Labor costs are key driver of hospital cost growth

Not surprisingly, hospital care is the biggest driver of overall healthcare spending growth, accounting for 33 percent of every healthcare dollar spent. But what single factor is most responsible for spending growth in hospital patient care?

The answer is labor costs, according to the new American Hospital Association (AHA) report, "The Cost of Caring." Labor cost increases are responsible for 35 percent of the overall growth in hospital costs. Hospitals are dealing with ongoing shortages of registered nurses, pharmacists, medical technicians and other clinicians. "Continued workforce shortages during a period of rising service demand likely will put further cost pressure on hospitals," says the AHA.

Growth in labor costs also accounted for more than half of the growth in the cost of purchased goods and services. Other components included: prescription drugs, 5 percent; professional fees, 5 percent; professional liability insurance, 2 percent; and all others, 18 percent.

All told, the increased cost of these goods and services purchased to provide care represented 64 percent of overall growth in spending on hospital care from 2004 to 2008. By comparison, rising demand for care (i.e., change in the number of services provided) drove 34 percent of spending growth, while increased intensity of hospital care and other factors accounted for only 2 percent of the increase.

To learn more about hospital costs:
- read the AHA report