Productivity Increases in U.S. Hospitals

Efficiencies in delivery of care for heart attack, heart failure and pneumonia for Medicare patients increased sharply from 2002 to 2011, according to a study to be published in Health Affairs in March. Heart attack and heart failure productivity grew 0.62 percent and 0.78 percent respectively; productivity growth for pneumonia reached 1.9 percent.


Researchers factored in quality of care and severity of patient illness (not fully considered in previous productivity studies). The results showed a significant departure from flat-to-declining productivity reported in past studies on hospital productivity.


Productivity Improvements and Payment Rates


Medicare’s payment rates have increased year over year based on the rate of healthcare cost inflation. When productivity remained static or declined, payment increases were based on increases in the price of labor, capital and materials so providers could continue to deliver the same level of care. Theoretically, with productivity improvements and payment increases, providers could deliver a higher quality or greater quantity of care, according to the authors of the study.


Conversely, the authors added, productivity gains may counter any negative effects from cuts in hospital payments to provide savings—a given because of the Affordable Care Act (ACA).  An example of ACA-mandated savings was a 0.5-percentage-point reduction in the Medicare increase for FY14. The reduction was linked to productivity growth in the broader economy. They noted that, at least in the inpatient setting, providers might not need to be concerned if CMS links provider payment to economy-wide productivity growth.


However, a Healthcare Financial Management Association executive noted that some productivity gains identified in the study “have been necessitated by current payment levels being lower than the cost to treat those patients” and “additional cuts through the ACA or other avenues will only continue to widen that gap between payment levels and the cost to treat those patients.” (“Study: Hospital Productivity Improves,” HFMA Weekly News, February 20, 2015)


The authors of the study wrote that, “In terms of the productivity of U.S. health care, the pattern of growth documented here suggests that at least in recent years . . . hospitals have not suffered from what has been called a cost disease, in which a heavy reliance on labor limits opportunities for efficiencies stemming from technological improvement.” (“Study: Hospital Productivity Improves,” HFMA Weekly News, February 20, 2015)


Even if the findings are confined to heart attack, heart failure and pneumonia, they still signal a substantial financial impact for hospitals, according to the authors. The three conditions represent a significant number of inpatient days.





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