LABOR COSTS
- AND UTILIZATION

IN CALIFORNIA HOSPITALS
1976 - 1981

CHFC REPORT IV-85-3

JULY 22, 1985

 

| CALIFORNIA HEALTH FACILITIES COMMISSION
~ STATE OF CALIFORNIA ore

 
''''MEMBERS OF THE
CALIFORNIA HEALTH FACILITIES COMMISSION*

Jose Carlos, Chair
Allen M. Lawrence, Vice-Chair

George Ablin, M.D. Bobbie Margolis
Michael Ellentuck Cecilia Miller
Michelle Friesen Hugo Morris

William Piche

MEMBERS OF THE
ADVISORY COUNCIL
TO THE
CALIFORNIA HEALTH FACILITIES COMMISSION

Thomas L. Camp, Chair
Elaine Biagini Kirchhoffer, Secretary

Peter Abbott, M.D. F.L. Herberth, CPA
Hellan R. Dowden Aaron Lohr
Paul J. Drozd Paul R. Torrens, M.D.
Clarice Hayman Isadore Weinstein

Liston Witherill

* Former Commission members who contributed to the
development of this report are Art Letter and
Sanford Deutsch, CPA.

iii
''TALITY

CHT
| Pavol

 
''RA 4s)
Cg 493 f

QQ 5
CALIFORNIA HEALTH FACILITIES COMMISSION ) 3 5

PUBL

CONTRIBUTING STAFF

Joseph H. Hafkenschiel, Executive Director

Gregory J. Roth, Deputy Executive Director

RE

POLICY ANALYSIS AND RESEARCH DIVISION
Peg Gerould, Manager
Douglas F. Loveday, Lead Analyst
Support Staff:

Becky Conklin
April Polhamus
'' 
''CONTENTS

Page

Members of the Commission and Advisory Council.....cccccccccveee iii

Contributing Staff. eeoeoeeveeeveeeeeeeeeeeeeeeeeeeeeeeeeeee eevee eee Vv
List of Tables eeoaneeeeveeeeeeeeeeeeeewneeeeeeeeeeseeeeeeeeeeeeeeeeeve ix
Executive Summary. cccccccccccccccccccccccccccccccsccccccccccecs xi

I. INTRODUCTION
A. Purpose of the Study..ccccccccccccccccvccccccecccces 1
B. Data Source and Report Organization. ...ccccccccccces
II. METHOD
Aw Data Baseeceeeccccccccccccvccccccccsccccsccccesccces 2
B. Data AnalysiS.cccccccccccccccscccccsccccsccccscccces 2

III. FINDINGS

A. Statewide Dataccccccccccccccccccccccsccccsscscccvece 4
Role of Labor in Overall Hospital Cost Increases.... 4
Payroll Cost Components..ccccceccccccccccccccccceses 6

B. Regional Trends..ccccccccccccvccccsvccccscccescccesecs 8

C. Impact of Peer Group and Type of Control....eseeeeee 14
APPENDICES:
A. Payroll Cost and Staff Hours per APD and Payroll
Cost per Staff Hour by Metropolitan Statistical

Area and Non-MSA Counties. cccccccccccccccccccccccece 21

B. Description of CHFC Peer Groups... cccccscccccccccccs 25

vii
'' 
''TABLES
Table Page

1 Total Cost and Labor Cost (by Component) per APD,
California Hospitals, FY 1976-77 through FY 1980-81.......... 6

2 Payroll Cost and Staff Hours per APD and Payroll Cost
per Staff Hour, California Hospitals, FY 1976-77
through FY 1980-81 wc cccccccccccccsecscccccccccccccccecceccece of

3 Percentage of Staff by Occupational Category,
California Hospitals, FY 1976-77 through FY 1980-81.......... 9

4 Payroll Cost Per APD by Region, California Hospitals,
FY 1976-77 through FY 19BO=81 os caesccececcenccceredevcoccecen 10

5 Staff Hours per APD by Region, California Hospitals,
FY 1976-77 through FY 1980-81 ccc ccccrcvccnccccccccsccccceccce 12

6 Payroll Cost per Staff Hour by Region, California
Hospitals, FY 1976-77 through FY 1980-81. ccc vccccccccccccces 13

7 Labor Cost per APD and as a Percent of Total Cost by Peer
Group and Type of Control, California Hospitals,

FY 19BO$81 oc ccesccccccccccccncccccccccsccccccccccsccccecccece 15

8a Labor Cost Components by Type of Control, Small Urban
Hospitals, FY 1980-81 wc ccnccccccccccccccccccccccccccscceccece 17

8b Staff Cost per Hour, Staff Hours per Day, and Occupational
Distribution, Small Urban Hospitals, FY 1980-81.........e0006 18

ix
'' 
''Executive Summary

The single most important component of hospital cost is the cost of labor. To
understand trends in labor cost and utilization in California hospitals, the
California Health Facilities Commission analyzed data on over 500 hospitals for
a five year period. Following are the highlights of this study.

Statewide Data

e Between fiscal years 1976-77 and 1980-81 average labor cost in
California hospitals rose from $152 to $271 per adjusted patient day
(APD).* Over this period, the percentage of total hospital cost
accounted for by labor cost increased from 61.6% to 63.9%.

e Over 80 percent of labor cost is accounted for by payroll cost, with the
remainder made up of professional fees and purchased services.

e During the five years studied, payroll cost per APD increased 75%,
largely due to a 50% increase in cost per staff hour.

e Staff hours per APD increased 17%.

e There was a general shift toward a higher percentage of high pay
occupational categories within California hospital staffs.

Regional Trends

e Highest payroll cost per APD was found in Los Angeles and San Francisco
Bay Area hospitals.

e The greatest growth in payroll cost over the five years was found in
San Diego hospitals.

e Cost per staff hour in San Francisco Bay Area hospitals was consistently
above that in the other four areas examined in this study.

e Sacramento and Los Angeles hospitals used the highest number of staff
hours per APD. San Francisco Bay Area hospitals used the lowest number
of hours.

Variation by Peer Group and Type of Control

@ Overall, labor costs were highest in non-profit and local government
hospitals due to the fact that all hospitals in the teaching hospital
peer group are in these two control groups and teaching hospitals have
high labor costs.

@ Within other peer groups, the highest labor costs were for local
government and investor-owned facilities, with non-profit hospitals

generally experiencing lower labor costs than those under other types
of control.

* The adjusted patient day is a commonly used measure of total hospital
output. (See Section IIB for the method used to calculate APD. )

xi
''e An examination of the small urban peer group of hospitals revealed:

Cost per staff hour was highest in investor-owned hospitals and
lowest in those controlled by local government.

The highest number of staff hours per APD was found in local
government hospitals.

District hospitals used fewer staff hours per day than any other type
of control.

xii
''RS-059
July 11, 1985

I. INTRODUCTION

A.

Purpose of the Study

The cost of hospital care is receiving great scrutiny both in
California and nationwide. There are many components to the costs
hospitals incur to provide patient care, but the single most impor-
tant component is the cost of labor. The purpose of this study is
to describe labor cost and utilization in California hospitals. The
study includes two parts. The first is an analysis of trends in
payroll cost and staff hours per patient day, staff cost per hour,
and the distribution of staff by occupational category over a five
year period. Trend data are analyzed statewide and by geographic
region. The second part is a “point in time" examination of labor
use by peer group and type of control using data from FY 1980-81.
Together these data facilitate an understanding of the relative
importance of labor costs in overall hospital cost and variations

in labor use among different types of hospitals.
Data Source and Report Organization

The data used for this report are taken from the California Health
Facilities Commission's (CHFC) Hospital Annual Accounting and
Reporting System. These data are submitted to the Commission yearly
by each of California's approximately 600 hospitals and provide
detailed financial and utilization information. Section II presents
a more detailed description of the data and methods used to obtain

the findings for this report. Section III presents those findings.
''II.

METHOD
A. Data Base

B.

Hospitals are required to file their disclosure reports with the
Commission on a schedule that is based on their own various fiscal
periods. For purposes of this and other Commission research reports,
the data from these reports are made comparable by adjusting them to
create a standard July 1 - June 30 fiscal year for all

hospitals. | This report is based on data standardized to reflect
fiscal years July 1, 1976 - June 30, 1977 through July 1, 1980 -
June 30, 1981.

The data for this study include only those facilities referred to by
the Commission as "comparable hospitals." This grouping excludes
Federal hospitals, which are not required to file reports with the
Commission, and Kaiser, State, Shriner, and dental hospitals, which

file modified disclosure data.

Data Analysis

Certain industry performance measurements were selected for
examination. The performance measurements are: 1. payroll costs
(salaries, wages, and other employee benefits) per patient day,

2. staff hours ("productive hours", excluding vacation, sick leave,
other paid time off) per patient day, 3. payroll costs per staff
hour, and 4. percentages of staff in ten occupational categories.
For each of these measurements, statewide weans* and annual percent

changes were calculated.

 

’ A description of the method used to standardize data is available from the
Commission's Policy Analysis and Research Division.

The measure used is the "weighted" mean, which is an average calculated as
if all hospitals were one firm. For instance, the weighted mean payroll cost
per staff hour is calculated by summing the payroll costs of all hospitals and
dividing by the sum of staff hours for all hospitals.

2
''To analyze the impact of hospital location on trends in labor cost,
hospitals were broken into five regions: 1. San Diego County;

2. Los Angeles County; 3. San Francisco Bay Area (San Francisco,
Marin, San Mateo, Contra Costa, Alameda, Santa Cruz, Santa Clara
Counties); 4. the Sacramento Health Service Area (Sacramento, Sutter,
Yuba, Sierra, Nevada, Placer, Yolo, El Dorado Counties), and 5. the
remainder of California. Each performance measure was calculated for
each of the five regions, as were percentage changes between years

and cumulative percent change over the five year period.

The unit of service used to analyze labor cost in this study is the
"adjusted patient day (APD)," a measure of output used commonly by
researchers and the hospital industry. To quote from a recent study

of hospital labor use,

"Ideally, labor cost should combine payroll with a measure of
hospital output to capture the mltiproduct nature of
hospital activity (patient care, teaching, research, and
community service). A multiproduct output index is not
available, which necessitates the use of adjusted patient
days (total inpatient days plus ‘day equivalents’ of

outpatient visits)."?

 

3 David Kidder and Daniel Sullivan, “Hospital Payroll Costs, Productivity,
and Employment Under Prospective Reimbursement," Health Care Financing
Review, Volume 4, Number 2, December 1982.

 
''To calculate adjusted patient days, it is necessary to estimate the
relative resource requirements of inpatient and outpatient services.
Because hospitals are not required to separate inpatient and
outpatient expense on CHFC reports, the Commission uses hospital
charges as the best proxy of resource allocation. Therefore, to
create adjusted patient days, inpatient days are increased by the

ratio of total charges to inpatient charges. *

III. FINDINGS
A. Statewide Data
Role of Labor in Overall Hospital Cost Increases

Table 1 shows that between FY 1976-77 and FY 1980-81 labor cost in
California hospitals rose from $152 to $271 per day, a total increase
of 78 percent. During the same period total cost per day increased
72 percent. As a result, the proportion of hospital cost accounted
for by labor rose from 61.6 percent of cost per adjusted patient day
in FY 1976-77 to 63.9 percent in FY 1980-81.

 

4 The American Hospital Association adjusts patient days by assuming that
approximately three outpatient visits are equivalent in resource requirements
to one inpatient day. The Commission chose not to use this method because at
does not allow for variability among individual hospitals as does the use of
charge ratios. However, to the extent that the facility's charges do not
accurately reflect its actual resource allocation, for instance in cases
where care is provided without recording a charge in the hospital's accounts,
APDs will not correctly measure hospital output. This problem cannot be
solved without a change in hospital reporting.
''The major component of hospital labor cost is payroll cost, with
the remainder accounted for by professional fees and purchased
services.” Overall, payroll cost and professional fees have
increased at a slower rate than purchased services cost. As a
result, the proportion of labor costs accounted for by payroll
cost has declined from 85 percent in FY 1976-77 to 83 percent in
FY 1980-81. Over the period analyzed, purchased services cost

increased from 11 percent to 13 percent of total labor costs.

 

2 Payroll cost includes salaries, wages, and benefits, as these items are
not reported separately. Professional fees are payments to persons such as
hospital-based physicians, registry nurses, accountants and attorneys.
Purchased services include a wide variety of items, such as lab tests, repair
work, and abstracting of medical records. Some non-labor costs may be
included in purchased services; however, they are included as labor costs
because they represent activities that may be carried out by salaried staff
or wage workers in many hospitals.
''TABLE 1

Total Cost and Labor Cost (by Component) per APD*
California Hospitals **
FY 1976-77 through FY 1980-81

 

FY 1976-77 {FY 1977-78 |FY 1978-79 |FY 1979-80 !FY 1980-81
Total Cost/APD $246.94 $279.60 $312.23 $365.45 $424.64
Labor Cost/APD $152.08 $173.74 $196.15 $230.68 $271.27
(Labor as %

of total cost) (61.6%) (62.1%) (62.82%) (63.1%) (63.9%)
Payroll Cost $129.53 $147.06 $164.08 $192.25 $226.38

(Payroll as %
of labor cost) (85.2%) (84.6%) (83.6%) (83.3%) (83.5%)

Professional
Fees $ 5.50 $ 6.41 Se Te57 S$: 7596 $ 10.04
(Fees as %
of labor cost) (3.6%) (3.7%) (3.9%) (3.5%) (3.7%)
|
Purchased :
Services $ 17.06 $ 20.27 $ 24.50 $ 30.48 $ 34.85
(Services as % }
of labor cost) | (11.2%) (11.7%) (12.5%) (13.2%) (12.8%)
Nun. Hospitals 568 558 549 551 542

 

 

* Adjusted patient day.

** Excludes Kaiser, State, Shriner, and dental hospitals.

Payroll Cost Components

 

Payroll cost is made up of two factors, staff hours and payroll cost
per hour. Table 2 provides information on the growth in payroll
cost, staff hours, and payroll cost per hour in California hospitals.
During the five years covered by this analysis, payroll cost per day
increased 75 percent. A slight decline in the rate of increase from
FY 1977-78 to FY 1978-79 was followed by an acceleration of growth

over the next two years.
''Staff hours per day increased 16.8% over the five years.

an scceleration of growth over the last two years.

There was

Growth in payroll

cost per hour was substantially greater, accelerating from 9 percent

per year between fiscal years 1976-77 and 1977-78 to close to

12 percent per year for the last two years.

These two growth

factors - growth in staff hours per APD and growth in payroll cost

per staff hour - each contribute to payroll cost per APD.

From the

growth rates shown in the last column of Table 2 it may be seen that

the contribution of payroll cost per staff hour was nearly three

times as great as that of increases in hours per APD for the period

reviewed in this report.

Payroll Cost and Staff Hours per APD* and

TABLE 2

Payroll Cost per Staff Hour
California Hospitals**
FY 1976-77 through FY 1980-81

 

Payroll Cost/APD
% change from
previous year

Num. Hospitals

Staff Hours/APD
% change from
previous year

Num. Hospitals

Payroll Cost/
Staff Hour

% change from
previ. * year

Num. H. ‘1s

———

 

Percent
Change
FY 76-77/
FY 76-77 | FY 77-78 |FY 78-79 {FY 79-80 !FY 80-81 !FY 80-81
$129.53 $147.06 $164.08 $192.25 $226.38
13.5% 11.6% 17.2% 17.8% 74.8%
568 558 549 551 542
17.9 18.6 18.9 19.7 20.9
4.2% 1.5% 4.7% 6.1% 16.8%
567 558 549 551 544
$7.25 $7.90 $8.70 $9.74 $10.87
9.0% 10.1% 11.9% 11.6% 49.9%
568 559 549 551 542

 

* Adjusted patient day.

** Excluaes Kaiser, State, Shriner, and dental hospitals.
''One factor contributing to increases in payroll cost per staff hour
is a shift of the hospital work force from lower to higher pay
occupational categories. Table 3 shows that hospitals have shifted
toward a proportionately greater use of high pay occupations over the
five year period. The highest growth rate categories are technical
and “other salaries". The technical category is a relatively high
pay occupational group. The “other salaries” category is more
difficult to analyze because it contains various and unspecified
occupations. Therefore, its impact on overall staff cost will differ
across hospitals. The-greatest declines in percentage were
experienced by aides/orderlies and food/custodial staff, two
relatively low pay categories. Also, there was a relative shift in
nursing staff away from the use of LVNs toward a greater use of RNs.
This trend would tend to increase nursing costs. Overall, increases
in the percentage of staff accounted for by high pay categories, such
as technicians and registered nurses, and declines in the percentage
of lower pay categories tend to increase payroll cost per staff hour

even if wages remain constant.

B. Regional Trends

In order to examine regional variation in staff cost and utilization,
hospitals were grouped into five areas. (See Section II for a
listing of counties in each area. )® Table 4 presents data on trends
in payroll cost per day in each of these areas. The highest overall
growth rate was that experienced by San Diego hospitals; the next

highest was that in Los Angeles hospitals. As a result of their

 

6 Appendix A includes data on payroll cost per APD, staff hours, and cost
per staff hour for twenty-one Metropolitan Statistical Areas (MSAs), and each
of the twenty-eight non-MSA counties in California. This aggregation
coincides with the one used for Medicare reimbursement of hospitals and can
be used to obtain a more detailed picture of regional variations.
''RS-058

TABLE 3

PERCENTAGE OF STAFF BY OCCUPATIONAL CATEGORY
CALIFORNIA HOSPITALS*
FY 1976-77 THROUGH FY 1980-81

 

 

 

 

 

\ 1 Percent Changes
Percentage of Staff i Between Years **

Occupational 1 FY 77/; FY 78/7; FY 79/7; FY 80/7; FY 77/7
Category FY 1976-77\FY 1977-78,)FY 1978-79|FY 1979-80;FY 1980-81! FY 78 | FY 79 | FY 80 |} Fy 81! Fy 81

T

'
All Categories 100.0 100.0 100.0 100.0 100.0 '

T

!
Management 9.3 9.3 9.6 9.9 9.7 | -0.4 3.0 2.3 -0. 4.3
Technical 15.4 16.1 16.4 16.5 16.5 4.0 2.1 0.6 7.0
Reg. Nurse 17.7 17.8 18.2 18.4 18.6 1.1 2.0 1.0 5.0
L.V. Nurse 6.6 6.8 6.5 6.6 6.5 3.1 -3.7 1.5 -1.1
Aides /Orderlies 11.9 11.2 10.7 10.3 9.8 -3.8 -4.4 -3.2 -17.4
Physicians 1.0 9 1.0 1.0 8 HER
Other Medical ol ol 22 22 22 ERE
Food/Custodial 14.0 13.5 13.4 12.9 12.6 -3.3 -1.1 -3.7 -9.5
Clerical/Admin. 19.8 20.1 20.1 20.1 20.8 1.5 0.5 0.0 5.1
Other Salaries 4.2 4.2 3.9 4.1 4.5 -0.8 -6.8 5.3 5.9
Num. Hospitals 568 553 549 551 544

 

 

 

* Excludes Kaiser, State, Shriner, and dental hospitals.

** Percent change based on unrounded numbers.

*** Percent change not shown because of small numbers involved.
''oT

TABLE 4

PAYROLL COST PER APD* BY REGION
CALIFORNIA HOSPITALS**
FY 1976-77 THROUGH FY 1980-81

RS-058

 

Payroll Cost Per APD

Percent Changes

Between Years

 

 

 

 

PY 17/7 FU 78/3 FY 19¢ | Fe 80/ | FY TT
Region [FY 1976-77,|FY 1977-78|FY 1978-79|FY 1979-80,FY 1980-81| FY 78 | FY 79 FY 80 FY 81 FY 81
|
California | $129.53 $147.06 $164.08 $192.25 $226.62 13.5 11.6 17,2 17.8 74.8
(n-542)
San Diego 108.59 126.09 138.98 166.93 204.41 16.1 10.2 20.1 22.4 88.2
(n=34)
|
Los Angeles | 134.89 153.06 172.05 207.27 242.44 | 13.5 12.4 20.5 17.0 79.3
(n=171) :
S.F. Bay Area 143.33 163.71 181.27 203.43 236.00 14.2 10.7 12,2 16.0 64.6
(n=76)
Sacramento HSA 138.57 157.89 174.21 199.97 238.89 | 13.9 10.3 14.8 19.3 12:2
(n= 25)
Other California 116.52 131.80 147.53 172.55 205.96 13.1 11.9 17.0 19.3 76.6

(n= 236)

 

 

* Adjusted patient day.

** Excludes Kaiser, State, Shriner and dental hospitals.

are for FY 1980-81 data. Numbers included in other years vary slightly.
total hospitals in each year.

Numbers of hospitals noted on table
See Table 1 for
''relatively high rate of growth, payroll cost in Los Angeles hospitals
surpassed that of the San Francisco Bay Area in fiscal years 1979-80
and 1980-81. On the other hand, San Diego hospitals consistently had
the lowest payroll cost of the five regions in spite of their high
rate of growth. Regional differences in payroll cost are diminishing
over time. In FY 1976-77 there was a 32 percent difference between
the highest and the lowest payroll cost per day. By FY 1980-81 the
difference had declined to only 18.6 percent.

Table 5 displays data on staff hours per day. San Francisco Bay Area
hospitals, although they have high payroll costs, use low numbers of
staff hours per day. Sacramento and Los Angeles, two other
relatively high cost areas, use the greatest numbers of staff hours
per day. The statewide trend of steady increases in staff hours per
day is essentially similar in each region. As was the case with
total payroll cost, however, the rate of increase differs by region.
By far the greatest increase occurs in Los Angeles, a fact that
probably explains its relatively high rate of growth in payroll
costs. Rates of increase in the remaining regions were nearly
uniform, ranging from 12.6 percent in the San Francisco Bay Area to
14.8 percent in San Diego. In contrast to the findings on payroll
cost per day, differences between regions in the number of staff

hours used per day have actually increased over time. /

Regional data on payroll cost per staff hour are presented in

Table 6. The data show that cost per staff hour in San Francisco
Bay Area hospitals is consistently well above that found in other
regions. The impact of this high hourly cost is to keep payroll cost
per day in the Bay area among the highest in the state even though
their staff hours per day are the lowest. San Diego hospitals have
the lowest cost per hour in the first four years with the "other

California” region having the lowest hourly cost in FY 1980-81.

 

7 After a decrease from 18 percent the first year to 12 percent the second,
the regional differential in staff hours per APD increased each year to more
than 20 percent the last year.

14
''ct

RS-058

TABLE 5

STAFF HOURS PER APD* BY REGION
CALIFORNIA HOSPITALS**
FY 1976-77 THROUGH FY 1980-81

 

 

 

 

 

 

' Percent Changes
Staff Hours Per APD ; Between Years
1 FY 77/{ FY 78/7] FY 79/7] FY 80/1] FY 77/

Region FY 1976-77) FY 1977-78)FY 1978-79|FY 1979-80|FY 1980-81! FY 78 | FY 79 ! FY 80 | FY 81 | FY 81
q

California 17.9 18.6 18.9 19.7 20.9 | 4.2 ee. 4.7 6.1 16.8
(n= 544)
!

San Diego 16.9 17.9 17.7 18.8 Sk. 4 BY -1.4 6.7 3.2 14.8
(n= 34)
!

Los Angeles 18.5 19.4 19.8 21.2 22 64 eS 2.0 6.7 6.6 22.2
(n= 172)
|

S.F. Bay Area 16.7 17.6 17.8 18.2 18.6; 5.0 1.4 2.3 3.3 12.6
(n= 77)

Sacramento HSA 19.7 19.7 20.1 20.2 22.2 | 0.0 1.9 0.8 9.9 1247
(n= 25)
’ !

Other California 17.9 18.3 18.5 19.3 Os .1° 2s 1.1 4.1 5.2 13.4
(n= 236)

 

* Adjusted patient day.

** Excludes Kaiser, State, Shriner and dental hospitals. Numbers of hospitals noted on table
are for FY 1980-81 data. Numbers included in other years will vary slightly. See Table 2 for
total hospitals in each year.
''eT

RS-058

TABLE 6

PAYROLL COST PER STAFF HOUR BY REGION
CALIFORNIA HOSPITALS*
FY 1976-77 THROUGH FY 1980-81

 

 

 

 

 

 

(n= 236)

' Percent Changes
Payroll Cost Per Staff Hour Between Years a
i FY 77/ ; FY 78/7 | FY 79/7, FY 80/7 ;, FY 77/7—
Region iFY 1976-77, FY 1977-78iFY 1978-79{FY 1979-80|FY 1980-81 | FY 78 | FY 79 | FY 80! FY 81 ! FY 81
1 |
1 |
California | $7.25 $7.90 $8.70 $9.74 $10.87 | 9.0 10.1 11.9 11.6 49.9
(n=542)
San Diego | 6.43 7.04 7.87 8.86 10.54 | 9.4 11.8 12.6 19.0 63.9
(n= 34)
1 |
Los Angeles : 7.31 7.87 8.68 9.80 10.76 | 7.8 10.2 12.9 9.8 47.2
(n= 171)
{ |
S.F. Bay Area ; 8.57 9.33 10.19 11.18 12.50 ! 8.8 9.2 9.7 11.8 45.9
(n= 76) | |
| !
Sacramento HSA ‘ 7.03 8.01 8.68 9.89 10.74 | 14.0 8.3 13.9 8.6 52.8
(n= 25)
| |
Other California 6.52 7.20 7.97 8.96 10.13 10.4 0.7 12.3 13.1 55.4
1 '
I |

 

* Excludes Kaiser, State, Shriner and dental hospitals. Numbers of hospitals noted on table
are for FY 1980-81 data. Numbers included in other years will vary slightly. See Table 2
for total hospitals in each year.
''San Diego also has the highest rate of growth in cost per hour of any
region. The lowest rates are found in Los Angeles and the San
Francisco Bay Area. Once again, these different rates of growth

result in a diminishing of regional differences over time.

C. Impact of Peer Group and Type of Control

Hospital labor cost and use are influenced by a number of variables
including the type of cases treated, involvement in a teaching
program, facility size, and financial objectives. To examine these
factors, FY 1980-81 labor data were analyzed by peer group? and

type of control. Table 7 presents data on labor costs by type of
control for 542 comparable hospitals? and for 524 of these

hospitals in eleven hospital peer groups. Based only on the
comparable hospital averages, the highest labor cost per day is that
experienced by non-profit and local government hospitals. The lowest
cost was found in district facilities. The percentage of total cost
accounted for by labor is quite similar in all categories, ranging
from a high of 64.5 percent in non-profit hospitals to a low of

' 62.2 percent in the investor-owned category.

When labor cost data are examined within peer group categories, the
relationships between types of control change substantially. The two
groups of teaching hospitals have the highest average labor cost per
day of any of the eleven peer groups. These two groups include only
two ownership types, non-profit and local government. This fact
contributes to the relatively high average labor cost of these two

 

8 Peer groups are created by a system that classifies hospitals according to
a set of variables such as services provided, facility size, teaching status,
and rural location. A description of these groups is included as Appendix B.

9 See Section IIA for the definition of "comparable hospitals".

14
''ST

TABLE 7

LABOR COST PER APD AND AS A PERCENT OF TOTAL COST
BY PEER GROUP AND TYPE OF CONTROL
CALIFORNIA HOSPITALS FY 1980-81

RS-058

 

TYPE OF CONTROL

 

 

Peer Group Non-Profit Investor Local Government District Peer Group Total
All Comparable $280.79 (64.5%) $250.78 (62.2%) $278.75 (63.2%) $237.52 (64.44%) $271.27 (63.9%)
Hospitals (n=243) (n=182) (n=49) (n=68) (n=542)
University $423.72 (65.8%) $366.82 (59.42%) $405.46 (63.8%)
Teaching (n=7) (n=1) (n=8)

 

Non-University
Teaching

$328.05 (61.7%)
(n=6)

$354.03 (60.4%)
(n=7)

$339.95 (61.1%)
(n=13)

 

Large Complex

$266.01 (64.1%)
(n=59)

$298.93 (61.4%)
(n=8)

$302.72 (64.3%)
(n=2)

$253.87 (66.4%)
(n=11)

$267.38 (64.2%)
(n=80)

 

Moderate Size

$255.53 (63.7%)
(n=61)

$275.69 (61.3%)
(n=43)

$251.12 (64.3%)
(n=5)

$221.56 (61.1%)
(n=14)

$258.36 (62.8%)
(n=116)

 

Small Urban

$247.16 (64.2%)
(n=55)

$267.48 (62.7%)
(n=83)

$242.52 (63.2%)
(n=6)

$233.67 (62.6%)
(n=30)

$255.38 (63.3%)
(n=158)

 

Small Rural

$217.52 (61.5%)
(n=20)

$229.11 (62.4%)
(n=3)

$238.29 (68.1%)
(n=6)

$250.05 (62.9%)
(n=30)

$233.93 (62.7%)
(n=59)

 

Urban Skilled
Nursing

$120.02 (69.9%)
(n=7)

$116.58 (67.0%)
(n=4)

$170.16 (68.9%)
(n=5)

$139.60 (68.9%)
(n=16)

 

Rural Skilled

$ 54.52 (61.2%)

$100.79 (64.0%)

$ 98.36 (65.5%)

$ 91.62 (64.2%)

 

 

 

Nursing (n=1) (n=4) (n=5) - (n=10)
Alcohol/Drug $ 50.25 (65.0%) $169.43 (56.5%) $147.81 (57.0%)
Rehabilitation (n=1) (n=10) (n=11)
Moderate $274.93 (63.5%) $219.91 (64.4%) $380.04 (65.9%) $198.81 (68.4%) $293.20 (64.9%)
Psychiatric (n=4) (n=6) (n=3) (n=1) (n=14)
Acute $199.05 (76.0%) $121.03 (66.%) $175.35 (78.5%) $151.61 (71.8%)
Psychiatric (n=9) (n=23) (n=7) (n=39)

 

 

 

 

 

 
''groups relative to investor-owned and district hospitals. Data on
the remaining nine peer groups show that local government hospitals
had the highest daily labor cost in four groups (large complex, urban
and rural skilled nursing, and moderate psychiatric). In three
groups (moderate size, small urban, and alcohol/drug), investor-owned
hospitals had the highest costs. Highest labor cost in the small
rural group was for district hospitals. Non-profit hospitals had the
highest cost in the acute psychiatric group but were actually below
the peer group average cost in the remaining eight groups. Labor

cost as a percent of total cost varies little among most peer groups.

To more closely assess the influence of type of control on labor cost
and use, data for hospitals in the small urban peer group were
examined. This group was chosen because it takes both facility size
and operational characteristics into account, and it includes a large
enough number of hospitals to make comparisons reasonable. Table 8a
shows average payroll cost per day varies little across the four
types of control. Payroll cost accounts for approximately 81 percent
of total labor cost in all but investor-owned hospitals, where it is
only 74 percent. Investor-owned hospitals put a higher percent of
labor expenditures into purchased service than does any other group.
Professional fees account for a fairly small percentage of labor
costs for all groups, with the lowest use found in local government

hospitals.

Table 8b shows that the highest cost per hour is that of investor-
owned hospitals but that these facilities use nearly the lowest
number of hours per day. On the other hand, local government
hospitals have the lowest cost per staff hour but use the highest
number of hours. (As Table 8a shows, these trade-offs between hours
used and cost per hour result in similar payroll cost in all

categories. )

16
''TABLE 8a

LABOR COST COMPONENTS BY TYPE OF CONTROL
SMALL URBAN HOSPITALS

RS-058

 

 

 

 

 

FY 1980-81
Payroll Purchased
Cost Services Fees
% of % of % of
Labor Labor Labor
$/Day Cost $/Day Cost $/Day Cost
Non-Profit $199.24 80.6% $34.38 13.9% $13.54 5.5%
(n=55)
Investor $197.45 713.8% $53.91 20.2% $16.12 6.0%
(n=83)
Local Government $197.15 81.3% $41.99 17.3% $ 3.38 1.4%
(n=6)
District $189.15 80.9% $28.03 12.0% $16.49 7.1%
(n=14)

 

17
''TABLE 8b
STAFF COST PER HOUR, STAFF HOURS PER APD, AND
OCCUPATIONAL DISTRIBUTION
SMALL URBAN HOSPITALS BY OWNER TYPE

 

 

 

 

FY 1980-81
Local
Non-Profit Investor Government District
(n=55) (n=83) (n=6) (n=14)

Staff Cost
per Hour $ 9.95 $10.46 $ 9.55 $10.04
Staff Hours 20.0 18.9 20.7 18.8
Percent

Management 10.0% 11.8% 9.5% 12.3%
Percent

Technician 1o.2 12é7 Atak 4055
Percent RN 19.2 18.4 14.3 16.8
Percent LVN 8.6 TD 142 S/
Percent Aides 11.0 Tost 10.3 12.8
Percent MD 4 at co 0
Percent

Other Medical at * 4 ye)
Percent

Food/Custodial 13.8 1364 15.0 14.4
Percent

Clerical/

Administration 21.8 22.0 23501 22.8
Percent

Other Salaries 2.2 2.8 Sel 1.6

 

*less than 0.05 percent

18
''As stated earlier in this report, one of the factors influencing
average cost per staff hour is the occupational mix of hospital
staff. In the case of this group of small urban hospitals, however,
it is difficult to determine the degree to which this factor
contributes to differences between ownership types. For example,

the four most commonly used high pay categories are management,
technicians, RNs, and LVNs. As Table 8b shows, the highest
percentage use of management hours is found in district hospitals,
the facilities with the second highest cost per staff hour. The
greatest percentage use of technicians and RNs is in non-profit
hospitals, which have the second lowest cost per staff hour. Local
government hospitals, with the lowest cost per staff hour, have the
highest percentage use of LVNs of any ownership category. Summing
across the four high pay occupational categories provides a somewhat
better explanation. Local government hospitals have the lowest cost
per staff hour and the lowest proportion of staff in the four high
pay categories (46.7 percent). Investor-owned facilities have the
highest cost per staff hour, and the second highest share of high pay
staff (50 percent). It appears, then, that the variation in staff
cost per hour in this peer group is partly explained by the different

occupational mixes of the labor force in the different hospital owner-

type groups.

A more in-depth understanding of the impact of peer group and
ownership type on hospital labor cost and use would require a
multivariate analysis utilizing the variables described in this
stucy plus more detailed data on wage rates by occupation, hospital
services, and other relevant variables. Such an effort would be

worthwhile but is beyond the scope of this study.

19
'' 
''APPENDIX A

PAYROLL COST AND STAFF HOURS PER APD AND PAYROLL COST PER STAFF HOUR
METROPOLITAN STATISTICAL AREAS
NON-METROPOLITAN STATISTICAL AREA COUNTIES
FY 1980-81

21
'' 
''PAYROLL COST AND STAFF HOURS PER APD AND PAYROLL COST PER STAFF HOUR
METROPOLITAN STATISTICAL AREAS (MSA) PLUS NON-MSA AVERAGES

FY 1980-81
PAYROLL/ STAFF cost/
MSA APD HOURS /APD STAFF HOUR
Anaheim-Santa Ana $229.11 21.2 $10.79
Bakersfield 189.49 19.9 9.54
Chico 203.41 21.0 9.70
Fresno 232.44 23.5 9.89
Los Angeles-Long Beach 241.92 22.6 10.76
Modesto 189.68 19.1 9.92
Oakland 249.66 19.2 12.91
Oxmard-Ventura 204.41 19.5 10.46
Redding 176.37 19.3 9.15
Riverside-San Bernardino 214.41 21.4 10.00
Sacramento 247.44 22.6 10.94
Salinas -Seaside-Monterey 189.60 17.2 10.99
San Diego 204.33 19.4 10.54
San Francisco 216.22 17.2 12.56
San Jose 263.97 21.9 12.04
Santa Barbara et. al. 181.86 18.4 9.87
Santa Cruz 200.02 17.8 11.21
Santa Rosa-Petaluma 215.37 19.5 11.05
Stockton 205.86 20.3 10.13
Valle jo-Fairfield-Napa 225.18 20.4 11.02
Visalia-Tulare-Porterville 131.17 14.8 8.86
Yuba City 173.78 18.4 9.44
Non-Metro Statistical Area 172.58 19.0 9.08

23
''PAYROLL COST AND STAFF HOURS PER APD AND PAYROLL COST PER STAFF HOUR
NON-METROPOLITAN STATISTICAL AREA COUNTIES

FY 1980-81

PAYROLL/ STAFF cost/
COUNTY APD HOURS /APD STAFF HOUR
AMADOR $ 90.33 8.9 $10.10
CALAVERAS 204.40 20.2 10.12
COLUSA 226.87 27.3 8.31
DEL NORTE 194.95 23.6 8.27
GLENN 173.45 16.9 10.28
HUMBOLT 198.63 22.1 8.99
IMPERIAL 180.13 19.8 9.08
INYO 240.86 28.2 8.54
KINGS 173.01 21.6 8.01
LAKE 191.54 19.9 9.64
LASSEN 75.69 8.5 8.92
MADERA 166.11 17.6 9.41
MARIPOSA 102.09 13.3 7.70
MENDOCINO 217.91 22.4 9.71
MERCED 169.72 19.3 8.80
MODOC Wet 57 235.0 4.90
MONO 254.82 26.3 9.67
NEVADA 189.82 21.8 8.71
PLUMAS 119.72 14.7 8.15
SAN BENITO 226.12 21.1 10.74
SAN LUIS OBISPO 180.44 18.0 10.03
SIERRA 189.29 23.4 8.08
SISKIYOU 180.59 22.0 8.19
TEHAMA 165.19 18.3 9.03
TRINITY 60.27 6.8 8.84
TUOLUMNE 138.78 15.2 9.13

24
''APPENDIX B

PEER GROUP DEFINITIONS

25
'' 
''vs

10.

11.

12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.

Peer Group Definitions

University Teaching - Large, complex hospital with heavy teaching
emphasis, owned or affiliated with a university which has a School of
Medicine and uses the hospital as its primary training site.

Large (Non-University) Teaching - Large, complex hospitals with heavy
teaching emphasis as evidenced by at least 10 graduate medical education
programs (including at least two in Family Practice or Internal Medicine,
Pediatrics, General Surgery or OP/GYN) and at least 50 postgraduate medical
students.

Large Complex - Large, complex hospitals offering a wide range of
services and characterized by emphasis on providing acute, medical and
surgical care in an urban environment.

Moderate Sized - Moderately sized hospitals providing a moderate range
of medical services with emphasis on acute medical and surgical care in an
urban setting.

Small Urban - Small urban hospitals with a narrow range of services and
primary emphasis on simpler medical and surgical care.

Rural - Small hospitals located in counties with largely rural popula-
tions and providing a narrow range of services with primary emphasis on
simpler medical and surgical care.

Urban, Skilled Nursing Emphasis - Urban Hospitals with emphasis on
medical and surgical care but with additional emphasis on long-term care.

Rural, Skilled Nursing Emphasis - Rural Hospitals with emphasis on
medical and surgical care but with additional emphasis on long-term care.

Alcohol-Drug Rehabilitation - Hospitals providing short-term care,
primarily for alcohol and drug rehabilitation.

Moderate Psychiatric Emphasis - Hospitals of average size and complexity
characterized by emphasis on general medical and suurgical care but which
also have an unusually high emphasis on psychiatric care.

Acute Psychiatric - Hospitals which are characterized by exclusive or
almost exclusive emphasis on acute psychiatric care.

Miscellaneous Groups

Charitable Research

Large Skilled Nursing
Large Prepaid Health Plans
Student Health

State

Dental

Children's Specialty
Rehabilitation

Large Rehabilitation Emphasis
Respiratory Specialty
Shriners’ Hospitals

27
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