An analysis of hospital productivity and product change.

We developed a model to measure the contribution of changes in length-of-stay, service intensity, and productivity to the unusually low rate of growth in hospital costs per discharge in recent years. From 1992 through 1996 declining length-of-stay explained 97 percent of the decrease in real costs per discharge. Much of the drop was probably caused by care shifted from inpatient to postacute settings. Although complete data for our model are unavailable beyond that point, we cite several "leading indicators" that suggest that length-of-stay declines have played a smaller role in the continued low cost growth of 1997 and 1998 and that productivity may have risen sharply.