Responding to financial pressures. The effect of managed care on hospitals’ provision of charity care

Healthcare financing and insurance is changing everywhere. We want to understand the impact that financial pressures can have for the uninsured in advanced economies. To do so we focus on analyzing the effect of the introduction in the US of managed care and the big rise in financial pressures that it implied. Traditionally, in the US safety net hospitals have financed their provision of unfunded care through a complex system of cross-subsidies. Our hypothesis is that financial pressures undermine the ability of a hospital to cross-subsidize and challenges their survival. We focus on the impact of price pressures and cost-controlling mechanisms imposed by managed care. We find that financial pressures imposed by managed care disproportionately affect the closure of safety net hospitals. Moreover, amongst those hospitals that remain open, in areas where managed care penetration increases the most, they react by closing the health services most commonly used by the uninsured.     

Assessing the effect of increased managed care on hospitals

This study uses a new relative risk methodology developed by the author to assess and compare certain performance indicators to determine a hospital's relative degree of financial vulnerability, based on its location, to the effects of increased managed care market penetration. The study also compares nine financial measures to determine whether hospital in states with a high degree of managed-care market penetration experience lower levels of profitability, liquidity, debt service, and overall viability than hospitals in low managed care states. A Managed Care Relative Financial Risk Assessment methodology composed of nine measures of hospital financial and utilization performance is used to develop a high managed care state Composite Index and to determine the Relative Financial Risk and the Overall Risk Ratio for hospitals in a particular state. Additionally, financial performance of hospitals in the five highest managed care states is compared to hospitals in the five lowest states. While data from Colorado and Massachusetts indicates that hospital profitability diminishes as the level of managed care market penetration increases, the overall study results indicate that hospitals in high managed care states demonstrate a better cash position and higher profitability than hospitals in low managed care states. Hospitals in high managed care states are, however, more heavily indebted in relation to equity and have a weaker debt service coverage capacity. Moreover, the overall financial health and viability of hospitals in high managed care states is superior to that of hospitals in low managed care states.     

The supply of uncompensated care in Pennsylvania hospitals: motives and financial consequences

The need for uncompensated care has increased during a period in which hospitals are confronted with public and private-sector fiscal pressures. Using a panel design (1995--1998) on Pennsylvania private, not-for-profit general hospitals, we found the provision of uncompensated care is positively associated with financial surpluses, the provision of uncompensated care by neighboring hospitals, bed capacity, proportion of outpatient visits that are emergency, and the unemployment rate (a proxy for need for uncompensated care). Other analysis found that the provision of uncompensated care was not associated with operating surplus, except in hospitals that provide very large amounts of uncompensated care. Provision of services to Medicaid patients and HMO penetration had a negative impact on profitability.     

Managed care, vertical integration strategies and hospital performance

Objective. The purpose of this study is to examine the association of managed care with hospital vertical integration strategies, as well as to observe the relationships of different types of vertical integration with hospital efficiency and financial performance. Data and methods. The sample consists of 363 California short-term acute care hospitals in 1994. Linear structure equation modeling is used to test six hypotheses derived from the strategic adaptation model. Several organizational and market factors are controlled statistically. Principal findings. Results suggest that managed care is a driving force for hospital vertical integration. In terms of performance, hospitals that are integrated with physician groups and provide outpatient services (backward integration) have better operating margins, returns on assets, and net cash flows (p<0.01). These hospitals are not, however, likely to show greater productivity. Forward integration with a long-term-care facility, on the other hand, is positively and significantly related to hospital productivity (p<0.001). Forward integration is negatively related to financial performance (p<0.05), however, opposite to the direction hypothesized. Conclusions. Health executives should be responsive to the growth of managed care in their local market and should probably consider providing more backward integrated services rather than forward integrated services in order to improve the hospital's financial performance in today's competitive health care market.     

Competition or Coordination in Hospital Markets with Unionised Labour

This paper study labour market responses to hospital mergers. The market consists of two hospitals providing horizontally and vertically differentiated services. Hospitals compete either in price and quality or just in quality (non-price competition). To provide medical care, hospitals employ health care workers (e.g., physicians, nurses). The workers collectively bargain wages either at a central level, firm level or plant level. Anticipating wage responses, hospitals decide whether or not to merge. The main finding is that the bargaining structure, the nature of competition and the patient copayment rate have a crucial impact on the profitability of hospital mergers.     

The effect of managed care on hospital marketing orientation

Marketing is a central activity of modern organizations. To survive and succeed, organizations must know their markets, attract sufficient resources, convert these resources into appropriate services, and communicate them to various consuming publics. In the hospital industry, a marketing orientation is currently recognized as a necessary management function in a highly competitive and resource-constrained environment. Further, the literature supports a marketing orientation as superior to other orientation types, namely production, product and sales. In this article, the results of the first national cross-sectional study of the marketing orientation of U.S. hospitals in a managed care environment are reported. Several key lessons for hospital executives have emerged. First, to varying degrees, U.S. hospitals have adopted a marketing orientation. Second, hospitals that are larger, or that have developed strong affiliations with other providers that involve some level of financial interdependence, have the greatest marketing orientation. Third, as managed care organizations have increased their presence in a state, hospitals have become less marketing oriented. Finally, contrary to prior findings, for-profit institutions are not intrinsically more marketing oriented than their not-for-profit counterparts. This finding is surprising because of the traditional role of marketing in non-health for-profit enterprises and management's greater emphasis on profitability. An area of concern for hospital executives arises from the finding that as managed care pressure increases, hospital marketing orientation decreases. Although a marketing orientation is posited to lead to greater customer satisfaction and improved business results, a managed care environment seems to force hospitals to focus more on cost control than on customer satisfaction. Hospital executives are cautioned that cost-cutting, the primary focus in intense managed care environments, may lead to short-term gains by capturing managed care business, but may not be sufficient for long-term success and survival. Understanding consumer needs and perceptions, and using appropriate marketing strategies to ensure greater customer satisfaction and repeat business, will be among the key tasks for hospital executives in the future.     

Financial performance of safety-net hospitals in a changing health care environment.

Safety-net hospitals serving the poor and indigent in inner-cities have received inadequate research attention regarding the determinants of their financial performance in the changing health care environment. We analyze how the 1990-92 financial performance of 275 such hospitals is related to exogenous and endogenous factors such as payer mix, service mix, staffing and ownership. Models of hospital financial performance are developed using operating margin, cost per discharge and revenue per discharge as measures of performance. Stepwise regression is used to test the model with data from the American Hospital Association (AHA) and Health Care Investment Analysts (HCIA). Results suggest that: 1) The profitability of inner-city hospitals appears positively related with technical complexity of care; 2) High interest and low operating surplus may constrain the addition of technically sophisticated services to enhance profitability; 3) There is some evidence that new governmental programs, e.g. Medicaid managed care and Medicaid Diagnosis Related Groups (DRGs), may not have improved operating margins, though Medicaid DRGs appear to have contained costs. Follow-up research is needed on this issue; 4) Given external fiscal realities, internal management strategies for inner-city hospitals require research, e.g. developing appropriate managed care systems and timely expansion of sub-acute services and; 5) Services such as AIDS treatment and community health education represent opportunities to respond to community needs, especially since unit cost of such services will decline with high volume.     

The impact of an outpatient heart failure clinic on hospital costs and admissions

This study of 216 congestive heart failure (CHF) patients at a large teaching hospital in south-central Ontario was undertaken to determine whether the patients managed in an outpatient heart failure clinic used fewer hospital resources (as expressed in number of admissions, complexity of admission, and length of stay (LOS)) than a matched cohort who were not managed in an outpatient clinic. Statistical significance of LOS opportunities could not be demonstrated (owing to sample size), however, the heart failure clinic is making a positive impact on all types of admissions (CHF and non-CHF) in terms of LOS and suggests that management in an outpatient setting for chronic disease states is important for acute care hospitals to consider.     

The 'quiet' crisis in mental health services

The failure of insurers and managed care organizations to reimburse providers of mental health services for the costs of care has led to a crisis in access to these services. Using the situation in Massachusetts as a case example, this paper explores the impact of this defunding. Unable to sustain continued losses, hospitals are closing psychiatric units, and outpatient services are contracting or closing altogether. The situation has been compounded by the withdrawal of many practitioners from managed care networks and cuts in public-sector mental health services. Unless purchasers demand effective coverage of mental health treatment, mental health services will likely continue to wither away.     

Specialty-service lines: salvos in the new medical arms race

Hospitals and physicians are developing and marketing discrete and profitable specialty-service lines. Although closely affiliated specialist physicians are central to hospitals' service-line products, other physicians compete directly with hospitals via physician-owned specialty facilities. Specialty-service lines may be provided in a variety of settings, both inside and outside traditional hospital walls. Thus far, the escalating battle between hospitals and physicians for control over specialty services has not affected hospital profitability. However, as the scope of care that can be safely performed in the outpatient arena expands, physician competition for control over specialty services may threaten hospitals' financial health.     

Substituting inpatient for outpatient care: what is the impact on hospital costs and efficiency?

Substitution of inpatient for outpatient care is seen as a means to increase patient throughput and control costs. The purpose of this study was to assess the impact of increased outpatient care on hospital costs and efficiency using Finnish specialty-level data from years 2003–2006 to which we applied stochastic frontier analysis. The results reveal that outpatient services have a smaller impact on total costs than inpatient services. At the same time, increased outpatient activity appears to have an adverse effect on estimated cost efficiency. This counterintuitive finding is probably due to the low weight given to outpatient activities by the Diagnosis Related Groups (DRG) system. A common weighting for inpatient and outpatient services is required in order to assess accurately the impact of outpatient care on efficiency.     

Factors associated with the provision of uncompensated care in Pennsylvania hospitals

Data from 190 Pennsylvania hospitals in 1995 were used in regression analysis of the determinants of uncompensated care and profitability. Uncompensated care as a percentage of operating expenses was negatively related with hospital size and positively associated with obstetrical services emphasis, emergency visit mix, area unemployment rate, and sole community hospital status. Hospital profitability was not associated with uncompensated care; it was negatively associated with HMO penetration, Medicare and Medicaid share of admissions and religious ownership; and it was positively associated with medium size. Pennsylvania hospitals may have been shielded from the financial burdens of uncompensated care by the availability of funds from other sources that may not be available in the future. Consequently, unless new sources of funding are developed or insurance coverage expanded, financial pressures from providing uncompensated care may cause hospitals to face the dilemma of abandoning uninsured patients or risking financial insolvency.     

A supervisory level self-directed work team in health care.

Nationwide changes in health care delivery precipitated shifts in management within health care facilities. Connecticut experienced growth of 24 percent in managed care contracting between 1992 and 1994, a result of private sector initiatives set in motion by the proposed Clinton Administration health care plan. The shift from fixed rate to capitated payment structures was expected to have a negative impact on health care facilities and hospitals in particular. Further, it was anticipated that managed care would push services out of hospitals and into price-competitive, freestanding facilities. The response of Hospital for Special Care included development of a supervisory self-directed work team.     

The reimbursement blues. A psychiatric hospital copes with decreasing reimbursement and declining admissions

Beginning in 1989, Harbor View Mercy Hospital, a freestanding psychiatric facility in Fort Smith, AR, saw a flattening of growth in inpatient days and declines in discharges. In addition to decreasing admissions, it faces the problems of decreasing reimbursement, the need to provide more services with fewer resources, and greater government regulations. The greatest problem is inadequate reimbursement. Psychiatric hospitals fare worse than their acute care counterparts under both Medicaid and Medicare. To fulfill its mission to serve those in need, Harbor View has allocated 43 percent of its revenue budget this year to cover charity care, bad debt, etc. Ron Summerhill, the hospital's chief administrative officer, predicts a slowdown in the growth and profitability of psychiatric services in both the for-profit and not-for-profit sectors. But he is combating this trend by increasing use of managed care arrangements, diversifying, offering more outpatient services, and advocating for change in the reimbursement situation.     

Characteristics of acute care hospitals with diversity plans and translation services

Hospitals provide diversity activities for a number of reasons. The authors examined community demand, resource availability, managed care, institutional pressure, and external orientation related variables that were associated with acute care hospital diversity plans and translation services. The authors used multiple logistic regression to analyze the data for 478 hospitals in the 2006 National Inpatient Sample (NIS) dataset that had available data on the racial and ethnic status of their discharges. We also used 2004 and 2006 American Hospital Association (AHA) data to measure the two dependent diversity variables and the other independent variables. We found that resource, managed care, and external orientation variables were associated with having a diversity plan and that resource, managed care, institutional, and external orientation variables were associated with providing translation services. The authors concluded that more evidence for diversity's impact, additional resources, and more institutional pressure may be needed to motivate more hospitals to provide diversity planning and translation services.     

The restructuring of the American hospital sector in the arena of managed care

This article summarises the evolution of management in American hospitals under managed care. More specifically, the article is centred on the measures decided upon by hospitals over the past years aiming to improve profitability which was neglected by managed care organisations. These measures involve both internal and external reforms and have largely weakened many hospitals, but have also allowed for the implementation of a number of systems that benefit the policyholder (therapeutic recommendations, a comparative study of care offered by health institutions, etc.). Furthermore, not all hospitals handle these difficulties with the same success, depending on their geographical location or their status. Some are reinforced by these strategies, while others are forced to close. These measures have often resulted in mergers between hospitals, reorganisation of services, or laying off personnel. While some of these strategies are above all strategies for withdrawal, which translate into savings that are detrimental to patients, it is equally possible to observe strategies for recovering demand (specialising care, partnerships in research and prevention, etc.). The latter, however, is less frequent than the former, which shows the serious crisis American hospitals are experiencing today.     

The consumer welfare implications of the hospital ownership mix in the US: an exploratory study

This paper offers an empirical test concerning how hospital ownership mix affects consumer welfare in the US. The test compares the market benefits and costs resulting from an increased presence of nonprofit hospitals by observing empirically how the nonprofit market share impacts hospital care utilization at the margin. The empirical results suggest that too many not-for-profit and public hospitals exist in the inpatient care segment of the typical hospital services industry of the US. In contrast, the empirical findings indicate that too many for-profit hospitals operate in the outpatient care portion of the hospital services industry. The policy implication is that more quality of care per dollar might be obtained by promoting increased for-profit activity to inpatient care and more nonprofit activity to outpatient care in some market areas. This conclusion, however, is tempered with several caveats. We discuss these and also make recommendations for further research.     

The effects of hospital-physician integration strategies on hospital financial performance.

STUDY QUESTION. This study investigated the longitudinal relations between hospital financial performance outcomes and three hospital-physician integration strategies: physician involvement in hospital governance, hospital ownership by physicians, and the integration of hospital-physician financial relationships. DATA SOURCES AND STUDY SETTING. Using secondary data from the State of California, integration strategies in approximately 300 California short-term acute care hospitals were tracked over a ten-year period (1981-1990). STUDY DESIGN. The study used an archival design. Hospital performance was measured on three dimensions: operational profitability, occupancy, and costs. Thirteen control variables were used in the analyses: market competition, affluence, and rurality; hospital ownership; teaching costs and intensity; multihospital system membership; hospital size; outpatient service mix; patient volume case mix; Medicare and Medicaid intensity; and managed care intensity. DATA COLLECTION/EXTRACTION. Financial and utilization data were obtained from the State of California, which requires annual hospital reports. A series of longitudinal regressions tested the hypotheses. PRINCIPAL FINDINGS. Considerable variation was found in the popularity of the three strategies and their ability to predict hospital performance outcomes. Physician involvement in hospital governance increased modestly from 1981-1990, while ownership and financial integration declined significantly. Physician governance was associated with greater occupancy and higher operating margins, while financial integration was related to lower hospital operating costs. Direct physician ownership, particularly in small hospitals, was associated with lower operating margins and higher costs. Subsample analyses indicate that implementation of the Medicare prospective payment system in 1983 had a major impact on these relationships, especially on the benefits of financial integration. CONCLUSIONS. The findings support the validity of hospital-physician financial integration efforts, and to a lesser extent the involvement of physicians in hospital governance. The results lend considerably less support for strategies built around direct physician ownership in hospitals, particularly since PPS implementation. RELEVANCE/IMPACT. These findings challenge prior studies that found few financial benefits to hospital-physician integration prior to PPS implementation in 1983. The results imply that financial benefits of integration may take several years after implementation to emerge, are most salient in a managed care or managed competition environment, and vary by hospital size and multihospital system membership.