Article

October 2015

New measure of labor productivity for private community hospitals: 1993–2012

The Industry Productivity Studies (IPS) program of the Bureau of Labor Statistics (BLS) has developed a new index of labor productivity, defined as output per hour, for private community hospitals. This labor productivity index relies upon volume-based measures of hospital services, which are separated into outpatient visits and inpatient courses of treatment.

Health care, one of the largest sectors of the U.S. economy, accounted for 12.9 percent of all nonfarm payroll employment in 2012.1 That same year, hospitals accounted for 35.7 percent of gross output in the health care sector2 and employed approximately 4.7 million workers.3 The number of hospital workers is expected to increase by more than 15 percent in the next decade.4 As employment in this industry continues to grow, it is important to measure labor productivity—the efficiency with which hospital workers provide services.

Despite the size and importance of hospitals in the U.S. economy, an official Bureau of Labor Statistics (BLS) measure of labor productivity has not been available in the past. While the Industry Productivity Studies (IPS) program publishes labor hours for hospitals, output measures had not previously been developed. This is due to the complex nature of the services that hospitals provide and the difficulty of measuring these services in a single index of output. Responding to this need, IPS has developed a new measure of labor productivity for community hospitals.5 This article details the data sources and methods used to measure output (typically the most difficult aspect of productivity measurement) and introduces a final measure of labor productivity. According to this new measure, output for community hospitals grew at an average annual rate of 2.1 percent from 1993 to 2012, and labor productivity grew at a rate of 0.5 percent over the same period.

What is hospital output and how can we measure it?

Defining and measuring hospital output poses many challenges. Like most service industries, the hospital industry provides many different types of services—from relatively simple diagnostic x-rays to incredibly complex open-heart surgeries. But what is the best way to define and measure these different services?  

For most of the service industries measured by IPS, output is calculated with a deflated revenue model. In this model, constant-dollar revenues serve as a proxy for volume of output. However, this approach is not well suited to the hospital industry because transactions are not conducted within a single-price, perfectly competitive market. Patients pay different prices based upon their payment methods and are generally unaware of the relevant pricing structures. Additionally, the hospital service providers direct the transactions due to either patient incapacitation or a lack of medical knowledge. Because prices do not reflect marginal costs in the hospital industry, the output derived from deflated values is likely to be highly distorted.

To address the problems with deflated-value output in this industry, IPS developed and analyzed two volumetric output concepts—one based on the number of procedures and the other based on the number of complete treatments administered.6 Both concepts measure output via a physical count of services provided. The output concept based on the number of procedures was rejected on the grounds that hospitals, rather than consumers, direct the number of procedures. IPS concluded that the volume-based “course of treatment model” was superior because it best answers the question, “What services are being demanded by a patient?” For hospitals, the patient is purchasing the treatment of a specific health problem. The course of treatment model also aligns with the Organization for Economic Co-operation and Development (OECD) recommendation which states, “The target definition of health care volume output . . . is the number of complete treatments with specified bundles of characteristics so as to capture quality change and new products.”7

Notes

1 For more information, see BLS Current Employment Statistics at http://www.bls.gov/ces/.

2 Bureau of Economic Analysis, National Income and Product Accounts, Gross Output by Industry, http://www.bea.gov/industry/xls/io-annual/GDPbyInd_GO_NAICS_1997-2013.xlsx.

3 For more information, see BLS Current Employment Statistics at http://www.bls.gov/ces/.

4 Elka Torpey, “Health Care: Millions of Jobs now and in the future,” (Bureau of Labor Statistics Office of Occupational Statistics and Employment Projections, 2014), http://www.bls.gov/careeroutlook/2014/spring/art03.pdf .

5 Community hospitals, as defined by the American Hospital Association, are “all nonfederal, short-term general, and other special hospitals. Other special hospitals include obstetrics and gynecology; eye, ear, nose, and throat; rehabilitation; orthopedic; and other individually described specialty services. Community hospitals include academic medical centers or other teaching hospitals if they are nonfederal short-term hospitals. Excluded are hospitals not accessible by the general public, such as prison hospitals or college infirmaries.” These hospitals are a combination of general medical and surgical hospitals (NAICS 6221) and specialty (except psychiatric and substance abuse) hospitals (NAICS 6223).

6 Brian Chansky, Corby Garner, and Ronjoy Raichoudhary, “Measuring output and productivity in private hospitals” (National Bureau of Economic Research, October 2013), http://www.nber.org/chapters/c13096.pdf.

7 Paul Schreyer, “Towards measuring the volume output of education and health services” (Organization for Economic Co-operation and Development, April 2010), http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?doclanguage=en&cote=std/doc(2010)2.

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About the Author

Brian Chansky
chansky.brian@bls.gov

Brian Chansky is an economist in the Office of Productivity and Technology, U.S. Bureau of Labor Statistics.

Corby A. Garner
garner.corby@bls.gov

Corby A. Garner is an economist in the Office of Productivity and Technology, U.S. Bureau of Labor Statistics.

Ronjoy Raichoudhary
raichoudhary.ronjoy@bls.gov

Ronjoy Raichoudhary is an economist in the Office of Productivity and Technology, U.S. Bureau of Labor Statistics.

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