A Closer Look: Private Community Hospitals
Labor Productivity for Private Community Hospitals
On May 23, 2019, the Bureau of Labor Statistics (BLS) updated measures of productivity and costs for private community hospitals (NAICS 6221,3) through 2016. Data through 2012 were originally released in October 2015 to coincide with the publication of an article in the Monthly Labor Review (MLR).
Hospitals: a large, growing, and hard-to-measure industry
The healthcare sector (NAICS 621,2,3) makes up a large portion of the U.S. economy. In 2016, 10.7 percent of all nonfarm payroll employment and 6.8 percent of GDP was attributed to healthcare. Hospitals (NAICS 622) provide many of the services in this sector, with 40.3 percent of nominal gross output in 2016 coming from this industry. As the industry continues to grow, labor productivity becomes an increasingly important indicator in assessing how the costs and benefits of hospitals impact our lives.
The development of these productivity measures posed many challenges, particularly in defining appropriate outputs. Because of the variety of services provided at hospitals and the pricing structures attached to each of these services, a standard deflated-value output model was not feasible. More information on overcoming these challenges is available in the 2015 MLR article.
The BLS output measure for private community hospitals (NAICS 6221,3) is a weighted index of inpatient (requiring an overnight stay of one or more days) and outpatient (not requiring an overnight stay) services. Output for both inpatient and outpatient services is based on the quantity of complete courses of treatment, rather than individual medical procedures. Measuring inpatient and outpatient services separately captures the shift in hospital services over time. The indexes of inpatient and outpatient services are aggregated using their respective shares of total hospital revenue as weights.
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Figure 1 illustrates the relationship between labor productivity, output, and hours worked. Labor productivity in private community hospitals increased 1.5 percent in 2016 from 2015, due to an increase in output (4.0 percent) and hours worked (2.4 percent). From 1993 to 2016, labor productivity grew at an annual average rate of 0.5 percent. Breaking the time series down into sub-periods reveals three trends: an era of productivity growth from 1993 to 2001 (average annual increase of 1.7 percent) followed by productivity decline from 2001 to 2007 (average annual decrease of 1.3 percent) and finally a period of moderate productivity growth from 2007-2016 (average annual increase of 0.7 percent).
Figure 2 shows the rise in total output since 1993. The index of inpatient services is derived using data from the National Inpatient Sample (NIS), Healthcare Cost and Utilization Project (HCUP), Agency for Healthcare Research and Quality (AHRQ). The index of outpatient services combines data from the American Hospital Association (AHA); the National Hospital Ambulatory Medical Care Survey (NHAMCS), Centers for Disease Control and Prevention (CDC); and the Centers for Medicare & Medicaid Services (CMS).
From 1993 to 2006, both inpatient and outpatient services contributed to total output growth. Between 2006 and 2014, growth was driven primarily by outpatient services. In 2015 and 2016, inpatient services once again contributed to industry output growth.
Figure 3 highlights the shift in revenue share from inpatient services to outpatient services since 1993. In 2016, inpatient services accounted for 52 percent of revenue compared to a 48 percent revenue share for outpatient services.
Frequently Asked Questions
Q: How does BLS define hospitals for the purpose of this measure?
A: Hospitals are defined for this measure as private community hospitals, NAICS 6221 and 6223. Psychiatric and Substance Abuse Hospitals (NAICS 6222) and Nursing and Residential Care Facilities (NAICS 623) are not included in the measure. Government-owned hospitals are also excluded, because they are classified under NAICS sector 92 in the Office of Productivity and Technologyís measures of employment and hours.
Q: Why might labor productivity growth be slower in hospitals than in the economy overall?
A: As technology in the medical field advances, procedures that once required an inpatient stay can now be performed on an outpatient basis inside or outside the hospital. As a result, remaining inpatient cases being treated by hospitals have become increasingly difficult and complex, requiring more staff attention (greater growth in labor hours worked relative to output).
Q: Why is the index of hospital output based on the quantity of services rather than deflated revenue?
A: In a market-based industry, prices equal marginal cost. This does not occur with hospitals, so an output measure based on deflated revenue would likely be distorted. Because hospitals direct each patientís course of treatment, revenue may diverge from our desired concept of output, which is based on volume of services.
Q: Does the measure account for quality or outcomes?
A: A lack of data availability prevents us from measuring outcomes or quality of care. The only available patient-level statistic related to outcomes is whether an inpatient died during the course of treatment; however, the health status of patients that did not die is unknown. Sources are available that measure some aspects of variable outcomes and quality change in the health services sector, but there is no broad agreement on how to apply this type of data to nationwide statistics. Furthermore, a hospitalís quality of service does not entirely govern patient outcomes, as factors outside the hospitalís control also play an important role (e.g. diet, lifestyle, genetics, random chance, etc.).
New Measure of Labor Productivity for Private Community Hospitals
Industries at a Glance: Hospitals NAICS 622
Overview of BLS Productivity Statistics
Last Modified Date: May 23, 2019