State’s Hospitals Report Slight Use Hike

For the first time in four years, California hospitals reported a slight increase in their utilization during the last three months of 1985 over the year before.

For hospitals, it was good news. But industry experts say it may also be the first evidence that the ambitious federal and private medical cost-cutting programs of the 1980s may have bottomed out.

Hospital use had been plummeting rapidly since the start of the federal government’s stringent system of payment for Medicare patients, who make up 60% of hospital patients nationwide.

But, in the fourth quarter of 1985, occupancy rates at California’s 477 hospitals rose to 59.3%, a slight increase from 59% for the same quarter in 1984, the Office of Statewide Health Planning and Development reported. Meanwhile, patients’ average length of stay remained unchanged at 6.6 days.

“We are heartened by it, but it’s not a big enough change so far to rejoice,” said Ted Fourkas, spokesman for the California Hospital Assn. in Sacramento. Fourkas added that “if the decrease in utilization had continued, it would have meant severe financial problems for hospitals.”

The American Hospital Assn. says hospital admissions increased in all but two of its nine regions--New England and the Mid-Atlantic. Similarly, the federal Health Care Financing Administration says the rate of decline of hospital utilization by Medicare patients has slowed since October, 1985.

While a continuation of those trends would be welcome news for the financially beleaguered hospital industry, it may ultimately slow the tremendous cost savings achieved by the Medicare payment system as well as cost-cutting programs implemented by many of the nation’s largest private insurers. Those programs are credited with saving billions of dollars annually.

A survey released by the California Health Facilities Commission last year, for instance, said the rate of hospital cost inflation in 1985 climbed by less than half the 1982 rate.

Those reductions will likely be less dramatic, experts say, as the decline in utilization slows.

“It’s true the rate of decline (of utilization) is slowing,” said Randall Huyser, a health-care analyst with Montgomery Securities. “From here on out it’s going to be more difficult to control those costs.”

The earlier savings were largely achieved through Medicare prospective payment system, which attempts to contain hospital costs by paying hospitals a fixed sum, set in advance, for the treatment of 467 specific ailments or diagnostic related groups (DRGs).

Thus if a hospital treats a patient for less than the government fee, it can keep the difference. If it spends more, usually by keeping a patient hospitalized longer than average, it must absorb the loss.

But one hospital official said that hospitals are already limiting themselves to treating the most acutely ill. As a result, he said, it will be difficult to continue the rapid fall in utilization by shortening patients’ length of stay still further or by treating more people on an outpatient basis.

“I think we’ve reached the limit of how DRGs are going to impact the length of stay,” said Nathan Kaufman, a senior vice president at Los Angeles-based National Medical Enterprises, the nation’s second-largest publicly owned health-care company. “The patients (that) hospitals treat now are people that have to be there.”