Academic journal article International Advances in Economic Research

State Variations in Hospital Expenditures: An Ecological Approach

Academic journal article International Advances in Economic Research

State Variations in Hospital Expenditures: An Ecological Approach

Article excerpt

Abstract Hospital expenditures vary across states both in terms of the levels and growth rates. Economic status, insurance coverage (or lack thereof), health risk factors, and demographic factors are used to explain these differences. Interestingly, the prevalence of poverty rates across states does not seem to be a good predictor of differences in hospital expenditures but the percent without health insurance does relate to higher hospital expenditures, when the factors listed above are all considered. Policy discussions about universal health insurance may be missing a point if better health care coverage resulted in lower hospital costs.

Keywords Hospital costs * The uninsured * Poverty rates


Hospital costs continue to be the largest share of health care expenditures in the United States. In 2006 they represented 31% of total health care expenditures and actually were more substantial than that percentage because a portion of physician services (21%) and of prescription drug expenditures (10%) are hospital derived. (1) From 1999 to 2006, hospital costs grew at a 7.5% annual rate, while overall inflation in the United States measured by the CPI only increased by 2.5% per year. (2) An aging population is partly responsible for these increases, but other obvious and not-so obvious factors are also at work.

The purpose of this study is to investigate hospital expenditures at the state level in order to identify factors that differentiate states having higher than average hospital expenditure increases from those having lower than average hospital expenditure increases. Explaining why states differ with respect to hospital cost increases may shed light on why hospital expenditures are increasing at almost triple the rate of inflation. Two states, Alabama and New Mexico, experienced only 5% increases over this period, and 16 other had increases in the 6% range while six states (Oregon, Idaho, Vermont, New Hampshire, Nevada and Alaska) had increases in excess of 10% per year, and another nine had increases in the 9% range. (3) This kind of variation offers an opportunity to identify causes for differences in the rate of increase, and perhaps unexpected causes of hospital expenditure increases in general. Such discoveries may lead to helpful policies in controlling hospital expenditures.

Hospital expenditures by state are linked to factors that logically may drive hospital costs. For example, admissions and admissions squared (to allow for economies or diseconomies of scale), of course, drive total expenditures and control for population differences. Per capita income captures both a demand for hospital services impact and a cost of nursing services factor since states with higher state incomes pay higher nursing wages. Poverty levels in a state can depress low skill wages and can affect costs in an a priori ambiguous way. It may be that the poor receive fewer hospital benefits because of the potential inability to pay or it may be that more expenditure must be spent on the poor because their admittances are for more serious diagnoses. The type of insurance coverage (covered by Medicare, Medicaid, privately insured, or uninsured) also can affect hospital expenditures. It has been noted that the uninsured do not use emergency room services at a significantly different rate than the insured but that does not answer the effect of not having insurance on total hospital expenditures. (4) Two major health risks that are measurable at state levels, prevalence of smoking and diabetes, can also be expected to affect hospital costs. Finally, demographic factors, such as gender and ethnicity and age distribution, can potentially affect hospital expenditures. What follows is an attempt to link these factors to state hospital expenditures in order to discern the causes of the difference in hospital cost growth rates.


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