Community hospitals: inflation in the pre medicare period. Research report XLI

The study examines causes of hospital inflation and analyzes data on components of hospital revenue and expenses based on a nationwide sample survey of community hospitals conducted for the Social Security Administration for fiscal years 1962-1966. Hospital expenses are decomposed into factor input expenses in order to investigate the relative importance of labor and capital expenses, how much of the rise in expenses was due to price and how much to increased quantity of inputs and whether types of labor and capital inputs have changed over time. Some of the major findings are: Over one half of the inflation results from increase in quantities used in the provision of a day of care. Non labor costs increased at a more rapid rate than labor costs. Increase in labor expense was due three fourths to increased wages and one fourth to increased staff; wages of the unskilled rose relative to those of more highly skilled occupations. Most of the increase in expenses has occurred in the provision of ancillary services rather than in provision of basic room and board. Study concludes the demand pull theory and scientific progress views of inflation are more consistent with cost increases in the pre Medicare period. Labor cost push theory is considered inadequate for this period, but there is some support for the view of inflation emphasizing the expanded scope of the community hospital.