by Ronald Andersen and John T. Hull

25 Pages·2005·2.63 MB·English

Hospital Utilization and Cost Trends
in Canada and the United States
by Ronald Andersen and John T. Hull
Differences in hospital costs and utilization between the United
StatesandCanada are analyzed and anattempt made to measure
the significance of various demographic, economic, and other
factors thought to be related to the differences. Increases in
utilization are traced to population increases and to actual in-
creased use per person; and cost increases tied to general infla-
tionary trends are separated from those attributable to specific
hospital price increases. Differences in the financing and reim-
bursement mechanisms in the two countries are shown to have
had little effect on relative cost increases, which in the period
under consideration were parallelled by similar or greater in-
creases in other industrialized nations.
Rapidly rising expenditures for hospital care are causing serious concern
in both Canada and the United States. Though Canada is much like the
United States in its general economic system, organization of hospitals, and
system of medical practice, it has a markedly different system of financing
general hospital care. Comparison of utilization and cost trends in the two
countries may therefore prove insightful for those in both countries.
In the United States, voluntary health insurance has become the primary
means through which the population pays for general hospital care.1 This
insurance met 70 percent of all private consumer expenditures for general
hospital care in 1966. Tax funds finance much of the hospital care for those
receiving public aid. Since July 1966, a large part of all hospital care for
persons aged 65 and over has been paid for by the federal government's
program for health care for the aged (Medicare). Although these public
programs on the whole pay for more of the hospital bill than private insurance
does, they are not totally comprehensive. Despite this, however, the proportion
Based on paper presented at the Conference on the Hospital Reimbursement Program
in Canada and Its Relevance for the United States, sponsored by Hospital Research and
Educational Trust in cooperation with American Hospital Association, Canadian Hospital
Association, American Public Health Association (Section on Medical Care), and Center for
Health Administration Studies, University of Chicago; Chicago, Apr. 15 and 16, 1969.
IMuch of the following basic description of the two systems is based on Reed and
Carr [1].
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CANADIAN AND U.S. UTILIZATION AND COSTS
of general hospital expenses met by consumers' out-of-pocket expenditures has
declined sharply over the last twenty years.
Since mid-1958, Canada has had a program of federal aid to the provinces
for hospital insurance systems that make complete care in general hospitals
available to all residents on "uniform terms and conditions." To obtain federal
aid, a province must have a plan under which complete inpatient care is made
available to allresidents in standard ward accommodations of general hospitals
without limit on duration. Since the beginning of 1961 Canada has had such
programs in all its provinces. There are no financial barriers to full hospital
care for anyone, although inability to pay related physician's bills or a
reluctance to incur them may be a deterrent for some persons.
Hospital insurance in the two countries is also dissimilar in the mechanisms
used to control hospital operating expenses. In the United States neither Blue
Cross nor private insurance companies, which are the major third-party payers
for hospital care, exercise appreciable control over hospital costs. Most Blue
Cross plans pay hospitals on the basis of their average per diem cost of
operation. These plans obtain from participating hospitals audited statements
of operating expense, but there is no substantial effort to scrutinize the costs
of each hospital. Insurance companies, to all practical purposes, provide
indemnity allowances against hospital charges incurred and make little attempt
to control hospital costs or charges. Under the Medicare program each hospital
is paid its reasonable cost of providing care to aged patients on the basis of an
audited annual financial statement. It is often claimed that these prevailing
methods of reimbursement for hospital care in the United States encourage
inflation of hospital operating expenses, since hospitals are reimbursed for
their costs whatever they may be.
In Canada, on the other hand, all the provinces under the programs of
hospital insurance finance hospitals on what might be called a "budget review"
basis. Each hospital submits a detailed budget before the beginning of a
year, giving data on volume of services provided in the last completed year,
an estimate of volume of services to be provided in the current year, and an
estimate of services in the year being budgeted for. These budgets are re-
viewed by persons familiar with the operation of that hospital and other
hospitals and are compared with the budgets of similar institutions, to decide
on the funds required by the institution. The provincial authorities also review
all proposed hospital construction projects and all hospital of
purchases
substantial items of equipment. These procedures are designed to restrict the
operating costs of hospitals to the amount judged by the authorities to be
required for efficient operation.
Expenditures as a Function of Utilization and Costs
Given these differences between the two systems, what are the patterns
and trends of hospital expenditures in each? As shown in Table 1, total
expenditures for general hospital care increased almost ninefold in Canada
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Andersen Hull
&
between 1950 and 1967. In the same time period, expenditures in the United
States increased about sixfold.
Total increases in hospital expenditures are accounted for by two basic
components: increases in use and increases in price. Each of these components
in turn can be considered to include two subcomponents.
In part, increased use simply reflects population growth; that is, there
were more people using hospital services in 1967 than in 1950. Line B of
Table 1 shows that population growth between 1950 and 1967 accounted for
a greater proportion of increased use in Canada than in the United States.
The second subcomponent of the use increase reflects increased use per
person; each individual simply uses more hospital services with the passage
of time. As shown in line C of the table, such use-per-person increases were
practically the same in the two countries during this period.
The second major component in the total expenditure increase reflects
increased price per unit of service. This increased price is in part a reflection
of a general inflation of the total economy; hospital costs should not be
considered apart from general price increases. The consumer price indexes for
the two countries show a somewhat larger increase for Canada than for the
United States (line D of Table 1). In both countries, however, there were
considerable increases in expenditures that could not be accounted for simply
by these general inflationary trends. Thus in Canada, even after population
increases, the increase in use per person, and the general inflationary trend
of the economy are taken into account, per diem costs still rose 213 percent
Table 1. Increase in Hospital Expenditures* 1950-67
(Base year 1950 = 100)
Component of expenditure Canadat United States:
(A) Total general hospital expenditure .... 894a 570e
Use increase:
(B) Population .......................... 148b 130f
(C) Days/1000 population .. 128C 127g
.............
Price increase:
(D) Cost of living ...................... 151d 139h
(E).Hospital costs not due to increased
use or cost ofliving .................. 313 248
Computed as follows:
A/100 =E/100
B/100 x C/100 X D/100
tPublic general hospitals.
$Nonfederal short-term general and other special hospitals.
SOURCES OF BASE DATA: (a) Refs. 11, 12. (b) Refs. 12; 13, p. 41. (c) Refs.
12; 14, p. 112; 15. (d) Refs. 16, 17, 18. (e) Refs. 19, 20, 21. (f) Ref. 22.
(g) Refs. 23, p. 448; 24, p. 449. (h) Refs. 25; 26, p. 347.
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CANADIAN AND U.S. UTILIZATION AND COSTS
Table 2. Average Annual Percent Increase in Total Hospital Expenditures*
Component of 1950-67 1950-58 1958-65 1965-67
expenditure Canada U.S. Canada U.S. Canada U.S. Canada U.S.
Total hospital costs ...... 13.8 10.8 14.4 10.4 12.6 10.1 15.2 15.0
Population .............. 2.3 1.6 2.7 1.8 1.9 1.5 1.7 0.8
Use per person ........ 1...5 1.4 2.2 0.9 1.0 1.5 0.0 3.3
Cost of living ........... 2.4 2.0 2.5 2.3 1.4 1.3 5.3 3.0
Costs not due to increased
use or cost of living 6.9 5.5 6.2 5.1 7.8 5.5 7.1 7.2
....
*Computed by technique outlined in Barclay [27, p. 31].
SOURCES OF BASE DATA: Refs. 11-26.
from 1950 to 1967, as indicated in line E of the table. The comparable increase
in the United States amounted to 148 percent.'
In sum, Table 1 shows high total expenditure increases in both Canada
and the United States for the period under consideration, with the increase
considerably greater in Canada. Contributing to Canada's greater expenditure
increase were a higher population growth and an apparently slightly greater
inflationary trend. Nevertheless, the main difference seems to reflect increases
in hospital costs apart from general inflationary trends.2
Table 2 shows these trends in greater detail. In this table and in the
rest of this paper the years from 1950 to 1967 are considered in three periods:
the first, 1950-58, gives a historical perspective on the period prior to the
passage of Canada's National Hospital and Diagnostic Services Act; the
second, 1958-65, provides some indicators of the effect of that Act; and the
third, 1965-67, affords a similar opportunity to study the initial Medicare
period in the United States.
As shown in Table 2, in both the first two periods the average annual
percentage increase in total hospital cost was greater in Canada than in the
United States and was particularly high in Canada in the 1950-58 period. It
then leveled off somewhat, compared with the United States, in the 1958-65
iThis index approach to computing "price" increases assumes that the unit of service
does not change over time-which of course is not true with respect to hospital care.
Changes in per diem rates in part reflect changes in personnel ratios, medical technology,
and facilities of general hospitals. For example, between 1950 and 1967 personnel per
patient for public general hospitals increased by about three-quarters in Canada and by
about one-half for the United States [3, 8].
2The method for separating hospital price increases into a general cost-of-living increase
and an additional independent price increase was suggested in Anderson and Neu-
hauser [2]. This method first abstracts the increase in total expenditure due to the utiliza-
tion increase. From the residual increase in expenditures, the increase that can be accounted
for by the increase in the consumer price index is taken out. The remaining proportion
of expenditure increase is then attributed to price rises in hospital care over and above
general inflationary trends in the economy as a whole.
Fall 1969 201-
Andersen & Hull
period. For the years 1965-67 the annual increase per year was virtually the
same in the two countries. For the entire period 1950-67 the annual increase
in total hospital costs was 13.8 percent in Canada compared with 10.8 percent
in the United States.
On examining the components of the total increase in expenditure for the
first period, it is found that population, use per person, cost of living, and
increases in hospital costs not due to inflation were all greater in Canada than
in the United States. In the 1958-65 period the difference is largely accounted
for by hospital costs not due to inflation. In the most recent period the in-
creased expenditures in the United States reflect increases in use per person,
this is not true in Canada, where, however, general inflationary trends seem
to account for more of the increase than in the United States.
By 1967, utilization rates of general hospitals were higher in Canada than
in the United States, and per diem costs were higher in the United States.
The remainder of this paper analyzes in further detail the trends in the two
countries and the differences between them.
Hospital Utilization
Two main points to be seen from Tables 1 and 2 are that (1) use per
person has increased at about the same annual rate in each country since
1950 (28 percent net increase in Canada and 27 percent in the United States);
(2) the increase in utilization did not occur at a constant rate within each
country, nor did the rates of increase parallel each other in the two countries.
Between 1950 and 1958, the annual rates of increase in use per person in
Canada were increasing more than twice as fast as in the United States
(Table 2). Subsequent to the passage of the Hospital Act the rate of increase
in Canada dropped to less than half its former level, while simultaneously
that of the United States increased by two-thirds, with the result that between
1958 and 1965 the annual rate of increase in utilization was 50 percent higher
in the United States than in Canada. This reversal of the earlier trend has
become more marked since 1965, with Canada actually showing no further
increase in use, in contrast to an annual rise of over 3 percent here.
The increase in utilization can conveniently be analyzed in terms of two
measures: admissions/1000 population and average length of stay/admission.
Admission Rates
During the years 1950-67, admissions per 1000 population increased by
27 percent in Canada and 24 percent in the United States. The tempo of the
increases in admissions varied considerably, however, both between the two
countries and within each. Between 1950 and 1958 the annual rate of increase
in Canada was 2.2percent as compared with 1.6 percent in the United States-
a difference of 38 percent. Between 1958 and 1965, however, the rate of
increase in Canada was exactly one-half what it had been in the preceding
eight years, while the United States rate dropped by only 25 percent. In
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CANADIAN AND U.S. UTILIZATION AND COSTS
other words, during this period admissions were increasing at a faster rate
in the United States than in Canada. From 1965 to 1967, admissions per 1000
population remained constant in the United States and dropped slightly in
Canada. Despite the more rapid rate of increase in admissions in the United
States in recent years, the admission rate to general hospitals in Canada at the
end of this period was still 9 percent higher than the admission rate to non-
federal general short-term hospitals in the United States.1
Countries such as Sweden and England also experienced increases in
admission rates during the period 1955-65. In both these countries the in-
creases were greater than those of Canada, and the increases in England and
Wales were greater than those of the United States as well [2]. It appears
that increasing admission rates have been experienced rather generally in
industrialized countries since 1950, whatever the method of financing hospital
care; indeed, this trend seems to have been less manifest in Canada than in
some other countries, at least since 1958. It may be that the 1965-67 Canadian
and American data indicate a slowing down of admission rate increases.
Perhaps the major point to be made here is that the introduction of
universal hospital insurance in Canada did not produce a marked increase in
admission rates. Although these rates continued to increase in the first seven
years following the passage of the Hospital Act, they increased much more
slowly than in the period immediately preceding its passage. In the United
States the situation was reversed during these two time periods.
One factor likely to be closely related to differences in admission rates is
the age-sex structure of the respective populations. Table 3 presents the age-
sex-specific discharge rates for the two countries. Since the American Hospital
Association data do not include such a breakdown, the figures for the United
States in the table are taken from the Hospital Discharge Survey of the
National Center for Health Statistics (NCHS). The NCHS data are based on
a sample of 296 hospitals from a total estimated universe of 6965 short-stay
institutions. This total is about 15 percent higher than the number of short-
term general hospitals included in the AHA figures. The number of short-term
beds in the two sets of data differs by only 5 percent, however, indicating that
most of the facilities included in the NCHS survey but not in the AHA survey
were quite small-about one-third the size of the average AHA institution-
and had shorter lengths of stay.2
lAdmission rates used here were calculated from available data t6, 14, 15, 24] by the
method described by Barclay [27].
2It is apparent that the AHA criteria are more stringent: the AHA definition of a
hospital requires provision of more types of care than the NCHS definition. (For details
of the differences in the criteria used, see Ref. 3, p. 17, and Ref. 4.) It is interesting that
while the AHA data indicate United States hospital admission rates about 9 percent lower
than those in Canada, the NCHS data make them almost exactly identical. The higher
overall rate for Canada in Table,3 is due to the inclusion of allied special hospitals in the
Canadian age-sex data. These almost exclusively long-term hospitals account for about
5 percent of totaladmissions; removing them from the Canadian datareduces the Canadian
rate to 148. When adjusted for the fact that the Canadian data are for 1962 and the
United States data for 1965, the rates become almost identical.
Fall 1969 1203
Andersen & Hull
Table 3. Discharge Rates per 1000 Population by Age and Sex*
Canada as
UnitedStates Canada
Age group (1965) (1962) United States
MALES
All ages ............ 124 120 97
0-4 121 174 144
. ...............
5-14 67 86 129
.............. .
15-24 83 76 91
.........
25-44 108 84 78
..........
45-64 .............. 169 146 86
65+................ 276 289 105
FEMALES
All ages ............ 181 193 107
0-4 92 136 148
. ...............
5-14 56 78 140
.............. .
15-24 251 270 107
..............
25-44 246 273 111
..............
45-64 178 160 90
..............
65+................ 253 251 99
BOTH SEXES
All ages ............ 153 156 102
0-4 107 156 146
................
5-14 61 82 133
...............
15-24 171 172 100
..............
25-44 180 178 99
..............
45-64 174 152 87
..............
65+ ................ 264 269 102
Canadian numerator includes chronic and convalescent hospitals
(except for Saskatchewan).
SOURCES OF BASE DATA: Refs. 7, p. 14; 15, p. 117.
Table 3 indicates that the admission rates are considerably higher for
persons under the age of 15 in Canada but similar in the two countries for
all other age groups except the 45-64 age group, for which the Canadian rate
is lower. The higher Canadian admission rate for persons under the age of 15
applies to both sexes. In these age groups the bulk of the admissions to
Canadian hospitals are for infections of the sense organs, accidents, allergies,
tonsillectomies, adenoidectomies, and, especially, respiratory system infections
[4, 15]. It is not known whether the higher admission rate reflects a higher
disease incidence in Canada than in the United States, a higher probability
of hospitalization with a similar incidence, or both. A higher probability of
hospitalization would suggest that physician norms in Canada may give rise
to a greater tendency to regard infectious diseases or diseases of children as
serious and hence requiring hospitalization than the norms of United States
204 Heolth Services Research
CANADLAN AND U.S. UTILIZATION AND COSTS
physicians. A higher incidence might reflect, among other factors, a more
severe winter climate in Canada.
Among men, admission rates are slightly lower in Canada than in the
United States for those between the ages of 15 and 64 and very slightly
higher for those above this age. It is difficult to advance reasons for these
discrepancies, but in any case they are rather small in comparison with the
differences in the younger age groups. Among women, on the other hand,
Canadians continue to have higher admission rates up to the age of 45. Those
in the 45-64 age group have slightly lower rates than their United States
counterparts, while the rates for persons over the age of 65 are virtually
identical in the two countries.
Women aged 15-44 are, of course, the group in which pregnancy-related
admissions comprise a large proportion of all admissions. Since the crude
birth rate is somewhat higher in Canada than in the United States, it is
conceivable that this might be related to higher admission rates among
Canadian women in this age group. The authors have attempted to examine
this by making an estimate of the pregnancy-related admissions in these age
groups, using data adjusted for changes in the birth rate between 1962 and
1965. The age-specific fertility rates for the 15-24 and 25-44 age groups in
each country were multiplied by 0.98 to allow for the fact that about 2 percent
of births do not take place in hospitals. According to available data for
Canada and the United States, some 76.5 percent and 85.4 percent, respec-
tively, of pregnancy-related admissions were for delivery. By multiplying the
age-specific birth rate by the reciprocal of these figures, an estimate of the
total number of pregnancy-related admissions was obtained.
Differences in pregnancy-related admissions were found to account for a
good deal of the difference in admissions between the countries for females in
these age groups. Within the younger group, such admissions comprise 64
percent and 67 percent of all admissions in Canada and the United States,
respectively; but the more frequent pregnancy-related admissions for Canadian
women account for only 22 percent of the difference in admissions. Although
excluding pregnancy-related admissions reduces the absolute size of the
discrepancy in admission rates from 18.7 to 14.6 per 1000, the ratio of the
remaining admission rates per 1000-96.2 in Canada and 81.6 in the United
States-means that non-pregnancy-related admissions are 18 percent higher
in Canada among this age group. Thus the pattern of higher admission rates
persists for girls and young women in Canada up to the age of 25 even after
admissions for pregnancy are excluded, whereas it disappears after the age
of 15 among males.
In the 25-44 age group, pregnancy-related admissions comprise 55 percent
and 51 percent of all admissions in Canada and the United States, respectively.
Among this group, differences between the countries in rates of pregnancy-
related admissions account for 89 percent of the discrepancy, and when only
non-pregnancy-related admissions are compared, the admission rates are
almost identical: 123.3 for Canada and 120.3 for the United States.
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Table 4. Discharge Rates per 1000 Population by Diagnosis
Canada- Percent of all
Diagnosis Canada U.S. United States discharges
(1962) (1964) difference Canada U.S.
All diagnoses ........156.3* 148.2 100 100
Infective and parasitic
diseases ................ 2.5 1.8 +0.7 1.6 1.2
Malignant neoplasms ....... 4.4 4.8 -0.4 2.8 3.2
Benignneoplasms 3.9 4.9 -1.0 2.5 3.3
..........
Allergic, endocrine system,
metabolic and nutritional
4.1 3.7 +0.4 2.7 2.5
diseases
Diseases of.b.lood.a.n.d..b.l.o.o.d.-.
forming organs ......... 0.8 1.0 -0.2 O.5 0.7
Mental, psychoneurotic, and
personality disorders ..... 3.7 3.2 +0.5 2.3 2.1
Diseases of nervous system
and sense organs ........ 7.3 6.0 +1.3 4.7 4.0
Diseases of circulatory
system ........ 11.8 12.4 -0.6 7.6 8.4
Diseases of respiratory
system ................. 24.4 18.0 +6.4 15.6 12.1
Diseases of digestive
system ................. 20.8 21.6 -0.8 13.3 14.6
Diseases of genitourinary
system ................. 12.3 12.2 +0.1 7.9 8.2
Deliveries 21.1 21.7 -0.6 13.5 14.6
................
Conditions of pregnancy
and puerperium ....... 6.4 3.8 +2.6 4.1 2.5
Diseases of sldn and
cellular tissue ........... 3.5 2.3 +1.2 2.2 1.6
Diseases of bones and
organs of movement ..... 5.2 5.1 +0.1 3.3 3.4
Congenital malformations 1.4 0.9 +0.5 0.9 0.6
Certain diseases of
early infancy .......... 0.7 1.5 -0.8 0.4 1.0
Symptoms, senility, and
ill-defined conditions. 3.5 5.3 -1.8 2.2 5.6
Accidents, poisonings, and
violence ................ 13.4 15.2 -1.8 8.6 10.5
Undiagnosed 0.0 3.0 -3.0 0.0 2.0
..............
*Diagnoses do not add to total because figures for deliveries and for conditions of
pregnancy and puerperium have been corrected for the 1962-65 drop in the Canadian birth
rate to make the data more comparable to the United States data.
SOURCES OF BASE DATA: Refs. 4, p. 10; 15, pp. 128-31.
206 HHeeaalltthh SSeerrvviicceess RReesseeaarrcchh
CANADIAN AND U.S. UTILIZATION AND COSTS
It is also instructive to look at the diagnostic categories for which patients
are admitted to hospitals in the two countries, as indicated in Table 4. In
terms of broad diagnostic classes, the discharge rates are seen to be similar
indeed. There is, however, one striking difference: the frequency of a respira-
tory-condition diagnosis among persons discharged from hospitals in Canada.
For this diagnostic category, discharge rates are more than one-third higher
in Canada than in the United States. It is certainly conceivable that climate
might be a factor in the higher incidence of respiratory disorders in Canada.
Although there is no evidence bearing directly on this, data from the
National Health Interview Survey in the United States show that the reported
frequency of respiratory conditions in the South generally runs from 10 to
20 percent lower than in the rest of the country [5]. It may indeed be, then,
that the higher admission rates among younger age groups in Canada reflect
to some extent a higher incidence of more serious infections of the respiratory
system in Canada. The evidence however, is far from conclusive.
Canada also has slightly higher discharge rates than the United States
for pregnancy-related conditions, as well as for diseases of the skin and
cellular tissue and for diseases of the nervous system and sense organs. The
United States has higher discharge rates for neoplasms and for the category
of accidents, poisoning, and violence. It is beyond the scope of this paper to
attempt to postulate the reasons for these differences.
Length of Stay
Table 5 presents comparative data on the average length of stay in Canada
and in the United States. A key point shown in the table is that average
Table 5. Average Length of Stay 1950-67
United States* Canadat
Year Index of change Index of change
Length of Length of
stay (days) 1950=100 1958=100 stay (days) 1950=100 1958=100
1950 8.1 100 10.4 100
1952 8.1 100 10.2 98
1954 7.8 96 10.1 97
1956 7.7 95 9.9 95
1958 7.6 94 100 9.8 94 100
1960 7.6 94 100 10.0 96 102
1962 7.6 94 100 10.2 98 104
1964 7.7 95 101 10.2 98 104
1965 7.8 96 103 10.3 99 105
1966 7.9 98 104 10.2 98 104
1967 8.3 102 109 10.2 98 104
*Short-tern public general hospitals.
tNonfederal general hospitals.
SOURCES OF BASE DATA: Refs. 15, p. 86; 24, p. 449; 28.
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