1. Overview

3. Chartbook 2004 In 2003, Congress passed the most sweeping reform to the Medicare program since its inception by adding outpatient prescription drugs to its list of benefits. The Medicare Prescription Drug Improvement and Modernization Act (MMA) made many other changes to the program, including increasing payments to hospitals (primarily those in rural areas) by about $25 billion over the next 10 years and expanding coverage for certain preventive services, such as cardiovascular and diabetes screening tests. However, large federal budget deficits combined with the steep cost of the new legislation have created challenges. And, the effects of the MMA remain to be seen. Recent trends in health care spending and hospital use reveal that national health expenditures grew over 9 percent between 2001 and 2002, topping $1.5 trillion. Health expenditures reached over 14 percent of the gross domestic product. While hospital services were the largest category of spending, prescription drugs continued to grow at a higher rate. Hospitals have been under financial pressure in the last five years, both from public and private payers. Since 1999, up to one third of hospitals have had negative total margins. Early data for 2003 show a decline in operating and patient margins, while a sharp gain in non-operating income – due to improvement in the investment environment – pushed up total margins. Meanwhile, the performance of health plans continues to improve. Every year, hospitals provide valuable health care services to those who need them, but the importance of hospitals goes well beyond the health care services they provide. Unlike many other sectors of the economy that lost vitality and shed jobs during the 2001 recession, the health care sector – and hospitals, in particular – provided an economic mainstay. For example, hospitals support one out of every nine jobs, either directly or indirectly, in the U.S. The following charts report trends in the hospital field within the context of the broader health care environment. Hospital data are drawn primarily from the American Hospital Association Annual Surveys. The Chartbook begins with a chapter on overall patterns in health care spending, financing, and coverage. The next four chapters examine trends specific to hospital organizational, volume and utilization, financing, and workforce issues. The final chapter contains data on the economic benefits hospitals provide to their communities. Overview 3

5. Chapter 1: Trends in the Overall Health Care Market

7. Chartbook 2004 Chart 1.1: Total National Health Expenditures 1980 - 2002 Chart 1.2: Percent Change in Total National Health Expenditures 1981 - 2002 Billions Source: Centers for Medicare & Medicaid Services, Office of the Actuary (1) Expressed in 1980 dollars; adjusted using the overall Consumer Price Index for All Urban Consumers Inflation-adjusted (1) Source: Centers for Medicare & Medicaid Services, Office of the Actuary Trends in the Overall Health Care Market 7

8. Chartbook 2004 Chart 1.4: National Health Expenditures as a Percentage of Gross Domestic Product 1980 - 2002 Chart 1.3: Per Capita National Health Expenditures 1980 - 2002 Per Capita Amount Source: Centers for Medicare & Medicaid Services, Office of the Actuary (1) Expressed in 1980 dollars; adjusted using the overall Consumer Price Index for All Urban Consumers Source: Centers for Medicare & Medicaid Services, Office of the Actuary Inflation-adjusted (1) Trends in the Overall Health Care Market 8

9. Chartbook 2004 Chart 1.5: National Expenditures for Health Services and Supplies (1) by Category 1980 and 2002 Source: Centers for Medicare & Medicaid Services, Office of the Actuary (1) Excludes medical research and medical facilities construction (2) Other includes net cost of insurance and administration, government public health activities, and other personal health care (3) Other professional includes dental and other non-physician professional services Prescription Drugs - 5.2% Trends in the Overall Health Care Market Physician Services - 20.2% Hospital Care - 43.5% Nursing Home Care - 7.6% Other (2) - 9.5% Other Medical Durables and Non-durables - 5.9% Home Health Care - 1.0% Other Professional (3) - 7.3% $233.5 B$1,496.3 B Other Medical Durables and Non-durables – 3.4% Prescription Drugs – 10.9% Home Health Care - 2.4% Other Professional (3) - 7.8% Physician Services - 22.7% Hospital Care - 32.5% Other (2) – 13.5% Nursing Home Care – 6.9% 9

10. Chartbook 2004 Chart 1.6: Percent Change in National Expenditures for Health Services and Supplies (1) by Category 2001 - 2002 Source: Centers for Medicare & Medicaid Services, Office of the Actuary (1) Excludes medical research and medical facilities construction (2) Other includes government public health activities and other personal health care (3) Other professional includes dental and other non-physician professional services 10 Trends in the Overall Health Care Market Prescription Drugs Other (2) Physician ServicesOther Professional (3) Hospital Care Nursing Home Care Home Health Care Other Medical Durables and Non Durables Admin. and Net Cost of Priv. Health Insurance 9.2% All Health Services & Supplies

11. Chartbook 2004 Chart 1.7: Percent Change in National Expenditures for Selected Health Services and Supplies 1992 - 2002 Chart 1.8: National Health Expenditures (1) 1980 - 2013 Source: Centers for Medicare & Medicaid Services, Office of the Actuary (1) Years 2003 – 2013 are projections Source: Centers for Medicare & Medicaid Services, Office of the Actuary Trends in the Overall Health Care Market 11 Prescription Drugs Admin. & Net Cost of Private Health Ins. Hospital Care Nursing Home Care Home Health Care Billions

12. Chartbook 2004 Chart 1.10: Total Prescription Drug Spending 1980 - 2002 Source: Centers for Medicare & Medicaid Services, Office of the Actuary (1) Expressed in 1980 dollars; adjusted using the overall Consumer Price Index for All Urban Consumers Billions Inflation-adjusted (1) Trends in the Overall Health Care Market 12 Chart 1.9: Consumer Out-of-Pocket Payments for National Health Expenditures 1990 - 2002 Source: Centers for Medicare & Medicaid Services, Office of the Actuary Billions

13. Chartbook 2004 Chart 1.12: Consumer Out-of-Pocket Spending vs. Private Health Insurance Spending for Prescription Drugs 1980 - 2002 Source: Centers for Medicare & Medicaid Services, Office of the Actuary Out-of-Pocket Private Health Insurance Billions Trends in the Overall Health Care Market 13 Chart 1.11: Growth in Total Prescription Drug Spending as a Percentage of Total Growth in National Health Expenditures 1980 - 2002 Source: Centers for Medicare & Medicaid Services, Office of the Actuary

14. Chartbook 2004 Chart 1.13: Distribution of National Health Expenditures by Source of Payment 1980, 1990, and 2002 Source: Centers for Medicare & Medicaid Services, Office of the Actuary Chart 1.14: Distribution of Health Insurance Coverage Percentage of Population Covered by Payer 1990, 2001, and 2002 (1) Trends in the Overall Health Care Market 1990 2001 2002 Medicare - 15.2% Total Medicaid - 10.6% Other Government - 16.9% Other Private - 5.9% Out of Pocket - 23.7% Private Insurance - 27.8% $245.8 B$696.0 B $1553.0 B 19.7% 6.1% 33.5% 14.2% 10.6% 15.8% Out of Pocket Other Private Insurance Other Government Total Medicaid Medicare Out of Pocket – 13.7% Other Private - 5.0% Private Insurance – 35.4% Other Government - 12.7% Total Medicaid – 16.0% Medicare - 17.2% 14 Source: US Census Bureau, Health Insurance Coverage in the United States: 2002 (1) 2001 and 2002 data use population estimates based on Census 2000.

15. Chartbook 2004 Chart 1.15: Number and Percent Uninsured (1) 1985 - 2002 Source: US Census Bureau, Health Insurance Coverage in the United States: 2002 (1) 1999 - 2002 data use population estimates based on Census 2000 Chart 1.16: Average Percent Uninsured by State 2000-2002 Source: US Census Bureau, Health Insurance Coverage in the United States: 2002 Trends in the Overall Health Care Market Number of Uninsured (Millions) Percent of Total Population Number Percent 15 < 10.0% 10.0% - 14.9% 15.0% - 19.9% 20.0% and above RI 8.3% DE 9.5% DC 13.2%

16. Chartbook 2004 Chart 1.17: Medicare Enrollees (1) 1980 - 2002 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0 1990199520002001 Source: Centers for Medicare & Medicaid Services (1) Does not include S-CHIP Enrollees Chart 1.18: Medicaid Enrollees (1) 1990, 1995, 2000, and 2001 Trends in the Overall Health Care Market 16 Millions Source: Centers for Medicare & Medicaid Services (1) Hospital insurance (Part A) enrollees only; includes all persons (aged and disabled) Millions Aged Blind/Disabled Children Adults Other Title XIX 25.3 M 36.3 M 46.1 M 42.5 M

17. Chartbook 2004 Chart 1.19: National SCHIP Enrollment (1) FY 1999 - FY 2003 Chart 1.20: Percent Change in SCHIP Enrollment By State FY 2002 - FY 2003 Source: Centers for Medicare & Medicaid Services (1) Number of children enrolled at any point in the year Source: Centers for Medicare & Medicaid Services, FY 2003 Number of Children Ever Enrolled in SCHIP by Program Type, January 22, 2004 RI26% DE1% DC16% 1% - 50% 0% Less than 0% 51% - 100% Over 100% 17 Unknown Trends in the Overall Health Care Market

18. Chartbook 2004 (1) Chart 1.21: Percentage of Employees with Employer-based Coverage Who Can Choose Conventional, PPO, HMO and POS Plans 1988 - 2003 Source: The Kaiser Family Foundation and Health Research and Educational Trust, Survey of Employer- Sponsored Health Benefits: 1999, 2000, 2001, 2002, 2003; KPMG Survey of Employer-Sponsored Health Benefits: 1988, 1993, 1996 (1) Point-of-service plans not separately identified Chart 1.22: Distribution of Employer-sponsored Health Insurance Enrollment by Type of Plan 1988 - 2003 Conventional PPO HMO POS Trends in the Overall Health Care Market (1) Source: The Kaiser Family Foundation and Health Research and Educational Trust, Survey of Employer- Sponsored Health Benefits: 2000, 2002, 2003; KPMG Survey of Employer-Sponsored Health Benefits: 1988, 1993, 1996 (1) Point-of-service plans not separately identified 18

19. Chartbook 2004 Source: Centers for Medicare & Medicaid Services, Office of the Actuary Chart 1.23: Percentage of Medicare Beneficiaries Enrolled in Medicare Managed Care 1991 - 2003 Source: Centers for Medicare & Medicaid Services, Office of the Actuary (1) Percentages are risk enrollees divided by enrollees who have both hospital insurance and supplementary medical insurance Chart 1.24: Percent Growth in Medicare Spending per Beneficiary vs. Private Health Insurance Spending per Enrollee 1980 - 2002 Trends in the Overall Health Care Market Private Health Insurance Medicare 19 (1)

20. Chartbook 2004 Chart 1.25: Percentage of Medicaid Beneficiaries Enrolled in Medicaid Managed Care 1991 - 2002 Chart 1.26: Percentage of Medicaid Beneficiaries Enrolled in Medicaid Managed Care by State 2002 Source: Centers for Medicare & Medicaid Services, Office of the Actuary 25% - 49% 50% - 74% 75% - 100% 1% - 24% 0% Trends in the Overall Health Care Market RI 68.2% DE 77.1% DC 63.2% 20

21. Chartbook 2004 Source: Interstudy Competitive Edge: HMO Industry Report 13.2 Chart 1.28: HMO Plan Median Operating Margins 1990 - 2002 Source: The Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits 2000, 2001, 2002, 2003 Annual Surveys; KPMG Survey of Employer -Sponsored Health Benefits: 1988, 1993, 1996 Chart 1.27: Annual Change in Health Insurance Premiums 1988 - 2003 Trends in the Overall Health Care Market 21 2.1% 2.2% 2.5% 2.4% 1.2% -0.9% -3.5% -1.3% -0.6% 0.2% 1.3% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 90919293949596979899000102

22. Chartbook 2004 Source: Milliman USA Chart 1.29: Blue Cross/Blue Shield Underwriting Gain/Loss 1965 - 2002 Trends in the Overall Health Care Market 22