart 6: Mean Annual Expenses(1) per Person by Age, 2007
Per Capita Spending
$9,696
$6,138
$2,754
$1,496
Ages 6-17
Ages 18-44
Ages 45-64
Ages 65 and Over
Source: National Center for Health Statistics. (2011). Health, United States, 2010. Hyattsville, MD.
Access at http://www.cdc.gov/nchs/data/hus/hus10.pdf.
(1) Expenses are per person with an expense and include health care and prescribed medication.
Research and analysis by Avalere Health
Ten chronic conditions account for the majority of
Medicare spending growth.
Chart 7: Conditions Accounting for Growth in Medicare Spending, 1987-2002
Hyperlipidemia and
Heart Disease, 16%
Cerebrovascular Disease and
Hypertension, 10%
Other
34%
Chronic
Conditions
Mental Disorders, 10%
66%
Trauma, 8%
Arthritis, 7%
Other(1), 15%
Source: Thorpe, K., et al. (2006). The Rise In Spending Among Medicare Beneficiaries: The Role Of
Chronic Disease Prevalence And Changes In Treatment Intensity. Health Affairs, 25(5), 378-388.
(1) Other includes cancer, diabetes, and pulmonary conditions.
Research and analysis by Avalere Health
Rates of chronic disease are rising.
Chart 8: Prevalence of Common Chronic Diseases, 2001 and 2008
Prevalence (millions)
38
31
2001
19
2008
13
Diabetes
Asthma
Sources: Centers for Disease Control and Prevention. (2009). Longer-term Trends in
Diabetes. Access at http://www.cdc.gov/diabetes/statistics/slides/long_term_trends.pdf, and
Centers for Disease Control and Prevention. (2008). National Health Interview Survey, 2001
and 2008. Access at http://www.cdc.gov/asthma/nhis/default.htm#01.
Research and analysis by Avalere Health
Rising obesity rates lead to increased costs.
Chart 9: Per Capita Spending(1) for Normal Weight, Overweight and Obese Adults,
1987 and 2007
$5,560
$4,260
$4,030
1987
$2,440
Normal Weight
$2,650
Overweight
$2,630
Obese
Source: Congressional Budget Office. (2010). How Does Obesity in Adults Affect Spending
on Health Care? Access at http://cbo.gov/ftpdocs/118xx/doc11810/09-08-obesity.pdf.
(1) Spending figures are expressed in 2009 dollars.
Research and analysis by Avalere Health
2007
Hospitals are treating sicker patients who require
more specialized care.
Chart 10: Inpatient Case-mix(1) Index (CMI) for the Medicare Population, 2000-2007
1.15
CMI
1.10
1.05
1.00
0.95
2000
2001
2002
2003
2004
2005
2006
Source: Deb, P. (2010). Trends in Case-mix in the Medicare Population. Paper presented to
the American Hospital Association, Federation of American Hospitals, and Association of
American Medical Colleges.
(1) Case-mix is defined as the mix of patients across diagnosis-related groups (DRGs) in a
hospital.
Research and analysis by Avalere Health
2007
Wages and benefits for caregivers and support staff
represent 60 percent of spending on hospital care.
Chart 11: Percent of Hospital Costs(1) by Type of Expense, 4Q09
Other Products
(e.g., Food,
Medical
Instruments),
14.2%
Prescription Drugs,
5.9%
Professional Fees, 9.3%
Other Services,
20.4%
Wages and Benef its,
59.5%
Utilities, 2.1%
Professional Liability Insurance, 1.5%
All Other: Labor Intensive, 3.8%
All Other: Non-labor
Intensive, 3.7% (2)
Source: AHA analysis of Centers for Medicare & Medicaid Services data, using base year 2006 weights.
(1)
Does not include capital.
(2)
Includes postage and telephone expenses.
Research and analysis by Avalere Health
Hospital labor costs reflect the many types of
people who contribute to care.
Chart 12: Example of a Heart Attack Patient’s Staff Interactions from Emergency
Department to Discharge
Source: American Hospital Association.
Research and analysis by Avalere Health
Shortages of workers with the required specialized
skills have pushed up wages and benefits for
hospitals relative to other industries.
Chart 13: Percent Change in Employment Cost Index,(1) All Private Industries
and Hospitals, March 2001 to March 2010
Percent Change in Cost Index
38%
27%
Private Industry
Hospitals
Source: Bureau of Labor Statistics. (2010). Employment Cost Index Historical Listing Current-dollar
March 2001 – December 2010. Access at http://www.bls.gov/web/eci/echistrynaics.pdf.
(1)
The ECI is a measure of the change in the costs of labor.
Research and analysis by Avalere Health
Alternative employment opportunities will challenge
hospitals to attract and retain caregivers.
Chart 14: Projected Employment Growth Rates for Registered Nurses by Health Care
Setting, 2008-2018
Employment Growth Rate
48%
33%
25%
24%
17%
Physicians' Offices Home Health Services
Nursing Care
Facilities
Nursing Employment
Agencies
Hospitals
Source: Bureau of Labor Statistics. (2009). Occupational Outlook Handbook 2010-2011.
Access at http://www.bls.gov/oco/ocos083.htm#outlook.
Research and analysis by Avalere Health
Hospitals are one of the most highly regulated
sectors and face sizeable administrative costs.
Chart 15: Illustration of Agencies Regulating Hospitals
DME Regional
Contractors
Regional
Offices
QIOs
MACs
Joint
Commission
FDA
DOT
Regional Home Health
Intermediaries
OSHA
State
• Survey &
Certification
• Courts
• Health Care
Authority
Treasury
• Attorneys
General
FBI
• Medicaid
• Department of
Labor and
Industries
DEA
DOJ
FAA
OPOs
• Board of Health
SEC
• Medical Boards
IRS
EPA
FTC
Payers
• Medicare
• Medicare Advantage
FCC
HHS/HRSA
• TRICARE (DoD)
• Uncompensated Care Pool
• Medicaid
• Employer-Sponsored
Insurance
• CHIP
• Patient Self-Pay
HHS/NIOSH
NRC
DOL
• Licensure
• Local
Governments
• Worker’s Compensation
• Other Public Insurance
• Other Private Insurance
Source: Adapted from Washington State Hospital Association. (2001). How Regulations Are
Overwhelming Washington Hospitals. Access at http://www.wsha.org/files/62/RegReform.pdf, and
American Hospital Association and PricewaterhouseCoopers. (2001). Patients or Paperwork? The
Regulatory Burden Facing America’s Hospitals. Access at
http://www.aha.org/aha/content/2001/pdf/FinalPaperworkReport.pdf.
Research and analysis by Avalere Health
• Public
Disclosure
Commission
• Office of the
Insurance
Commissioner