A Health Affairs study of national healthcare spending and where it's going shows that purchases of medical services and increased compensation of highly skilled professionals accounted for spending growth in multiple areas between 1997 and 2012. The study looked at hospitals, physician offices and outpatient centers.
Spending on those three sectors rose $580 billion over that time, while employment jumped by about 1.7 million people. In total, health expenditures in the United States leapt from $1.5 trillion in 1997 to $2.8 trillion in 2012 -- an increase of four percentage points in the healthcare sector's share of gross domestic product. In 2015, nearly one of every six dollars of production in the economy occurred in healthcare.
The hospital, physician and outpatient sectors of healthcare accounted for about $1.3 billion of all health expenditures in 2012, accounting for just shy of half of the total during the 15-year study period.
In 2012, revenues exceeded expenses by 10.2 percent across those three subcategories; half of all revenue was paid to workers. Major occupational groups in the healthcare workforce include physicians and nurses; other healthcare practitioners and support staff; and management, administration and information technology staff. Nearly half -- 46.5 percent -- of all labor compensation going to these three industry groups paid the wages and benefits of physicians and nurses, the study found.
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Other healthcare practitioners and support staff accounted for 11.7 percent of total sector revenue in 2012, while other employees, including those in administration and management and IT, as well as contract labor, together accounted for 14.9 percent of total sector revenue. The next-largest class of recipients of revenue was made up by producers of intermediate goods and services; more than 35 percent of total revenue, $492 billion, went toward these purchases.
Comparing across the three subsectors studied, almost half of hospital revenue, 48.8 percent, was paid as labor compensation; patterns for outpatient care centers were similar at 47.4 percent. Physicians' offices were somewhat more labor-intensive than hospitals, though: 52.5 percent of the revenue they received was paid to employees. The authors said that's likely to be an underestimate, because they didn't account for self-employment income.
Hospitals spent 37.6 percent of revenue on intermediate expenses, while physicians' offices and outpatient centers spent somewhat smaller shares of revenue -- 31.8 percent and 35.7 percent, respectively.
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At 118.3 percent growth, the most rapidly growing component of expenses across the three sectors was intermediate costs for goods and services, which grew much faster than revenue, total expenses, and total compensation from 1997 to 2012 -- with growth most rapid from 1997–2002. In 1997, intermediate costs for goods and services accounted for 28.3 percent of revenues across these three sectors; by 2012, 35.7 percent of total revenue went to these purchases. Over the 2002–12 period, where intermediate costs can be deconstructed further, the main driver of this growth was expenses for purchased materials. From 2007 to 2012, where materials can be further broken down, spending for medical supplies increased somewhat more rapidly than that for other supplies.
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The increase in spending on intermediate goods and services was offset by a slight decline in the share of industry revenue devoted to labor compensation, which fell from 53.2 percent to 49.8 percent for the three labor categories combine. It declined most sharply in hospitals, from 54.1 percent to 48.8 percent.
Although growth in labor expenses was slower than growth in total revenue across the three subgroups, growth in both employment and earnings greatly outpaced economy-wide averages. Inflation-adjusted total compensation across the subsectors grew by 61.8 percent from 1997 to 2012.
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The researchers suggest that regulatory and market changes, economy-wide trends, and changes in technology have all influenced where the money in healthcare goes. During the study period, providers managed declining reimbursement from public payers, alongside heightened scrutiny and more intensive negotiations by private payers over reimbursements.
These forces have had differential impacts across the sector, and over time, the study showed. Targeted regulatory changes like the Balanced Budget Act have had direct effects on provider surpluses. Hospitals were hit hard by the Balanced Budget Act in the early 2000s; outpatient centers did not generate nearly as much surplus in the 2000s as they did in the late 1990s. But providers seem to have been able to adjust expenses to address broader, longer-term trends.
Changes in the healthcare sector -- including the development of new delivery systems, and the introduction of new technologies -- are likely to alter where the money in the sector goes, and who receives how much of it in the future, the study said. Sensible policy design would likely occur from following these trends, authors argued.
Twitter: @JELagasse