DataWatch: Hospital Employment Trends In California, 1982-1994

During the 1980s California hospitals responded to selective contracting, growth in managed care, and the Medicare prospective payment system (PPS) by controlling their level of spending. This DataWatch examines whether these hospitals achieved these savings by changing the number and/ or the mix of hospital employees. We examined employment trends because wages represent the largest component of hospital budgets and because the number and mix of personnel can be changed in the short run. Analysis of the California Health Facilities Cost Report data shows that employment increased steadily during 1982-1994. There is no evidence that hospitals responded to growing competition by altering the rate of growth in hospital personnel and only weak evidence that they altered the mix of personnel by hiring a greater proportion ofnonclinical staff. We conclude that increased competition had only a minor effect on hospital employment decisions. The growth of managed care and selective contracting in the 1980s, as well as the Medicare prospective payment system (PPS), placed financial pressures on all hospitals in California to control costs. Research has suggested that price competition in California has resulted in reduced spending growth and improved hospital efficiency, particularly for hospital inpatient use and spending. Competitive markets in California were found to have experienced reduced growth in hospital spending in the range of 9-13 percent below the growth rate in noncompetitive areas. A number of hypotheses have been suggested to explain these results. One is that hospitals with many neighboring hospitals face a real threat of having patients diverted to other providers, and, therefore, they lower their prices. Another hypothesis is that increased competition reduces the volume of services delivered by hospitals in California. California appears to be a good location in which to test hypotheses concerning what will happen as health care competition increases. In this DataWatch we examine one aspect of this: employment trends. Labor represents almost 80 percent of hospital spending. Thus, hospitals would be expected to constrain their labor expenditures as a means of containing costs. It is also logical to assume that labor would be especially sensitive to Gerard Anderson is director of the Center for Hospital Finance and Management, The Johns Hopkins Health Institutions, in Baltimore. Linda Kohn is a health researcher at the Center for Studying Health System Change in Washington, D.C. Health Affairs, Volume 15, Number 1 01996 The People-to-People Health Foundation, Inc. on A uust 4, 2017 by H W T am H ealth A fairs by http://conealthaffairs.org/ D ow nladed fom