Did the Butler Really Do It? Examining the Impact of Technology on Hospital Cost Growth

Abstract

We examine the extent to which hospital technologies are associated with growth in U.S. hospital costs. We create an index capturing the availability of a range of technologies in 2214 hospitals and track over the period 1996-2007, along with financial information from Medicare Cost Reports. We find that our measures of technology availability are positively correlated with hospital costs, consistent with the view that technology is an important driver of costs. However, we find that even controlling for a large number of technologies leaves a significant portion of the growth in U.S. hospital costs unexplained. While this may at least in part reflect effects of technology not captured by our measures, it suggests that the drivers of hospital cost growth go significantly beyond commonly conceptualized measures of technological change. Finally, we identify innovations that are cost increasing or cost-saving, and the time pattern of these effects.

Keywords: technology index, hospitals, cost functions

JEL Classification: C23, C33, D24, I10