US hospitals experienced substantial productivity growth during 2002-11.

The need for better value in US health care is widely recognized. Existing evidence suggests that improvement in the productivity of American hospitals-that is, the output that hospitals produce from inputs such as labor and capital-has lagged behind that of other industries. However, previous studies have not adequately addressed quality of care or severity of patient illness. Our study, by contrast, adjusts for trends in the severity of patients' conditions and health outcomes. We studied productivity growth among US hospitals in treating Medicare patients with heart attack, heart failure, and pneumonia during 2002-11. We found that the rates of annual productivity growth were 0.78 percent for heart attack, 0.62 percent for heart failure, and 1.90 percent for pneumonia. However, unadjusted productivity growth appears to have been negative. These findings suggest that productivity growth in US health care could be better than is sometimes believed, and may help alleviate concerns about Medicare payment policy under the Affordable Care Act.