Hospital Costs and the Medicare Program

Neveral cau8ea may explain the rapid acccleration in hospital costs with the advent of dfedicure and Medicaid. To sort out the influence of these separate faotors, thi.9 article presents certain types of evidence of ho8pitaJ coat inflation in the flr8t 2 years of Medicare: overall trend8 in ho8pitaZ revenue8 and expenses, labor and capital components of cost inflation, trend8 in individual hosp&taZ services, and the eimultaneoua influence of a number of 8ources of cost increase. The study findtnga reveal that many charaetq’stics of hoapZta2 &@ation. in ithe pre-Medioare period continued with greater i?&n8ity in the first E years of Medicare. Capital expenses continued to grow ficster than labor expenses. Moat of the rice in expenae8 haa occurred ,im anoillalry services rather thanz. $n basic room’and boaa-d. The findings tend to support the demand-pull view of hospital inflation and the views that emphasize changes in technology and expansion of the hospital’s role. The labor-cost-push model does not fully explain hospital inflation, as ooste per patient day would have risen at a 6-pe-rct??G annual rate evn if wages had remained conatant. Econometric estimation of hospital coat8 over the pre-Mediccwre and Medicare period indicates that iliedioare affected hospital costs in much the same wag as the growth of private insurance in the earlier period.