NCPA - National Center for Policy Analysis

Technology and Increased Demand Boost Hospital Spending

February 27, 2003

After a period of relatively low growth in the mid-1990s, the growth rate in spending on hospital care rose from 2.9 percent in 1998 to 8.3 percent in 2001, according to a study by PricewaterhouseCoopers.

To put this in perspective, from 1997 to 2001, spending on hospital care increased $83.6 billion.

  • Volume -- which includes population growth (21.0 percent) and increased utilization per capita (34.4 percent) -- accounts for 55.4 percent of the increase in spending.
  • Increasing costs for the goods and services needed to provide care accounted for the remaining 44.6 percent of the increase.
  • Notably, this increase in costs was moderated by efficiencies and other growth factors, resulting in an estimated offset of 18.3 percentage points.
  • Of the total increase in costs, wages and benefits made up the largest category, accounting for 38.8 percent of the overall increase.

The latest government forecasts predict that growth in spending on hospital services will hover around 6 percent throughout the next decade.

The downward trend in hospital services as a share of national health spending is expected to continue uninterrupted until 2012. From 31.7 percent observed in 2001, the share is expected to fall to 27.9 percent in 2012 at which time it is expected to be one-third less than the peak share of 42.1 percent in 1982.

Source: PriceWaterhouseCoopers, "Cost of Caring: Key Drivers of Growth in Spending on Hospital Care," American Hospital Association and the Federation of American Hospitals, February 19, 2003.


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