The inevitable failure of current cost-containment strategies. Why they can provide only temporary relief

Abstract

Current strategies for controlling hospital costs have focused primarily on eliminating care that is presumed to be of no medical value. These efforts have neglected the central fact that eliminating such care reduces current expenditures, but has little or no influence on three key factors responsible for the upward trend in real costs--population growth, rising input prices ("the hospital market basket"), and technologic innovation and diffusion. Aging of the population and the rising costs of malpractice insurance have received undue attention; together they can account for only three tenths of a percentage point in the upward trend. Gradual elimination of presumably useless care, perhaps as much as 30% of inpatient-days, can save many billions of dollars, but can only offset for a few years the forces causing costs to rise in US community hospitals. Indeed, in 1984, the reduction in patient days and resultant slowing in the real rate of rise to 2.1% appear simply to have concealed an underlying real rate of increase that was close to 7%. After all unnecessary days have been eliminated, the underlying rate of increase will reemerge unless limitations are placed on technologic innovation or beneficial services are rationed.