Private Community Hospitals Labor Productivity

On June 27, 2024, the Bureau of Labor Statistics (BLS) updated measures of labor productivity and costs for private community hospitals (NAICS 6221,3) through 2021. 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 2021, 10.9 percent of all nonfarm payroll employment^[1] and 6.7 percent of GDP^[2] was attributed to healthcare. Hospitals (NAICS 622) provide many of the services in this sector, with 40.1 percent of nominal gross output in 2021 coming from this industry^[3]. The hospital industry has exhibited steady growth; increasing from 2.1 percent of U.S. value added GDP in 2005 to 2.4 percent in 2021. For these reasons, labor productivity presents an 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 hospitals is based on the quantity of patients served and the intensity of those treatments. For inpatient services, the unit of measurement is patient stays, while for outpatient services this takes the form of patient visits. 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 annual shares of total hospital revenue as weights.

 

Chart 1 data. Labor productivity, output, and hours worked for private community hospitals, 1993-2021

Figure 1 illustrates the relationship between labor productivity, output, and hours worked. Labor productivity in private community hospitals increased 5.9 percent in 2021, due to gains in both output (6.4 percent) and hours worked (0.4 percent).

Long term labor productivity in private community hospitals over the history of the series from 1993 to 2021 grew by an average of 0.2 percent per year. Breaking that time series down into sub-periods reveals three trends: an era of productivity growth from 1993 to 2001 (2.0 percent annually) followed by productivity decline from 2001 to 2007 (-1.5 percent annually) and finally an almost flat period of productivity growth from 2007-2021 (-0.1 percent annually).

 

Chart 2 data. Total output, inpatient services, and outpatient services for private community hospitals, 1993-2021

 
Figure 2 presents the rise in total output since 1993. Indexes of inpatient and outpatient services are independently calculated using sources detailed in the notes at the bottom of this page.^[4]
 
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. From 2015 to 2019, inpatient services once again contributed to industry output growth.

In 2020, the Covid-19 pandemic impacted the indexes of both inpatient and outpatient services. Outpatient services declined by an astounding 12.0 percent. Most hospitals were forced to reduce outpatient services during the pandemic, both to reduce virus transmission as well as a lack of staffing. Similarly, inpatient services fell by 4.6 percent in 2020. While the surge of Covid-19 admissions overwhelmed many hospitals, other types of standard inpatient treatments were curtailed. For example, almost all hospitals cancelled elective knee and hip replacement surgeries from mid-March to mid-May. Resumption of these treatments, which over the last two decades have become vital to industry profits, was sporadic throughout the remainder of 2020.^[5]

After their sharp declines in 2020, both inpatient and outpatient services recovered in 2021, although to different degrees. Inpatient services rose 4.8 percent and were therefore back to their pre-pandemic levels. While outpatient services increased 8.1 percent in 2021, their overall quantity was still below the pre-pandemic peak in 2019. 

 

Chart 3 data. Revenue share for inpatient and outpatient services for private community hospitals, 1993-2021

Figure 3 highlights the industry’s revenue share among inpatient and outpatient services. Since 1993, the share of revenue attributable to outpatient services climbed steadily. In 2019 inpatient and outpatient services reached parity for the first time, with each having revenue share of 50 percent. Since then, inpatient services revenue share has again risen slightly above outpatient services in 2020 and 2021.

Questions and Answers

• How does BLS define hospitals for the purpose of this measure?▸
  • 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 Technology’s measures of employment and hours.
• Why might labor productivity growth be slower in hospitals than in the economy overall?▸
  • 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).
• Why is the index of hospital output based on the quantity of services rather than deflated revenue?▸
  • 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 patient’s course of treatment, revenue may diverge from our desired concept of output, which is based on volume of services.
• Does the measure account for quality or outcomes?▸
  • 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 hospital’s quality of service does not entirely govern patient outcomes, as factors outside the hospital’s control also play an important role (e.g. diet, lifestyle, genetics, random chance, etc.).

Related resources

New Measure of Labor Productivity for Private Community Hospitals

Industries at a Glance: Hospitals NAICS 622

Overview of BLS Productivity Statistics

Notes