Monthly Labor Review March 1999 3

Health Services Industry

I

n recent years, the Nation’s health care system has undergone a major transition in the

way health care is financed, in the settings

where care is provided, and in the process by

which care is delivered. Privately managed health

care institutions emerged as the regulator of services and costs. As growth in health care costs

slowed, health care workers experienced smaller

gains in employment and earnings in the late

1990s, compared with those in the 1980s. Health

services had been a growing portion of the private economy until the latter half of the 1990s,

when employment growth fell below the rate of

other industries. This article examines changes

in the industry’s employment and earnings from

1987 to 1997 and in 1998.

Not the job machine it used to be

The primary health services industries are offices

of medical doctors, offices of other health practitioners, nursing and personal care, hospitals, and

home health care. While health services remains

among the small group of industries that add tens

of thousands of workers nearly every month,

growth in the industry has slowed in recent years.1

Although cost-reduction strategies had already

taken hold in 1992, the impact on employment

was negligible. Growth in the health services industry was still viewed as robust in that year.

Since then, however, employment growth in

health services has slowed. This is in contrast to

several other services industries, in which employment growth accelerated after 1992, compared with the earlier period. (See table 1).

Health services continued a pattern of slowing

growth in 1998. Federal reimbursement policies

for home health care and nursing homes were revised during the late 1990s, and many individuals shifted from fee-for-service to managed care

insurance plans. Most of the increase in health

care jobs over the 1987–97 period came from

hospitals and from offices and clinics of medical

doctors. When measuring growth rates instead of

job levels, however, home health care surpassed

all other components in every year of the past decade except 1998. (See chart 1.)

Since its first measurement in 1988, employment in home health care had phenomenal

growth.2 Medicare expenditures for home health

services grew at an average annual rate of 28.6

percent between 1990 and 1996, but this was projected to have slowed to 0.2 percent annually for

the 1996–98 period.3

Cost controls. Increased reports of medicare

fraud, in part, prompted changes to the reimbursement system for home care. False claims in the

medicare program were aggressively targeted

with an expansion of Operation Restore Trust in

Health services industry:

still a job machine?

The accelerating employment growth in health services

during the 1980s and early 1990s has slowed in recent years,

but the industry continues to be a major source

of new jobs in the United States

Cynthia Engel

Cynthia Engel is an

economist in the

Division of Monthly

Industry Employment

Statistics, Bureau of

Labor Statistics.
4 Monthly Labor Review March 1999

Health Services Industry

1997 by the Health Care Financing Administration.4 This effort, which targeted fraudulent billings to medicare by health

services institutions, found the greatest rate of fraud in nursing homes and in home health care services. As part of this

program, cost-report audits of home health agencies doubled,5

major hospital chains were investigated for doubtful billings,

and claims were closely scrutinized. The program also increased efforts to prevent illegitimate providers and suppliers

from doing business with the Health Care Financing Administration.6 Provisions in the Balanced Budget Act of 1997,7

development of the Medicare Integrity Program,8 and other

actions also addressed fraud in health services. (See the box.)

Employment growth in home health care agencies and nursing homes slowed during this period.9 (See chart 2.)

Another recent development in Federal reimbursement is

the establishment of the prospective payment system in the

nursing home industry. Prior to July 1998, reimbursements

varied widely for medicare patients with the same diagnosis

and were not adjusted for the clinical conditions of the patient. After July of that year, with the prospective payment

system in effect, medicare reimbursements had to reflect the

average cost to treat patients by diagnosis. This new payment

system initially provides for a blending of a facility-specific

rate and a Federal rate. By 2002, all nursing facilities will

receive a single Federal rate to charge

by diagnosis of the patient. While most

nursing homes receive a greater portion of their funding from medicaid (a

joint Federal-State program) than from

medicare, many States base their reimbursements on the medicare policy.

The Health Care Financing Administration estimates that payments to nursing homes from all sources will grow

less rapidly than did those prior to

1998.1 0

Changes that are being made in the

home health and nursing home industries are similar to the changes initiated for hospitals in 1983. Under the

prospective payment system for hospitals, reimbursements also were

based on diagnostic groupings of illnesses.11 As a result, hospitals reduced

operating costs, partly through greater

control of labor costs.12 Federal Government initiatives to control rising

costs in medicare continued with the

implementation of a physician fee

schedule in 1992.13 At the same time

that payments for inpatient hospital

and physician services slowed, payments for services that typically follow hospitalization (skilled nursing facility, hospice,

and home health services) increased dramatically, prompting

subsequent changes to their reimbursement systems as well.

Slower earnings growth. Cost-containment forces not only

affected employment, but also they dampened wage growth

in health care as well. Other services industries also experienced a slowing of wage growth, but the decline in health

services was more dramatic. (See table 2.) In 1998, the rate of

growth in average hourly earnings for nonsupervisory workers in health services was only half of its 1987–92 pace. Wage

growth in health services had been higher than that for all

services in the 1987–92 period, but dropped to the same rate

in 1992–97, and fell considerably below the rate of increase

for all services in 1998. While wage growth subsided, average hourly earnings for health services workers’ still was 83

cents greater than the average for all workers in the services

industry in 1998.

Weaker hourly earnings growth appears to be partly compensated by an increase in the number of paid hours throughout the health care industry. (See table 3.) Over the decade,

“home health services” increased the average workweek the

most. This was followed by “offices of medical doctors;” and

may relate to increased delivery of outpatient services in lieu

Table 1. Annual average growth in employment, total services and selected

services industries, selected years, 198798

Services ................................ 37,525 4,942 3.8 6,988 4.4 4.1

Health services ................... 9,904 1,385 4.6 1,230 2.7 1.9

Offices of medical

doctors ............................ 1,817 324 5.1 280 3.6 4.3

Offices of other health

practitioners ..................... 464 129 10.5 112 6.1 5.6

Nursing and personal

care ................................. 1,757 250 3.6 222 2.7 .1

Hospitals ........................... 3,953 608 3.6 119 .6 2.2

Home health services .......... 680 182 16.5 315 12.4 –4.5

Business services ................. 8,546 1,037 4.4 2,667 8.5 7.1

Personnel supply ................. 3,161 453 6.7 1,339 12.7 6.5

Computer and data

processing ....................... 1,603 207 5.9 575 11 13.6

Engineering and

management services1 ...... 3,236 240 2.6 534 4 7.7

Amusement and

recreation1 ......................... 1,688 211 5 385 5.8 7.3

1

 Data series available beginning in 1988, therefore, the average shown is a 4-year average in the 1987–92

period.

Industry

198792 199297

Annual

average

percent

change

1998

annual

average

Job

growth

Annual

average

percent

change

Job

growth

1998

percent

change
Monthly Labor Review March 1999 5

Chart 1. Employment growth in selected components of the health services industry, 198898

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

-10

-5

0

5

10

15

20

-10

-5

0

5

10

15

20

Offices of medical doctors

Other health practitioners

Nursing and personal care

Hospitals

Home health

[Percent] [Percent]

Chronology of policy in health care, 199698

August 1996 Medicare Integrity Program. The Health Insurance and Portability Act of 1996 provided funding

for safeguarding activities of the medicare program. In recent years, problems arose when contract

administrators gained control over the payment of medicare funding as they engaged in other lines

of business, which may have introduced a conflict of interest. The Medicare Integrity Program expands the Health Care Financing Administration’s contracting authority to perform medicare integrity

functions.

May 1997 Operation Restore Trust expansion. This added new geographic areas of concentration, as well as

several new, specific anti-fraud and abuse targets. Operation Restore Trust identified $188 million

owed to the Federal Government in its first 2 years of operation.

September 1997 Moratorium on new home health care agencies. This action blocked the formation of new home

health care agencies. Reimbursements were closely reviewed in the interim. In January 1998, the

moratorium was lifted, as other requirements were announced.

January 1998 Interim payment system. The Health Care Financing Administration announced new interim payments for home health care services. Actual reimbursement rates were announced in April 1998. The

payment system reflects a transition from a cost-based system to one based on diagnoses. Funding

levels for agencies were projected to reduce from current levels.

July 1998 Prospective payment system in nursing homes. Payments are based on the average cost to treat a

specific diagnosis. The prospective payment system makes it more difficult to increase charges by

manipulating medicare’s billing rules for ancillary services.
6 Monthly Labor Review March 1999

Health Services Industry

of inpatient services, as well as extended office hours for patients. “Nursing homes” also added significantly to average

hours over the decade. Even hospitals, which showed relatively anemic employment growth, increased the average

hours for which staff were paid. The growth in worker hours

in the health services industry is particularly significant when

compared with almost no growth in the average workweek for

all services industries.

When adjusted for inflation, weekly earnings in health services continued to increase, albeit less rapidly than all services since 1994. (See chart 3.) This is partially attributed to

health services’ relative immunity to the economic cycle, resulting in more stable increases in earnings over time. Still,

much of the growth in weekly earnings over the last several

years arose from an increase in the number of hours for which

workers in heath services were paid.

The quest for efficiency

Higher increases in average hourly earnings between 1987 and

1992 coincide with an era of primarily fee-for-service health

care financing. By comparison, slower wage growth in the latter 1992–98 period corresponds with the shift toward managed care and networks of provider organizations. (See table

4.) The most recent published data from the Employee Benefits Survey illustrates this decline when compared to a time

within the 1987–92 window. Health maintenance organizations (HMOs), which take on the dual role of health provider

and insurer, bear the most financial risk associated with proChart 2. Employment changes in home health and nursing care services, 199698

Table 2. Annual percentage rate of increase in average

hourly earnings, total services and selected

services industries, selected years, 198798

Services ........................... 4.4 3.1 4.6 $12.84

Health services ............... 5.5 3.1 3.5 13.72

Offices of medical

doctors ........................ 5.8 3.8 3.6 14.28

Offices of other health

practitioners ................ 6.7 4.6 5.1 13.13

Nursing and personal

care ............................. 5.6 3.5 4.5 9.76

Hospitals ....................... 5.8 2.9 2.9 15.46

Home health services ... 8.2 2.6 1.3 11.5

Business services .......... 2.7 3.5 6.1 12.55

Personnel supply .......... 2.7 2.8 5.3 10.33

Computer and data

processing .................. 5.2 4.9 5.3 21.16

Engineering and

management services1 . 4.3 3.3 4.2 17.86

Amusement and

recreation1 .................... 2.3 2.7 5.6 9.67

1

Data series began in 1988, therefore the average shown is a 4-year average in the 1987–92 period.

NOTE: Data are for nonsupervisory workers.

Industry

Percent growth

198792 199297 1998

1998 annual

average

(dollars per

hour)

-20

-10

0

10

20

-20

-10

0

10

20

Home health care

Nursing homes

[Thousands] [Thousands]

NOTE: Data are seasonally adjusted.

Aug.

1996

Jan.

1998

Jul.

1998

Nov.

1998

May

1997
Monthly Labor Review March 1999 7

viding care. Other insurance arrangements provide medical

care services and then bill for the reimbursement.

Types of health plans. A fee-for-service arrangement allows

the greatest freedom of choice. The insured may choose the

health care provider and service, and fees are billed to the

insurer when care is delivered. While per-patient deductibles

and copayments serve as restraints on services, once the deductible is met, a relatively high portion of medical expense is

covered, up to specific plan maximums. Any licensed provider may be sought by the insured, including very specialized physicians. Under fee-for-service plans, therefore, health

care providers are subject to fewer cost controls than are other

types of health insurance plans.

In contrast, managed care arrangements provide an incentive to lower costs, but the extent to which care is managed

varies a great deal. One form of managed care—preferred provider organizations (PPOs)—merely represent groups of providers that have negotiated discounts with insurers. Preferred

provider plans offer participants a higher rate of reimbursement for choosing physicians that are among a designated list

of participating physicians. In other respects, preferred provider plans are similar to fee-for-service plans. Services are

reimbursed following treatment, treatment is subject to a deductible, and there usually is an out-of-pocket expense limit.

The plans do not require the selection of a primary care physician or referrals for appointments with specialists. PPOs offer

the greatest selection of providers among managed-care

plans.14

Of the health plans available, HMOs more closely control

the provision of care compared with other insurance arrangements. HMOs begin the year with a fixed amount of revenue

based on the prepaid fee income of its participants, and this

represents the majority of their income for the year. Although

the prepaid fee covers most medical procedures, additional

revenue is earned only from copayments, which tend to be

Chart 3. Real average weekly earnings, health services, compared with all services, 198898

Table 3. Annual average growth in hours, 198898

Services .................................... 32.4 0.3

Health services ........................ 31.6 1.5

Offices of medical doctors ...... 31.6 1.3

Offices of other health

practitioners ......................... 29.6 .6

Nursing and personal care ..... 31.6 1.0

Hospitals ................................ 34.0 1.0

Home health services ............ 26.5 3.5

NOTE: Data are for all nonsupervisory workers, both full- and part-time

employees, and include all hours for which workers are paid (hours of work and

paid leave hours).

1988

annual average

Industry

Hours

198898

change

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

240

250

260

270

280

290

240

250

260

270

280

290

[Dollars] [Dollars]

Health services

All services

$ $
8 Monthly Labor Review March 1999

Health Services Industry

very small. HMOs require the insured to be screened by a primary physician for most treatments. In practice, the HMO manages services to a greater extent than other plans, and frequently provides more complete coverage for preventive care

and routine physicals.15 HMOs, which compete directly with

PPOs and fee-for-service plans, often provide less expensive

health insurance to the insured.

The popularity of lower cost managed care services has

prompted many physicians to join managed care companies,

leaving fewer physicians who operate independently. The

share of self-employed physicians declined from 38 percent

in 1994 to 34 percent in 1997 as the share of managed care

physicians grew.16 According to the American Medical

Association’s Socioeconomic Monitoring System Survey, the

percent of physicians having contracts with one or more managed care companies grew from 88.1 percent in 1996 to 92.3

percent in 1997.17

Inflation of medical care costs. The shift toward managed

care insurance arrangements coincides not only with slower

employment and wage growth, but also with declining price

inflation. Besides government and private initiatives to control rising costs, the slowing of price growth reflects changes

to work processes in health care institutions and shifts from

inpatient to outpatient settings for medical care.

Inflation of medical care, as measured by the Consumer

Price Index (CPI), far exceeds the rate of inflation of other

goods and services over the 1989–95 period, with price

growth decelerating and nearly converging with that of “all

items except medical care” in recent years. (See chart 4.) In

the Consumer Expenditure Survey, which is used to determine the market basket for the CPI, consumers’ health care

costs are split between insurance premiums and out-of-pocket

costs (including drugs, medical supplies, and services). Insurance costs for consumers averaged a growth rate of 6.1

percent between 1990 and 1996 for all consumer units.18 Consumer expenditures for health insurance increased, in part,

because premium costs shifted from employers to employees.19 Despite substantial increases in insurance premiums,

the average annual increase in the total health care bill paid

by these same consumer units measured only 3.0 percent in

the same period.

The CPI is not an all-inclusive measure of health care costs,

however. Although it measures consumer health care prices,

it does not include increases in costs paid by employers’ health

insurance premiums or government sources. Just as the overthe-year growth for medical care in the CPI has slowed from 9

percent in 1990 to 3 percent in 1997, increases in health costs

paid by employers and the government have moderated as

well. (See chart 5.) Employers’ health insurance costs have

declined in the 1990s, first reflecting declines in the rate of

growth and then reflecting absolute reductions in health insurance paid per civilian hour worked beginning in 1995.20

Although the moderation in the growth rate of public funding

was much less impressive than the declines for employers,

public funding achieved its slowdown despite increasing tolls

of an aging population. Otherwise, the rate of growth in public health spending would likely have slowed even more.

Declining price growth resulted from health care organizations using a variety of efforts to lower costs. These cost-cutting strategies included: shifting care from inpatient facilities

to outpatient settings, consolidating acute care facilities within

the industry, and conducting more studies on processes in

hospitals.

Hospital restructuring. Greater attention to the process of

providing patient care has allowed hospitals to change the

role of employees, while reducing overhead.21 Reorganizing

the jobs of staff members, to reduce idle time and the number

of staff member contacts per patient, is a common theme

among providers. While the actual impact is uncertain, hospitals have embraced varying team approaches to care, with

most resulting in increased reliance on nurses as resource coordinators.

Quality improvement techniques have helped to lower the

overall cost of care by eliminating redundancies and idle time.

The process of health care delivered to the patient has been

scrutinized as hospital revenues increase less rapidly, and labor costs are an obvious target for cuts. Many varied team

approaches to patient care are now common, as staff are

trained in several skills for greater flexibility.22

However, many health care workers report that understaffing has made their jobs more difficult. Based on a survey

Table 4. Percent distribution of health financing

arrangements, full-time employees in private

establishments, selected years

Total ....................... 100 100 100 100

Fee-for-service .............. 74 37 74 36

Health maintenance

organization ............... 17 27 14 27

Preferred provider

organization ................ 10 34 13 35

Exclusive provider

organization1

 ............... – 1 – 2

1

 Similar to preferred provider organizations, these plans have arrangements with specific providers who offer medical services at lower prices. Medical

care received from other providers is not paid for by the plan.

NOTE: Dash indicates data were not available in that year. Because of rounding, sums of arrangements may not equal totals.

SOURCE: Data are from the Bureau of Labor Statistics Employee Benefits

Survey.

Type of

arrangement

All employees

Medium and

large firms

Small

firms

1989 1995 1990 1996
Monthly Labor Review March 1999 9

Chart 4. Changes in Consumer Price Indexes, medical care, versus all items except medical, 198997

Chart 5. Average annual percent increase in health expenditures paid by employers and public funds, 199098

1989 1990 1991 1992 1993 1994 1995 1996 1997

0

1

2

3

4

5

6

7

8

9

10

0 0

1

2

3

4

5

6

7

8

9

10

[Percent] [Percent]

All items except medical

Medical

Annual average change Annual average change

SOURCE: Consumer Price Index, Bureau of Labor Statistics.

1990 1991 1992 1993 1994 1995 1996 1997 1998

-10

-5

0

5

10

15

-10

-5

0

5

10

15

[Percent] [Percent]

SOURCE: Employer Costs for Employee Compensation, Bureau of Labor Statistics, and Health Care Financing Administration, 

National Health Expenditures.

NOTE: Computations are based on current dollar expenditures. Public expenditures for 1997 and 1998 are projections. 

Employer costs are for civilian workers only. Health insurance was not reported prior to 1991.

Public funds

Employers' health insurance
10 Monthly Labor Review March 1999

Health Services Industry

of health care workers, more than half of a sample of registered nurses, practical nurses, physical therapists, and occupational therapists reported that they did not have enough time

to spend with patients, and 38 percent said their facility is understaffed as patient care has deteriorated. One-third, however, reported staffing levels as either excellent or good.

Among national trends that have contributed to a lower quality of care, the trend most frequently mentioned in the survey

was the closing of urban hospitals and clinics, and the second

most common concern was the expansion of managed care.23

Also, as an indication of staffing concerns, the American

Nursing Association drafted the Patient Safety Act in 1997.

This act would have required medicare providers to disclose

staffing and performance measures in order to promote better

care. The act also would have protected employees of medicare providers who report concerns about the safety and quality of services. Providers would have to disclose how proposed mergers and acquisitions affect public health and

safety.24 The Nursing Association subsequently endorsed the

Patients’ Bill of Rights, proposed by the President’s Advisory Commission on Consumer Protection and Quality in the

Health Care Industry.

Shifts to less expensive settings. Government and private

insurance policies have lowered reimbursements to hospitals

for inpatient services and increased reimbursements for home

health and outpatient services, causing a reduction in costly

hospital stays. Inpatient care is much more expensive than

outpatient treatment because of its greater reliance on skilled

personnel and technology, as well as the need to provide 24-

hour personal care. Because hospital outpatient services are

associated with less staff support, overall days of care in hospitals are declining. (See chart 6, which combines outpatient

and inpatient services into comparable units.) While output

measures in health care are not always comparable (an inpatient day 10 years ago may have required different expertise

from nursing staff than an inpatient day today) fewer patient

days correlate with a decreasing rate of growth in expenditures for hospital care. The latter grew at an average annual

percent rate of 8.8 percent between 1985 and 1990, compared

with 6.4 percent between 1990 and 1995.25 Changes in the

medicare program, which allowed the insured to pay for parttime or daily home-health services in 1989, also has resulted

in less hospital care and more home health services.26

While reductions in the average length of stay in hospitals

have occurred for all age groups except those under 15 years

of age, the reduction in days of care are greatest for those 85

years and older. Between 1985 and 1996, the average length

of stay for this group has declined by 2.6 days, compared with

2.2 days for those aged 65 and older, and 1.7 days for those

Chart 6. Total adjusted hospital patient dayscombined inpatient and outpatient care, 198896

1988 1989 1990 1991 1992 1993 1994 1995 1996

250

260

270

280

290

300

250

260

270

280

290

300

[Hundred thousands] [Hundred thousands]

SOURCE: American Hospital Association.
Monthly Labor Review March 1999 11

aged 45–64.27 Overall, declining lengths of stay among the

elderly have reduced hospital services for this rapidly growing group. As lengths of stay declined, cost growth was greater

than average in the post-acute care settings of skilled nursing

facilities, home health services, and hospice care.28

Impact of demographic changes

Continued increases in the elderly population will result in

higher demand for medical and personal services into the

twenty-first century. Policies of the medicare program provide a base health care package for all elderly Americans,

providing only about half of the personal health care expenditures of the elderly.29 For those elderly who cannot afford additional coverage, the changing policies in the medicare

program are critical in determining what health care they receive. The rate of growth in the elderly population aged 65

and older eased slightly in the 1990s. However, the eldest

subgroup, aged 85 and older, is growing more rapidly than

any other group. (See chart 7.) Because the aged use health

care services more intensively than others, they will account

for much of the care provided by health care workers in the

next decade.

Public funds absorb a larger share of personal health care

costs as the population ages. The portion of health care costs

that the Federal Government paid increased from 24 percent

in 1970 to 34 percent in 1996. (See table 5.) While the average medicare expense tends to decline with age,30 more persons are living longer while they are under the medicare umbrella, partially contributing to larger Federal expenditures.

Furthermore, new and improved treatments have increased

demand from this group. Hospital statistics show that in 1970,

20 percent of the discharges and 33 percent of the days of

care in hospitals were for persons aged 65 and older. This

grew to 37 percent of the discharges and 47 percent of the

days of care in 1994.31

As the public health bill has grown, so have efforts to contain cost growth. Like much of the private sector, medicare is

turning to managed care arrangements, especially since provisions of the Tax Equity and Fiscal Responsibility Act made

it easier for HMOs to contract with medicare. Because managed care was limited only to the HMO option prior to 1998,

participation among the elderly lags that of the general population, with only about 12 percent of medicare enrollees in

managed care.32 The Balanced Budget Act of 1997 contains

provisions that expand medicare’s managed care options.33

The act also includes extensive changes to medicare payment

systems to improve accuracy and to restrain the growth of

spending, especially in the areas of post-acute care services.

Managed care is more prevalent for the elderly in medicaid

Chart 7. Elderly population rates, 190080 and projections from 2000 to 2050

1900 1920 1940 1960 1980 2000 2020 2040

0

5

10

15

20

25

0 0

5

10

15

20

25

65 and older

85 and older

SOURCE: Bureau of the Census.

[Percent of total population] [Percent of total population]
12 Monthly Labor Review March 1999

Health Services Industry

than it is in medicare, covering 40 percent of those enrolled in

1996 and 48 percent in 1997.34

Impact on occupational distribution

More generalists. Changing trends have had an impact on

the occupational distribution of employment among different

health care settings as well as on the demand for specific types

of care. Managed care has placed more control in the hands

of generalists who typically are general practitioners, physician assistants, and nurse practitioners. Most often, generalists treat patients themselves or, in some cases, refer patients

to specialists. As a result, growth in managed care has altered

the demand for physicians of differing professional specialties. According to a study of medical journal recruitment ads,

the market for specialist physicians rose between 1984 and

1990—a period when fee-for-service plans offered easier access to specialist services—followed by a steep decline as

managed care plans shifted to delivery systems that use fewer

specialists. The ratio of advertisements for specialist positions

to generalist positions dropped from a peak of 4 to 1 in 1990

to 1.8 to 1 in 1995, the last year studied. Between 1984 and

1995, only family medicine practitioners exhibited continuous growth, as managed care plans required stronger utilization of generalists.35 This need is understood by new medical

residents; more than half of whom began residencies in 1998

in generalist programs.36

Despite increasing overall numbers of physicians, some

rural and urban environments continue to be underserved.

Helping to fill in the gap is the increasing number of physician assistants, who provide health services otherwise provided by physicians. They conduct complete physicals, provide treatment, and counsel patients. Over the last 10 years,

the number of graduates who became physician assistants has

more than doubled to approximately 4,000 per year.37 With

median annual incomes of physician assistants only about half

that of doctors, the infusion of this new profession into the

health care environment has helped to reduce costs.38 Physician assistants practice under the supervision of physicians

and are authorized to practice in 49 of the 50 States; 44 States

allow them to write prescriptions.39 According to a study by

the Congressional Office of Technology Assessment, the quality of care provided by a physician assistant for authorized

procedures is equal to that provided by physicians for the same

care.40

Demand for multiskilled professionals is increasing in various patient care environments and is reflecting a move towards a more generalist approach to health care. Initially,

small and rural hospitals and clinics hired multiskilled staff

to overcome the difficulty of employing specialists. However,

this employment strategy has entered mainstream health care

as a way to meet the needs of patients, at lower overall costs.

Distinctions between the practice of nursing and the various

allied health professions are blurring, as individuals often are

cross-trained into several disciplines, and are thereby able

to perform a wider range of services for patients. For example,

nurses now may have the added skills of a respiratory therapist or a cardiac rehabilitation specialist. Radiology technologists may also work as sonographers and EKG technicians, and the latter may act as respiratory therapists, and the

like.

Employment shifts of nursing staff. The nursing work force

became more highly skilled as patient populations changed.

In hospitals, the ratio of registered nursing personnel per hospital bed increased by more than 50 percent between 1983

and 1994. During this period, the workload of nurses increased

because they cared for patients whose illnesses were more

acute and whose average length of stay became shorter. Lesser

skilled nursing professions, including licensed practical nurses

and nurses aides, accounted for a smaller portion of hospital

employment, although job opportunities for these occupations

opened in home health care and in nursing homes.

According to an analysis of Current Population Survey

(CPS) data, sectoral shifts in the employment of nurses contributed to a wage decline for registered nurses, licensed practical nurses, and nursing aides.41 A declining rate of growth

in hospital employment led some nurses to seek jobs in other

sectors, which paid registered nurses and nursing aides 10

percent to 20 percent less than those working in hospitals in

1994.42 The rate of employment growth between 1988 and

1994 for registered nurses was 26 percent in nursing homes,

compared with 16 percent in hospitals.43 In the early 1990s,

as hospital employment growth moderated, earnings of registered nurses stagnated, especially in States with high rates of

HMO enrollment.44 According to CPS estimates of weekly earnings, registered nurses’ earnings continued to decline through

1997 when adjusted for inflation.

Table 5. Percent distribution of personal health care

payment sources, selected years

Source of payment 1970 1980 1990 1996

Total (billions of dollars) 73.2 247.3 699.5 1035.1

Total (in percent) ........... 100 100 100 100

Private funds .................... 62.2 57.6 59.3 53.3

Private health

insurance .................... 3.7 4.8 5.8 5.9

Public funds ...................... 37.8 42.4 40.7 46.7

Federal .......................... 24.3 29.1 28 33.9

State and local .............. 13.5 13.3 12.7 12.8

NOTE: Data excludes administrative, research, construction, and other

spending that is not directed towards patient care.

SOURCE: Department of Health and Human Service, Health Care Financing Administration, Office of the Actuary and Office of National Health

Statistics.
Monthly Labor Review March 1999 13

Conclusion

Unlike many services industries, the health services industry

experienced a slowdown in employment and wage growth in

recent years, even as it continues to be a major source of new

jobs in the United States. As health care expenditures increased at a slowing pace, the increases in health services

payrolls and earnings also have moderated.

Strategic bargaining on the part of large insurers helped to

bring increases in health prices in line with overall inflation.

Managed care also played a part in keeping health care costs

down. Strong competition engendered a restructuring of health

care occupations and job duties across and within health care

components. A reduction in inpatient hospital stays, despite

Footnotes

1 The employment data in this article are from the Current Employment

Statistics survey and appear in various issues of Employment and Earnings,

a monthly publication of the Bureau of Labor Statistics. Data on all employees, female workers, average hourly earnings, and average weekly hours are

products of this monthly survey. Data also are available on the Internet at

http://stats.bls.gov/ceshome.htm. For a historical view of trends in health

care financing and employment, see David Hiles, “Health services: the real

job machine,” Monthly Labor Review, November 1992, pp. 3–16.

2 Laura Freeman, “Home-sweet-home health care,” Monthly Labor Review, March 1995, pp. 3–11.

3 Health Care Financing Administration, National Health Expenditure

Projections, on the Internet at www.hcfa.gov/stats/NHE-Proj/tables/

t07A.htm (visited September 1998).

4 In its first 2 years as a demonstration project, Operation Restore Trust

focused on five States. In 1997, the Health Care Financing Administration

expanded the initiative. See “Secretary Shalala launches new Operation

Restore Trust” press release (Health Care Financing Administration, May

20, 1997).

5 “Medicare Home Health Moratorium is Lifted,” press release (Health

Care Financing Administration, Jan. 13, 1998).

6 “Home Health Care: Improving Quality, Tightening Standards,” on the

Internet at www.hcfa.gov/facts/f970808.htm (visited July 17, 1998).

7 This act also outlined provisions of the interim payment system for the

home health industry and the prospective payment system for the nursing

home industry, to be discussed in the following paragraphs of this article.

8 The Medicare Integrity Program expanded the authority of the Health

Care Financing Administration to review provider activities for medicare.

On the Internet at www.hcfa.gov/medicare/mip/background.htm (visited

July 16, 1998).

9 “Medicare: Recent Legislation to Minimize Fraud and Abuse Requires

Effective Implementation,” GAO/T-HEHS-98-9 (General Accounting Office, October 9, 1997). See also, “Clinton Calls for Moratorium on Entry of

Home Health Agencies into Medicare,” BNA Health Care Policy Report

(Washington, Bureau of National Affairs, Sept. 22, 1997), p. 1442; and

“Moratorium Lifted on Medicare Home Health; President Cites New, Tougher

Agency Rules,” BNA Health Care Policy Report (Washington, Bureau of

National Affairs, Jan. 19, 1998), p. 127.

10 National Health Expenditure Amounts, and Average Annual Percent

Change, Years 1970–2007, on the Internet at www.hcfa.gov/stats/NHEProj/tables/t02.htm (visited September 16, 1998).

11 The prospective payment system was initiated in October 1983 and

increased growth in the elderly population, underscores the

dramatic changes that have taken place. A reduced growth

rate in hospital employment contributed significantly to lower

growth in wages for nurses.

Managed care has altered the occupational mix of employees in health care establishments. The demand for generalists

has resulted in new jobs for physician assistants and nurse

practitioners, who provide some care previously rendered by

physicians. Multiskilled personnel are increasingly replacing

other health professionals certified in one area. This changing occupational mix, coupled with a slowing of growth in

hospitals and increased bargaining power of insurance companies, has led to a slowdown in wage growth for the health

services industry.

implementation was completed by October 1986. Louise B. Russell,

Medicare’s new hospital payment system: Is it working? (Washington, The

Brookings Institution, 1989).

12 “Hospital medicare profits reach 10-year high, ProPAC says,” BNA

Health Care Policy Report (Washington, Bureau of National Affairs, Jan.

20, 1997), p. 117. The Prospective Payment Assessment Commission

(ProPAC), reported that medicare margins are rising not because the program is paying more than in past years, but because hospitals have become

more efficient and have taken on a campaign to control their expenses.

13 A Profile of Medicare, 1998, on the Internet at www.hcfa.gov/

pubforms/chartbk.pdf, p. 25 (visited August 28, 1998). Also, other measures, which evaluate the reimbursements to physicians for health services,

are ongoing. See Gail R. Wilensky, “Statement before the Subcommittee on

Health, Committee on Ways and Means, U.S. House of Representatives,”

Washington, Mar. 20, 1997.

14 Robert McCarthy, “Not just another dinosaur” Business and Health,

May 1, 1998.

15 Employee Benefits in Medium and Large Establishments, 1995, Bulletin 2496 (Bureau of Labor Statistics, April 1998), table 42, “Medical care

benefits: Coverage for selected services, by type of plan,” p. 46.

16 Data are annual averages from the Current Population Survey.

17 “Incomes Climbing for Employed Physicians, Leads to Increase for

All, AMA Survey Finds,” BNA Health Care Policy Report (Bureau of National Affairs, Apr. 13, 1998), p. 639.

18 Bureau of Labor Statistics, Consumer Expenditure Survey, time series

data for all consumer units, annual averages. The most recent data are for

1996.

19 Geoffrey D. Paulin, and Wolf D. Weber, “The effects of health insurance on consumer spending,” Monthly Labor Review, March 1995, p. 35.

20 Employer Costs for Employee Compensation, 1986–1997, Bulletin

2505 (Bureau of Labor Statistics, August 1998).

21 Data from a study of large hospitals in 1991 indicate that, 20 percent of

the wages of personnel were attributed to structured idle time (time specialized staff members spent waiting for the opportunity or need to carry out

specific duties), compared with only 16 percent of wages spent providing

direct care to patients. Twenty-nine percent of wages was spent documenting care, and 14 percent, for scheduling and coordinating care. Other services, such as providing hotel and patient services, transporting patients or

supplies, and managing and supervising employees, accounted for between

6 percent and 8 percent each. See J. P. Lathrop, “The Patient-focused Hospital,” Healthcare Forum Journal, vol. 34, 1991, pp. 17–21.
14 Monthly Labor Review March 1999

Health Services Industry

22 Sharon B. Schweikhart, “Reengineering the work of caregivers:

role redefinition, team structures, and organizational redesign” (Foundation of the American College of Healthcare Executives, Hospital and

Health services Administration, Mar. 1, 1996).

23 “While quality of care still good, many workers say it is declining,”

BNA Health Care Policy Report (Washington, Bureau of National Affairs,

Jan. 5, 1998), p. 31.

24 On the Internet at www.nursingworld.org/gova/hr1165.htm (visited

June 25, 1998).

25 National health expenditures, percent distribution, and average annual

percent change, according to type of expenditure: United States, selected

years 1960–95, table 121, on the Internet at ftp://ftp.cdc.gov/pub/

Health_Statistics/NCHS/Publications/Health_US/hus96_97/

table121.wk1 (visited March 31, 1999). 26 Inpatient hospital care expenses in the medicare program declined

from 92.8 percent of hospital insurance fees in 1985, to 75.8 percent in

1995. See table 138, Medicare enrollees and expenditures and percent distribution, according to type of service: United States and other areas, selected years 1967–95, on the Internet at ftp://ftp.cdc.gov/pub/

Health_Statistics/NCHS/Publications/Health_US/hus96_97/table

138.wk1 (visited March 31, 1999).

27 Annual Hospital Discharge Summary, 1995, series 13, no. 133 (National Center for Health Statistics, May 1998), table A, and preliminary

1996 data (mimeo).

28 A Profile of Medicare, 1998, on the Internet.

29 “A Profile of Medicare,” on the Internet, figure 31.

30 Medicare payments in the last 2 years of life for decedents aged 60–69

averaged $22,590, compared with $8,296 for those aged 101 and older.

Those in the younger cohort tend to be admitted for more utilization-intensive diagnoses. James Lubitz, James Beebe, and Colin Baker, “Longevity

and Medicare Expenses,” New England Journal of Medicine, Apr. 13, 1995,

pp. 999–1003.

31 Annual Hospital Discharge Summary, 1994, National Center for Health

Statistics, May 1997, table A.

32 “A Profile of Medicare,” p. 59.

33 “The new Medicare+Choice program,” Health Care Financing Administration, on the Internet at www.hcfa.gov/medicare/mplusc.htm

(visited July 24, 1998).

34 “National Summary of Medicaid Managed Care,” Health Care Financing Administration, on the Internet at www.hcfa.gov/medicaid/

trends97.htm (visited May 19,1998).

35 “Report Says Managed Care Changing Marketplace Demand for Physicians,” BNA Health Care Policy Report, vol. 4, no. 36, pp. 1442–1443.

36 “Majority of U.S. Medical School Graduates Continue to Enter FirstYear Primary Care Residencies” (Washington, DC, Association of American

Medical Colleges newsroom), on the Internet at www.aamc.org/newsroom/

pressrel/980318.html (visited June 1998).

37 Fourteenth annual report on Physician Assistant Educational Programs in the United States, 1997–1998 (Alexandria, VA, American Association of Physician Assistant Programs, May 1998).

38 Usual Weekly Earnings of full-time employees by detailed occupation,

Current Population Survey, annual averages, table A-26. 39 Per phone conversation with Kevin Marvel, Director of Research,

American Academy of Physician Assistants. Earlier data, James McCawley

“Physician Assistants,” Journal of the American Medical Association, Apr.

2, 1997. Mississippi does not have laws recognizing physician assistance

practice. 40 “Nurse Practitioners, Physician Assistants, and Certified Nurse Midwives,” A Policy Analysis, Case Study 37, OTA_HCS-37 (Washington, U.S.

Congress, Office of Technology Assessment, December 1986).

41 Peter I. Buerhaus, and Douglas O. Staiger, “Managed care and the

nurse workforce,” Journal of the American Medical Association, Nov. 13,

1996. 42 “Managed care and the nurse workforce.”

43 Employment growth data are based on full-time and part-time registered nurses, and are derived from the Industry-Occupation matrix, Bureau

of Labor Statistics. 44 “Managed care and the nurse workforce.”