A Study of Hospital Cost Inflation

TLDR: The estimates indicate that the majority of the increase in average costs for the sampled hospitals was associated with factor price increases, while changes in technology and/or case mix also resulted in significant cost increases.

Abstract: The objective of this study is the estimation of the amount of hospital cost inflation associated with increases in factor prices, technological and case-mix change, and growth in hospital demand. The estimates indicate that the majority of the increase in average costs for the sampled hospitals was associated with factor price increases, while changes in technology and/or case mix also resulted in significant cost increases. These increases were offset to a relatively minor extent by the cost effects of increases in hospital output. To the extent that improvements in the quality of care are reflected by the observed increases in full-time equivalent employees per bed, the costs due to changes in technology and/or case mix may reflect the cost of quality improvements.