HLTH 4530 Week 5 Spending Trend Read Example

Reading a Rising Line: Hospital Spending per Resident in a Composite State, 2014 to 2023, Deflated, Divided by Population and Split Into Price, Volume and an Older Population, With What the Line Cannot Show

Student Name

Walden University

HLTH 4530: Healthcare Economics From a Population Health Perspective

Instructor Name

Month Day, Year

Reading a Rising Line: Hospital Spending per Resident in a Composite State, 2014 to 2023, Deflated, Divided by Population and Split Into Price, Volume and an Older Population, With What the Line Cannot Show

The Series

The series analyzed here describes hospital spending for residents of Westmark, a composite state of about five million people assembled for this exercise. It counts spending on inpatient and outpatient hospital care received by Westmark residents, wherever they were treated, from all payers combined. Values are reported in billions of current dollars for four years spaced three years apart, 2014, 2017, 2020 and 2023. A series of this kind follows the design of the state health expenditure accounts that the Centers for Medicare & Medicaid Services publishes, which estimate spending by state of residence and by type of provider (Centers for Medicare & Medicaid Services [CMS], 2022). No values here are taken from those accounts; all figures are composite.

Nominal spending rose from $20.0 billion to $30.0 billion, or 50%, over nine years. That is the line a headline would report. The paper's task is to explain how much of the 50% is real growth and what drove it.

Table 1

Westmark Hospital Spending and Its Denominators, Composite Figures

All figures are composite and illustrate the method; 2020 reflects a pandemic year in which elective admissions fell.

Adjustment 1: From Nominal to Real

Nominal dollars mix two things: more spending on care and a general rise in prices across the economy. Deflating by a general price index removes the second. Using Westmark's general price index, which rose from 100 to 122, the 2023 spending of $30.0 billion is worth about $24.6 billion in 2014 dollars. Real growth was therefore about 23%, not 50%. Skipping this step would more than double the apparent growth and attribute ordinary inflation to the hospital sector.

Adjustment 2: Per Resident

Westmark's population grew from 5.00 to 5.15 million. More residents mean more care even if nothing else changes, so the series is divided by population. Real hospital spending per resident rose from $4,000 in 2014 to about $4,775 in 2023, an increase of about 19%. This is the figure the drivers below try to explain.

Three Possible Drivers

Higher Prices for the Same Services

Hospital prices can rise faster than prices in general. Westmark's hospital price index rose from 100 to 135, while the general index rose to 122. Relative to general inflation, hospital prices therefore rose about 11%. If residents had used exactly the same services in 2023 as in 2014, real spending per resident would still have grown by about 11% from price alone. National work points the same way. Dieleman et al. (2017) decomposed U.S. health spending growth from 1996 to 2013 and found that changes in service price and intensity were associated with 50.0% of the increase, more than any other factor. Studies of hospital prices for privately insured patients show wide variation in what the same service costs at different hospitals (Cooper et al., 2019).

More Services per Resident

Volume could have grown instead. In Westmark, hospital discharges per 1,000 residents fell slightly, from 120 to 118, a drop of under 2%, after a deep dip in 2020 when elective admissions were postponed. On this measure, volume did not drive growth. But discharges count admissions, not what happens during them or in outpatient departments, so a stable discharge rate can hide growth in outpatient procedures and imaging.

An Older Population

Older residents use more hospital care. Westmark's share of residents aged 65 or older rose from 16% to 20%. If an older resident uses about three times as much hospital care as a younger one, an assumption chosen for illustration, the shift in age mix alone would raise spending per resident by about 6%. Nationally, Dieleman et al. (2017) found that population aging was associated with an 11.6% increase in spending between 1996 and 2013.

Putting the Drivers Together

On these composite figures, rising hospital prices relative to the rest of the economy account for the largest share of growth, an older population for a meaningful share, and volume for none. The remainder, roughly a fifth of the real growth, reflects things the series cannot separate, such as more services per admission or growth in outpatient hospital care. Anderson et al. (2003) argued two decades ago that higher prices, rather than more use, explain why U.S. spending exceeds that of other wealthy countries; the Westmark pattern fits that account but cannot confirm it.

Table 2

Rough Decomposition of the 19% Real Growth per Resident, 2014 to 2023

Contributions multiply rather than add; the remainder is what the three measured drivers do not account for.

Why the Order of Adjustments Matters

The two adjustments, deflating and dividing by population, should come before any search for drivers, and the order of the drivers matters less than their completeness. Had the paper begun by comparing hospital price growth with nominal spending growth, it would have attributed general inflation to hospitals and overstated their role. Had it skipped the population step, it would have counted the care needed by 150,000 additional residents as growth in spending per person. A reader checking someone else's trend analysis can apply the same test: ask whether the figures are nominal or real, total or per person, and whether the drivers named add up to the change being explained. When they do not, as here, the honest move is to report the remainder rather than assign it to whichever driver fits the preferred story.

What the Line Cannot Show

Four things lie beyond this series. First, it says nothing about value: whether the extra spending bought better outcomes, shorter stays or fewer deaths. Second, it does not show who paid. A shift from private insurance to Medicaid, or from insurers to patients, would leave the total unchanged. Third, it hides distribution: a rise in average spending per resident could come from a small number of very costly patients. Fourth, it cannot separate price from intensity well, because the hospital price index measures the price of a fixed basket of services and cannot fully track changes in what is done for each patient. A reader who sees a rising line should treat it as a question, not an answer.

References

Anderson, G. F., Reinhardt, U. E., Hussey, P. S., & Petrosyan, V. (2003). It's the prices, stupid: Why the United States is so different from other countries. Health Affairs, 22(3), 89-105. https://doi.org/10.1377/hlthaff.22.3.89

Centers for Medicare & Medicaid Services. (2022). Health expenditures by state of residence, 1991-2020. https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/state-residence

Cooper, Z., Craig, S. V., Gaynor, M., & Van Reenen, J. (2019). The price ain't right? Hospital prices and health spending on the privately insured. Quarterly Journal of Economics, 134(1), 51-107. https://doi.org/10.1093/qje/qjy020

Dieleman, J. L., Squires, E., Bui, A. L., Campbell, M., Chapin, A., Hamavid, H., Horst, C., Li, Z., Matyasz, T., Reynolds, A., Sadat, N., Schneider, M. T., & Murray, C. J. L. (2017). Factors associated with increases in US health care spending, 1996-2013. JAMA, 318(17), 1668-1678. https://doi.org/10.1001/jama.2017.15927