Drivers of expenditure growth in outpatient care services

Objective: To identify and analyze drivers of costs for healthcare services delivered in outpatient settings. Design: We estimated 2 regression models of state-level annual outpatient expenditures. The first model uses data on operating costs for hospital outpatient services from hospital cost reports. The second model uses outpatient claims data from a large, national, group health insurer, and covers all varieties of outpatient providers for a specific insured population. Results: Several different cost drivers affected the growth of outpatient costs in the late 1990s. Foremost among the drivers is the change associated with demographics and general economic conditions, and economy-wide inflation, which,together accounted for 60% of the growth in outpatient costs. Characteristics directly related to the healthcare sector had a smaller, but still significant role in cost growth. The supply of physicians and specialists accounted for 10% of cost growth, whereas supply and structure of outpatient facilities were responsible for an additional 5% of outpatient cost increase. The health status of the population was associated with 8% of expenditure growth; technology and treatment practices accounted for. 7% of growth; and provider operating costs, such as wage levels, were linked to 9% of the growth. Conclusions: Some level of growth in outpatient care spending may be cost effective, because outpatient services can substitute for more expensive care in other settings. Strategies for limiting growth in the costs of outpatient-care will be more effective if focused on enhancing cooperation between payers, providers, and other stakeholders in assuring an appropriate and cost-effective supply of outpatient care resources.