Hospital Cost Issue Still Plagues U.S. Health System

Take an aspirin at home and it costs you less than a penny. Take an aspirin in the hospital and it costs $2.31.

That’s a small but glaring example of a major problem facing American hospitals. They pass along a variety of related costs as well as the price of the tablet and the result is mounting costs for consumers or whoever pays their bills.

Hospital costs continued their ever-upward spiral for the first nine months of 1986--the latest figures available--rising at more than twice the rate of inflation and contributing to a national health care bill that consumed a record 10.7% of the GNP last year.

But attempts are being made to rein in these costs, and some of the efforts have produced surprising results.

As insurers turn to insurance plans that pressure hospitals to treat patients more quickly, the shorter hospital stay costs more than it did before. In 1985, hospitals released patients 3% sooner but charged them 7.5% more for the stay, a recent study showed.

And although more people are using the less costly outpatient clinics and hospital admissions have dropped, hospital expenditures have gone up.

Despite the increasing number of empty beds, many hospitals flourish. During a 12-month period ending in August, roughly 7,000 hospitals that report to the American Hospital Assn. said they had almost $8 billion left after all expenses were paid.

“They (hospitals) are making money hand over fist,” said Charles Froelicher, a member of the Colorado Health Data Commission, which last year issued its first report on hospital rates in the state. “Hospitals are doing exactly what any red-blooded American would do. As long as no one objects, it’s all the traffic will bear.”

Hospital administrators and doctors disagree. They say costs outpace inflation only because the American population is aging, more people are uninsured, and new medical technology costs more.

They argue that hospitals are pressured to keep charges down by health maintenance organizations, preferred-provider organizations and large third-party payers such as Blue Cross-Blue Shield and Medicare, which set fixed reimbursement rates for certain medical procedures.

“Hospitals have every reason in the world to economize,” said James Todd, a senior vice president of the American Medical Assn. “Also, you have to ask yourself at what point when you’re economizing do you affect quality of care. That’s a very serious question.”

Hospital administrators point out that hospitals must make a profit to replace equipment and make repairs. During the 12 months ending in August, American Hospital Assn. figures show that hospitals spent a total of $142 billion to realize $7.8 billion in profits, a profit margin of 5.2%

The administrators say that charges will continue to go up simply because the patients being admitted now are older and sicker.

“We’re developing a hospital system that only cares for most seriously ill,” said Todd. “And the most seriously ill are the most expensive.”

Nationwide, an average hospital visit cost $3,840 in 1985, compared to $3,571 the year before, with fees increasing in 40 states.

In Denver, the daily room rate at the University of Colorado Medical Center is the highest in the metro area, with an average stay costing $5,976. There, a single aspirin tablet costs $2.31, said spokeswoman Barbara Thrower.

“It costs 1 cent for the aspirin, and the rest is the dispensing fee, pharmacist’s time and paper work,” she said.

It’s simply a matter of passing along the costs.

But purchasers of care say that too much of that cost is due to a growing number of empty beds, which should produce more competitive prices, but instead simply add to the cost of hospital care. Last year, the national occupancy rate dropped for the third year in a row, to 64%

Hospital officials contend that the empty beds are forcing them to offer better deals to attract patients. Employees whose employers buy Humanacare Plus, for example, receive a benefit of lower deductibles if they use Humana hospitals, said Susan Shipley of Humana Inc., which owns 87 hospitals in 22 states.

“We’re trying to create a demand and hopefully fill our beds,” she said.

Apparently, however, there are simply not enough patients to go around, and hospitals are not consolidating or merging.

“Many hospitals continue operating at 50% occupancy because there are a lot of competing services providing outpatient facilities,” said Willis Goldbeck, director of the Washington Business Group on Health. “You have a smaller pool of patients being charged for the fixed costs of maintaining those beds. You won’t see savings until those (under-utilized) hospitals are closed down.”

He said he is optimistic that “the market is working, where as it did not before. But it takes many years to shift a $500-billion toy.”

The federal government’s prospective payment system for Medicare, which establishes a fixed rate of pay for 468 diagnostic-related groups, has slowed the rate of increase for Medicare billings, said Dan Waldo, who studies health expenditures for the U.S. Department of Health and Human Services.

Hospitals have incentives to produce care efficiently and can make a profit if they treat a patient for less than the established fee.

But the system, which went into effect two years ago, applies only to Medicare patients--those 65 and over and the disabled. About 60% of hospital users are not Medicare users, and many are not represented by a large employer who can negotiate lower charges.

Those patients have been paying for a larger share of the hospital’s charity care and other expenses since the Medicare prospective payment program went into effect.

“There are a lot of insurance companies that still pay charges, and hospitals are in the position to charge those people whatever they want,” said Waldo.

In efforts to control costs for non-Medicare users, a half-dozen state Medicaid programs are using a system that applies a fixed payment schedule similar to Medicare’s, said Bill Sobaski of the Health Care Finance Administration of Health and Human Services.

And two states, New Jersey and Maryland, have taken the more radical approach of setting prices for all hospital users.

In Maryland, the program has kept the average cost of a hospital admission rising at below the national rate for 10 years in a row, said Dennis Phelps, an assistant chief of the state’s Health Services Cost Review Commission.

“In 1976, the cost of Maryland hospitals was 34% above the national average. Today, it’s about 1% below,” he said.

The commission adjusts the state’s hospital rates annually for inflation. The state has had a large uncompensated care problem, he said. The program builds the cost of that care into rates paid by everyone. Hospitals that were once “dumping grounds” for the uninsured no longer bear the lion’s share of the burden.