This industry consists of establishments primarily providing general medical and surgical services and other hospital services in a hospital setting. This grouping excludes specialty hospitals classified in SIC 8069: Specialty Hospital, Except Psychiatric and psychiatric hospitals covered in SIC 8063: Psychiatric Hospitals.
622110 (General Medical and Surgical Hospitals)
According to the 2002 Statistical Abstract of the United States, the United States had 5,810 general and surgical hospitals in 2000, down from 6,965 in 1980. Of the total facilities in 2000, approximately 3,000 hospitals had more than 100 beds. Made up of both non-profit and profit-making establishments, they employed slightly more than 5 million workers and took in about $412 billion in annual gross revenues. This amount accounted for nearly one-half of the nation's total annual health care employment and health care expenditures, placing hospitals at the center of the health care industry. Although hospital revenues have increased substantially every year, from $102 billion in 1980 to $412 billion in 2000, or 404 percent, costs incurred by hospitals have also increased, from nearly $92 billion in 1980 to over $395 billion in 2000, or 429 percent.
In recent years, hospitals in the United States have been increasingly under pressure by government and businesses to provide higher quality service at lower costs while increasing access and preserving patient choice. A move to emphasize outpatient over inpatient care and efforts to use health maintenance organizations (HMOs) and other cost-cutting measures implemented by employers dramatically altered the business in the 1980s and 1990s. One result was a trend toward more academic medical centers, more ambulatory surgery, and fewer community hospitals, which declined in total number by 17 percent after 1981. As pressure to enact such changes continued, general medical and surgical hospitals approached the end of the twentieth century with persistent uncertainty about the direction and shape of their industry's future.
General and surgical hospitals are generally categorized as non-profit, profit-making, and both state and local government establishments. The 2002 Statistical Abstract of the United States reported 3,003 nonprofit, 749 profit-making, and 1,163 government hospitals in the United States. Nonfederal community hospitals, which included short-stay, general care hospitals and excluded federal, long-term, and psychiatric facilities, accounted for about 84 percent of the 932,000 available beds, providing 2.9 beds for every 1,000 U.S. residents. Beds available in federal hospitals were cut by more than half after 1980, from 117,000 to just 53,000. During the 1990s, community hospitals increasingly became part of multihospital systems, where one owner or an ownership group owned more than one hospital. The Public Citizen Health Research Group found that 1 in 12 community hospitals across the United States was involved in merger activity in 1995 alone.
Hospitals receive their revenues from different sources for the services they provide to patients. In the early 2000s the largest source of income to community hospitals came from Medicare and Medicaid programs. Of the $1.4 trillion spent on health care in 2001, governmental funds provided 46 percent, or $648 billion. Private insurance paid 35 percent, or nearly $487 billion, and out-of-pocket expenses accounted for 15 percent, or $210 billion. The remaining 4 percent came from other sources of revenue.
Hospital expenses are strongly affected by legislation, costs of medical technology, and trends in medical practice. As these expenses rose throughout the 1990s and into the 2000s, on-site administrative, food service, maintenance, and laundry support often were streamlined or contracted out in response. To counteract rising costs, many hospitals also attempted to expand their revenues by increasing their role in community health maintenance efforts beyond traditional emergency, obstetrics, and in-patient care to include disease prevention and patient education programs such as weight reduction, drug rehabilitation, prenatal care, and pediatric wellness.
Internally, hospitals are structured around an administrative staff that oversees nursing and administrative functions and separately operated medical staff and ancillary services—such as a pharmacy and the services of various therapists.
Early hospitals were established by governments and religious groups for care of special segments of the population, such as the poor, the military, and slaves. In Europe, doctors and other medical staff were not paid for their services in hospitals as such services were regarded as Christian charitable work. Records show that during the Middle Ages, medical staffs of charity workers were divided into two groups that rotated their work each month.
Starting in the thirteenth century, hospitals greatly increased in number throughout Europe. With this, hospitals gradually became more secular and began paying their medical staffs. At this time, and up until the eighteenth century, private patients in a hospital ward were virtually nonexistent. Hospitals were still regarded as places for the poor, while wealthy patients were usually treated in their homes by hired physicians.
By the late eighteenth and early nineteenth century, another form of hospital emerged. "Voluntary" institutions were developed with the idea of providing charitable treatment for all segments of the population. These hospitals grew into the "non-profit" U.S. establishments of the twentieth century.
Early hospitals in the United States followed the pattern of their European predecessors; most hospitals developed out of houses and treatment centers for special groups of the population. Many of these early U.S. hospitals were often quickly built in order to confine the spread of contagious diseases. The first hospitals in the United States were Bellevue Hospital founded in New York in 1658, and Philadelphia Hospital, founded in 1713. Both institutions were originally intended for the insane, the aged, and the poor.
In 1752, the Pennsylvania Hospital was founded as a voluntary hospital to serve both the poor in large public wards and other patients in private rooms; these affluent patients paid both the physician and the hospital for their services. However, hospitals in Europe and the United States were still viewed as places for the poor until the nineteenth century, when medical technology made large advances. During this period, hospitals became equipped with anesthesia (considered by experts to represent a turning point for hospitals), new medicines, and more sterile environments, making hospitals safer places for treatment.
The nineteenth century brought about other significant developments for hospitals. Hospitals became the centers of medical education and research. In addition to doctors, other medical staff, most notably nurses, became professionals in their own right, developing their own professional standards and certifications. It was also during this century that the health insurance industry started. Patient insurance began in Germany in 1883 and was operated and paid for by the German government; in the United States the idea was taken over by private insurance companies.
The twentieth century witnessed remarkable changes in this industry. Technological advances in radiology meant earlier diagnosis of many fatal ailments—in particular cancers—and treatment of those conditions. As many fields in medicine have developed, such as obstetrics, pediatrics, and transplant surgery, so too have departments providing these services in hospitals.
In response to the post-war baby boom, the 1950s saw a large growth in the number of hospitals throughout the country. At this time, medical schools and teaching hospitals grew to meet the demands of the new generation. From 1970 until 1990, the role of hospitals in U.S. society and their function within the larger health care industry changed significantly. During this period, the number of U.S. hospitals began to decline from 7,123 with 1.6 million beds, to 6,400 with 992,000 beds. Additionally, the rate of occupancy in hospitals also dropped from 80 percent in 1970 to 66.1 percent in 1994. The following year, the Journal of the American Medical Association projected hospital admissions would decline an additional 26 percent and average length of stay would dip another 11 percent by the end of the century.
This ongoing reduction in the number of hospitals and the drop in occupancy rates reflected a general trend away from traditional inpatient care to procedures that could be done just as effectively but even more economically on an outpatient basis. Outpatient visits at all U.S. hospitals accordingly rose from 181 million in 1970 to 454 million in 1994. Much of this movement resulted from government legislation and health insurance plans offering more coverage for less costly treatments that did not require overnight stays. Additional growth was spurred by technical advances in outpatient surgical procedures, which permitted the number of all surgeries performed outside a traditional hospital setting to rise from 24 percent in 1983 to 55 percent in 1993.
Since the 1970s the industry has also seen proprietorship of hospitals shift from a climate in which the ownership of individual establishments was predominant to one in which chains of hospitals prevailed. This situation enabled hospitals to share technology and management resources across their chains of establishments and cut costs due to economies of scale. Moreover, it allowed hospital owners to begin specializing their ownership services by dividing hospitals into the three main industry groups: general medical and surgical, psychiatric, and other specialties. The consolidation was not without problems, however, especially as it changed some nonprofit institutions into for-profit enterprises, which do not always stand in high regard.
Services Offered by Hospitals. General medical and surgical hospitals provide a variety of hospital-based health services. According to the 1996 Statistical Abstract of the United States, more than 92 percent of hospitals in the United States had emergency departments. For AIDS sufferers, nearly 74 percent of hospitals offered general inpatient care (up from 61 percent in 1992), while 6.7 percent offered specialized outpatient AIDS programs. Therapy services also made up a large portion of services provided by general medical and surgical hospitals: 91.2 percent of these hospitals offered respiratory therapy services, 85.5 percent had physical therapy programs, and 55.5 percent assisted with occupational therapy. Addressing the needs of the aging population, U.S. hospitals increased their geriatric services during the 1980s and 1990s. By the mid-1980s, nearly two-thirds of all hospitals offered one or more geriatric services. These included geriatric response, which monitors elderly patients in their homes and links them with hospitals in case of emergency; respite care facilities; and geriatric acute care units. A small number of hospitals developed Alzheimer's diagnostic and assessment services and adult day care facilities. However, the fastest growing field within geriatric care is psychiatric services; in 1992, 27 percent of general hospitals offered geriatric mental heath programs. According to Paula Eubanks in Hospitals, the majority of geriatric mental health programs were only available at non-community hospitals like large university hospitals and hospitals run by the Department of Veteran Affairs.
According to the American Hospital Association, 87 percent of general medical and surgical hospitals in the United States had an official outpatient department in 1993, while almost 94 percent offered at least some outpatient surgery services. That year, outpatient surgical procedures accounted for 55 percent of all surgeries performed in community hospitals. About 85 percent of all hospitals had blood banks, more than 66 percent had birthing rooms, and nearly 85 percent had ultrasound. Approximately 21 percent offered alcohol/chemical dependency care, and 23 percent had psychiatric services. In the 1990s, many hospitals also opened outpatient centers that specialized in the treatment of pain. These outpatient pain clinics varied in size and the specific types of treatments offered. With the growth in managed care and patients seeking alternatives to costly inpatient stays, these clinics were expected to increase in the late 1990s. Another significant growth area for outpatient services was in home health care; in 1993, 41.5 percent of all community hospitals offered home health care services.
In the 1990s, community hospitals also provided a growing array of health promotion services. In 1993, the American Hospital Association reported that more than 88 percent had patient education programs. Approximately 60 percent of all hospitals offered worksite health promotion programs.
Medicare and Medicaid. Medicare and Medicaid are federally funded health insurance programs that provide assistance to patients over 65 years of age and patients with low incomes or end-stage kidney disease or disabilities. In 1993, Medicare paid for 51 percent of all inpatient hospital visits and 8 percent of outpatient hospital costs; Medicaid paid for 27 percent of inpatient stays and 6 percent of outpatient charges. The Hospital Insurance (HI) program within Medicare pays for care given at hospitals, home health agencies, hospices, and skilled nursing facilities. In 1997, HI payments totaled $137.8 billion for 38 million enrollees.
The introduction of Medicare and Medicaid programs in the early 1970s significantly impacted this industry. In 1970, Medicare and Medicaid accounted for just over 6 million patient admissions to general medical and surgical hospitals and paid for $5 billion of their hospital charges; by 1993, Medicare alone paid $76.3 billion in inpatient hospital charges. Between 1980 and 1990, the number of Medicaid recipients receiving in-patient treatment rose by 913,000 annually, while the number of Medicaid patients receiving outpatient care rose by 2.6 million annually. By 1995 Medicare was the largest single insurer in the United States, covering about 14 percent of the entire population. As the population continued aging and additional advances were made in medicine and technology, Medicare funds for people over 65 years of age became the largest portion of all hospitals' government-funded health coverage.
Medicare and Medicaid programs also affected hospital management, requiring greater training in nonmedical matters in order to deal with paperwork regulations and various service requirements. But cutbacks and changes in the payment systems in Medicare and Medicaid during the 1980s and early 1990s had their largest impact on the industry's bottom line. In 1991 alone, $43 billion was cut from the Medicare budget, and in 1996 President Clinton vetoed a Republican balanced budget plan that would have mandated Medicare cuts of $270 billion and Medicaid cuts of $163 billion by the year 2000; the president's own alternative called for $124 billion in Medicare reductions, so even though no compromise was immediately reached, the hospital industry readied itself for even more changes.
As part of the overall realignment, the Health Care Financing Administration (HCFA), which managed Medicare, proposed fixed-rate pricing on many medical services. This new pricing system was projected to bridge the gap between the salaries of specialist physicians and general or family practitioners and was expected to improve the accounting involved in ambulatory care services.
Mergers. Mergers and joint ventures played important roles in this industry as a way of sharing the costs of needed technology and trimming redundant costs. Moreover, as the occupancy rate increased in hospitals across the country, joint ventures opened means of sharing liabilities to reduce the impact of financial downturns on individual hospitals.
In the late 1980s, the federal government imposed antitrust rulings in two highly publicized cases prohibiting the merger of certain hospitals. Following this action, a few mergers per year were investigated by federal agencies. As a result, the American Hospital Association ran a campaign to have antitrust laws relaxed, believing such laws hindered mergers and joint ventures between hospitals. As of the early 2000s, the government had not reversed any of its rulings concerning antitrust laws over hospital mergers. However, this issue remained important to this industry as it moved into the twenty-first century.
Malpractice. By the 1990s, the American Medical Association was estimating that $15 billion of the nation's health costs went towards "defensive medicine," that is, additional tests and diagnostic procedures carried out to protect doctors from malpractice claims. For this reason, the increase in malpractice cases, particularly during the mid-1980s, increased the use of hospital laboratory facilities. However, malpractice cases were more noted for negatively affecting this industry. Because hospitals have more insurance and larger revenues than individual doctors, they are often the targets of such suits. In the early 1990s, hospitals responded to malpractice cases by increasing medical staff decisions and reviews of doctors' procedures. Hospitals also started protecting their assets by placing them in separate corporations or endowments.
Hospitals and Pollution. Establishments in this industry have long dealt with the problem of waste disposal. Hospitals generate large amounts of general waste, such as paper and food; and they also have to dispose of chemical and pathogen waste. The AIDS epidemic has increased concern over waste containing live pathogens, which could be contaminated with the AIDS virus.
Until the late 1980s, hospitals in United States disposed of medical wastes by using on-site incinerators, which were effective in burning wastes, but polluted the air. In 1988, nine states passed medical-waste disposal legislation, and in 1989 an additional 22 states passed these types of laws. By 1990, new government standards, mostly at the state level, affected an estimated 6,000 hospital incinerators. Complying with the new standards imposed costs of between $500,000 and $1 million on each hospital.
To avoid the direct financial burden of upgrading incinerators, small hospitals, especially those in rural areas, banded together to share regional incinerators which met the new air pollution standards. However, this approach introduced new costs related to hauling waste to the incinerator.
As a result of overexpansion of facilities in the 1970s and the economic recession at the beginning of the 1990s, hospitals struggled without easy access to capital and charitable funding. Between 1985 and 1995, according to Modern Healthcare, approximately 600 acute care hospitals closed and eliminated about 180,000 beds. Even so, some believed that with the ongoing fiscal belt-tightening as many as 447,000 unnecessary beds still remained—enough to fill almost 2,500 hospitals.
In order to deal with the various financial problems they faced some companies in this industry increased their psychiatric units and rehabilitation clinics, both of which were high-profit facilities. Nearly all hospitals expanded their outpatient services, which generally brought in lower profits than inpatient units but yielded continuous revenues. Many were automating routine administrative tasks.
According to Hospitals, this industry also entered the 1990s suffering from a public image problem that affected the non-profit status of most U.S. hospitals. This situation resulted from public criticisms of hospital pricing practices, the growing number of malpractice cases, and the way in which hospitals took on a more business-like approach to managing their establishments. The decision by 447 formerly single-unit community hospitals to merge with larger corporations in 1995, along with the conversion that year of 58 non-profit hospitals to for-profit status, did not help the industry's overall public image.
The business-like approach that generally marked the entire industry was characterized by "quality management." Instead of leaving the quality of care in the hands of individual practitioners, hospitals instituted measures to prevent faulty processes from occurring. According to Julia Flynn Siler and Sandra Atchison in Business Week, quality management was originally adopted by hospitals to improve food service and lower the length of patient stays; however, in the 1990s this approach was also used for clinical decisions and processes.
The shift towards more outpatient care also affected hospital management. Although hospitals accounted for outpatient care separately from inpatient treatment, management of the two types of services was traditionally under one supervisor. However, in the 1990s hospitals started moving towards specialized management, which would unite the various types of outpatient services while keeping them separate from inpatient care.
At the end of 2002 hospital industry advocates were calling for increased provider payment relief for 2003, noting that more than half of the members of the American Hospital Association (AHA) reported losing money on Medicare in 2000. In addition, around 60 percent lost money in the Medicaid program, and about one out of every three hospitals reported a year-end loss. They also noted that profit margins in 2001 were at the lowest they had been since 1993. The annual profit margin for 2001 was 4.2 percent, down from 4.6 percent the previous year. Total revenue for U.S. hospitals grew 7 percent, to $400.6 billion in 2001, up from $373.5 billion in 2000. However, costs also increased 7 percent, from $356.5 billion in 2000 to $383.7 billion in 2001. The AHA listed higher costs for labor, new technology, and medical liability insurance, as well as bioterrorism preparedness, as factors in the increase in expenses.
Hospitals can anticipate a growing customer base as the average age of Americans continues to rise. However, ongoing cuts in Medicare and Medicaid, rising insurance premiums, and increased costs of medical technology, as well as a new focus on emergency preparedness in the wake of the terrorist attacks of September 2001, could simply leave hospitals with more patients on which to lose money.
In 2002, industry leaders were HCA Corporation, Tenet Healthcare Corporation, and Ascension Health.
Columbia/HCA Healthcare Corp., created by the 1994 merger of Columbia Healthcare Corp. and Hospital Corp. of America, became the largest hospital company when it merged again with Healthtrust in 1995. The new $17.7 billion-enterprise controlled 318 hospitals, staffed 62,277 acute care beds, and employed 240,000 workers. Standard & Poor's reported that the 1994 merger enabled the company to save $130 million annually through consolidation and lower purchasing costs; the 1995 merger, it predicted, would lead to an additional $125 million in savings each year.
In 1993, before the mergers, Hospital Corp. of America (HCA) owned 96 hospitals in 21 states. Despite sales of over $4 billion in 1991, this company recorded a loss in that year of $5.4 million. However, in 1992, it rebounded with earnings of $28.2 million on $5.13 billion in sales revenues.
The following year, it received public attention as part of the Government Accounting Office (GAO) report on hospitals found to be overbilling Medicare. According to the report, in 1991, Hospital Corp. of America sought Medicare payments for over $1.1 million in questionable non-medical costs. The company's account for these overbillings was $75,000, pointing out that it was a small fraction of the $114 million the hospital received from Medicare in 1991.
Columbia/HCA Healthcare Corp. sought to reinvent itself in the late 1990's by halting its expansion plans and trimming operations. By 2002, after several name changes that eventually became simply HCA and after the sale of 137 hospitals—nearly half of its 347 facilities—and its prescription benefit unit, HCA owned and operated 172 general, acute care hospitals and 79 ambulatory surgery centers, and employed 178,000. HCA reported $833 million in net income on $19.7 billion in sales in 2002.
In the early 2000s Tenet Healthcare Corporation was the second largest hospital chain in the United States, owning or operating 116 hospitals in 16 states and an additional hospital in Barcelona, Spain. Tenet, which operated a vast regional health care delivery system, recorded $785 million in earnings on $13.9 billion in sales in 2002. Ascension Health, the number one Catholic hospital system as well as the largest not-for-profit healthcare system in the United States, operated a network of 60 Catholic hospitals, as well as nursing homes, psychiatric wards, and other facilities in 15 states and the District of Columbia. Ascension was formed in 1999 by the merger of Daughters of Charity National Health System and the Sisters of St. Joseph Health System. Ascension reported a net income of $111 million on revenues of $7.7 billion in 2002.
According to the U.S. Department of Labor, Bureau of Labor Statistics, the hospital industry accounted for 5,054,820 jobs in 2001. Mean annual salaries ranged from $128,390 (surgeons) to cafeteria help ($16,900). Healthcare practitioners and technical occupations, including doctors, nurses and therapists, accounted for over half of all jobs. Nurses made up approximately one quarter of the hospital industry workforce, with an annual mean salary of $49,140. Office and administrative support accounted for just over 15 percent of the workforce, with a mean annual salary of $25,750. Health support occupations, including health aides, orderlies, and attendants, represented nearly 13 percent of jobs, with a mean annual salary of $22,680.
The overall job outlook for people working in hospitals was not as good as in the early 2000s as it was at the start of the 1990s when community and non-community hospitals were experiencing severe worker shortages. According to James C. Franklin in Monthly Labor Review, hospital staffs are expected to expand but at the slowest pace of all industries in the health care sector through 2005 as consolidations and cost-cutting efforts continue.
Since the 1980s, the number of hospitals has declined nationwide; nonetheless, up to the beginning of the twenty-first century there was a shortage of nurses. As job prospects for nurses level out in the 2000s, most areas of growth will be in home health, long-term, and ambulatory care facilities. Whereas RNs earned a mean annual salary of over $49,000, licensed nurse practitioners, which accounted for almost 4 percent of all hospital jobs, earned a mean annual salary of $30,470.
Job prospects for physician's assistants (PAs) are expected to be high through 2006. Due to an emphasis in the industry on cost containment, PAs will be looked upon as a favorable alternative to hiring more expensive physicians. PAs can assist in medical and surgical procedures as well as provide primary care to patients. In 2001, the median income for full-time physician assistants in clinical practice was $63,080.
The increase in hospital paperwork generated by private insurance companies and government insurance programs created growth for specialized occupations, such as medical record technicians. These workers are responsible for patient records and for providing statistical reports to insurers and hospital administrators. In 2001, medical records technicians held about 54,400 jobs in hospitals and had median annual salaries of $26,170.
This industry as part of the larger health care industry is expected to experience considerable growth in overseas markets as countries in western Europe expand their privatized services and countries in eastern Europe seek to fill shortages in general medical services. Only since the late 1970s have American hospitals sought business overseas, and at first they opened only a few hospitals in Canada, Great Britain, and Spain. Business America reported that American health care providers were increasingly looking toward countries in Europe and Asia, as well as in the Middle East, for expansion opportunities in 1996. U.S. enterprises also had established more than 12 arrangements with local providers in the former Soviet Union and Eastern Europe.
Technological advances since the 1970s largely contributed to the number of outpatient surgeries available in hospitals. Less invasive procedures were made possible by radiology and new surgical instruments and techniques.
In inpatient treatment, the last half of the twentieth century witnessed tremendous advances in transplant surgery. In 1990, over 10 percent of community hospitals performed organ transplants. With over 20,000 patients on waiting lists for transplants, continued research and technological developments were expected to address the increasing needs. AIDS treatment and research was another area in which growth was expected to continue. Services for AIDS patients were likely to change with advances in drug treatments, such as AZT and Pentamidine. Moreover, research continued in specialized physical and respiratory therapy for AIDS sufferers.
Larger hospitals have traditionally had an easier time investing in sophisticated medical technologies and gathering the expertise necessary to utilize them.
Benko, Laura B. "Outlook '03." Modern Healthcare, 6 January 2003.
"Despite Some Positive Results, AHA Says Glass Still Half Empty." Modern Healthcare, 23 December 2002.
Jaklevic, Mary Chris. "Mauled by the Bear." Modern Health-care, 4 November 2002.
Lovern, E. "Good News for Hospitals is Bad News on Payments." Modern Healthcare, 6 May 2002.
Pollack, Richard. "Weathering a 'Perfect Storm'; Hospitals Face Plethora of Challenges But Are Determined to Stay Afloat." Modern Healthcare, 27 January 2003.
Tieman, Jeff. "A Strong Contender." Modern Healthcare, 23 September 2002.
U.S. Census Bureau. Statistical Abstract of the United States, 2001, 2001. Available from http://www.census.gov .
U.S. Department of Labor. Bureau of Labor Statistics. 2001 National Occupational Employment and Wage Estimates, 2001. Available from http://www.bls.gov .
Weinberg, Neil. "Healing Thyself." Forbes Magazine, 28 February 2003.
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