Study suggests home care answer in cutting costs

A nationwide increase in the use of home health care can save the U.S. billions of dollars in hospital costs, according to the results of a new study conducted by Frank Lichtenberg, the Courtney C. Brown Professor of Business at the Columbia University Graduate School of Business and a Research Associate with the National Bureau of Economic Research.

Professor Lichtenberg estimates the nation may have saved as much as $25 billion in total hospital payroll costs in 2008 alone thanks to the growth of the home health care sector during the previous 10 years. He pointed out that "it is a reasonable calculation" that further savings will be realized in the years ahead if the use of home care continues to grow.

Funding for the study was provided by Home Instead, Inc., an American-based international franchisor with more than 60,000 trained CAREGivers(SM).

The findings have major implications for national health care policy as the U.S. faces a rapidly growing population of senior citizens whose needs will place increasing strains on the health care system in general and hospitals in particular.

Professor Lichtenberg found that "states that had higher home health care employment growth during the period 1998-2008 tended to have lower hospital employment growth, controlling for changes in population. Moreover, states that had higher home health care payroll growth tended to have lower hospital payroll growth."

He added: "The estimates indicate that the reduction in hospital payroll associated with a $1,000 increase in home health payroll is not less than $1,542, and may be as high as $2,315." Professor Lichtenberg based his estimate of a reduction of $25 billion in 2008 using the higher figure. Hospital wages, he noted, now run about 50 percent higher than in the home care industry.

The also study shows that between 1998 and 2008, the average length of stay in hospitals decreased by 4.1%, from 4.78 days to 4.59 days. The estimates imply that this decrease was entirely due to the increase in the fraction of patients discharged to home health care, from 6.4% in 1998 to 9.9% in 2008.

The Columbia University academic's newly-completed study is entitled, Is Home Health Care a Substitute for Hospital Care? Evidence from Longitudinal, State-Level Employment Data, 1998-2008. Recognizing that some other studies that have examined the question of whether increased home health care reduces hospital costs found no correlation, he emphasizes that those studies looked at data "from a single time period" while his study was based on "observations in more than one time period." That allowed adjustments for "difficult-to-measure factors (in particular, health status or severity of illness) that are likely to influence both hospital use and home health use."