Hospital Cost Structure and the Implications on Cost Management During COVID-19
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J Gen Intern Med DOI: 10.1007/s11606-020-05996-8 © Society of General Internal Medicine 2020
INTRODUCTION
The ongoing COVID-19 pandemic has been disrupting hospital operations in the USA.1 Thirty states and the District of Columbia issued executive orders requiring that elective procedures be canceled or postponed in order to prioritize hospital capacity, preserve personal protective equipment for COVID-19 care, and ensure the safety of patients and medical staff.2 Concerned about potential exposure to infection, patients also have been limiting hospital visits. Facing a sharp decline in revenue, many hospitals have initiated layoffs, furloughs, and salary cuts to contain costs and maintain financial viability.3 A detailed analysis of hospital cost structure remains an unexplored area in the literature. This study aims to examine the structure of hospital operating costs and how it varies across cost functions and types in order to understand hospitals’ cost management responses during the pandemic.
METHODS
Using the hospital Cost Reports published by the Centers for Medicare and Medicaid Services, we obtained the cost information for 3521 private general acute care hospitals in 2018, Received May 25, 2020 Revised May 25, 2020 Accepted June 15, 2020
the most recent year for which a complete national dataset is available. We deleted 20 hospitals that reported missing net patient revenue. The sample has 3501 hospitals: 2601 nonprofits and 900 for-profits. Cost Reports classify hospital operating costs into four categories based on function: overhead costs (not directly associated with patient care), ancillary costs, inpatient costs, and outpatient costs. The amount of the labor component and the non-labor-non-capital component was reported for each cost item within these categories. The capital costs of building and equipment, such as depreciation, were reported in the overhead category.4 First, we aggregated the operating costs of all hospitals in the sample. Second, we separated capital costs from other overhead costs, grouped all operating costs based on their type and function, and compared the relative magnitude across groupings. Third, we analyzed the proportion of capital, labor, and non-capital-non-labor components in each major cost item that accounted for at least 0.5% of total operating costs. Lastly, we identified patient care services (i.e., ancillary, inpatient, and outpatient) that incurred relatively large costs (> 2.0% of total operating costs) and examined their weight in the cost structure.
RESULTS
Private short-term general hospitals incurred $732.2 billion in total operating costs in 2018. Capital costs and overhead costs accounted for almost half (48.0%); ancillary, inpatient, and outpatient care accounted for the remaining 52.0% (Fig. 1). Based on the cost type, noncapital-non-labor costs constituted 54.6% of total
JGIM
Bai and Zare: Hospital Cost Structure
Ancillary noncapital-non-labor costs, 19%
Capital costs, 4% Overhead labor costs, 16%
Ancillary labor costs, 11%
Outpaent no
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