Measuring Output and Productivity in Private Hospitals

Brian Chansky, Corby Garner, Ronjoy Raichoudhary

Chapter in NBER book Measuring and Modeling Health Care Costs (2018), Ana Aizcorbe, Colin Baker, Ernst Berndt, and David Cutler, editors (p. 145 - 172)
Conference held October 18-19, 2013
Published in February 2018 by University of Chicago Press
© 2018 by the National Bureau of Economic Research
in NBER Book Series Studies in Income and Wealth

The hospital industry has experienced significant operational and technological advances over the past two decades, but the Bureau of Labor Statistics (BLS) currently does not produce an industry labor productivity series that measures these gains. As with most service-providing industries, the difficulty in measuring hospital productivity lies in defining output due to the complex nature of the services provided as well as the atypical relationship between consumer and provider.

This paper presents BLS’s initial research on measuring productivity growth in private hospitals from 1993 to 2010. Three measures of hospital productivity are developed based on different output concepts. Two measures are based on volume of services provided, while the third is based on industry revenues adjusted for price change. Output of private hospitals includes both outpatient and inpatient care. Inpatient stays are more difficult to measure. These stays can be counted as single units of output where output is defined as the entire course of treatment, or they can be disaggregated into more detailed services, where each medical procedure is counted separately. The two alternative output measures based on volume of output—a course of treatment-based measure and a procedures-based measure—correspond to these two concepts of inpatient care. Additional factors such as the outcome of the treatment and the quality of care are also taken into consideration.

Trends in output and labor productivity derived from each of the three models of hospital output are examined. The models show differing rates of positive long term growth in hospital output and hospital productivity over the period of 1993 to 2010. For a model to be broadly accepted the data must be highly accurate and the definition of output must be compelling. To that end, this paper examines the accuracy and robustness of the various data sources used in each model. Although the output of the hospital industry can be measured in a number of ways, we argue that the most natural way to define the output of an industry is to answer the question: what services are the consumers buying? For hospitals, we conclude that the consumer is purchasing the overall course of treatment for a specific health problem, and therefore, counting overall courses of treatment is the preferred method of measuring output for private hospitals.

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