Uncompensated care before and after prospective payment: the role of hospital location and ownership.

Research was undertaken to determine the effects of hospital ownership, location, and Medicare's prospective payment system (PPS) on inpatient uncompensated care. A nonequivalent group design was used with repeated measures of uncompensated care (UNCC) on 137 system hospitals taken pre- and post-PPS. Investor-owned system hospitals demonstrated the largest increase in UNCC (37 percent) under the PPS. Results suggest that not-for-profit and investor-owned system hospitals are becoming more similar in levels of uncompensated care provided and that the PPS has had a negative effect on rural hospital profitability.     

Relevant factors to consider prior to an investor-owned acquisition of a nonprofit healthcare entity

The purpose of this article is to explore the factors that affect the negotiations for an acquisition of a nonprofit system by an investor-owned entity. The recent economic downturn, accompanying credit crisis, and healthcare reform legislation will likely encourage and accelerate the pace of merger and acquisition (M&A) transactions between investor-owned entities and nonprofit hospitals. As many nonprofits are smaller, more financially vulnerable, and more limited in their access to capital than their investor-owned counterparts, nonprofits could be prime targets for investor-owned acquirers during the healthcare reform implementation period. In M&A transactions of this type, the investor-owned acquirer typically is motivated to pursue an acquisition when the deal promises an acceptable return on investment and decreased operating costs from economies of scale. Alternatively, the nonprofit target is typically seeking funding for upgrades to facilities and information technology systems as well as a continued commitment to charity care and managed-care contracting leverage. A successful acquisition of a nonprofit hospital by an investor-owned company requires a careful analysis of relevant tax, economic, and strategic factors prior to closing the deal. This article lists the most significant factors to consider in these deals and explains how these factors should influence the purchase price and postacquisition cash flow.     

Pharmaceutical "charge compression" under the Medicare outpatient prospective payment system

Analysis of the actual acquisition costs of a sample of pharmaceuticals demonstrates that payment rates for pharmaceutical therapies under the Medicare hospital outpatient prospective payment system (OPPS) are systematically biased against fully reimbursing high cost pharmaceutical therapies. Under the Centers for Medicare and Medicaid Services' (CMS') methodology, which assumes a constant markup, a bias in the cost estimate occurs when hospitals apply below average markups in establishing their charges for pharmaceutical products with above average costs. We developed a model of the relationship between product costs and charge markups. The logarithmic model shows that an increase in the acquisition cost per episode can be expected to lead to a reduction in the charge markup multiple. When markups for pharmaceuticals decline as acquisition cost increases, a rate-setting methodology that assumes a constant markup results in reimbursement for higher cost products that can be far below acquisition cost. The incentives in the payment system could affect site of care choices and beneficiary access.     

An alternate approach to hospital cost control: the Rochester project.

The rapid escalation in health care costs has demonstrated a need to control costs in general and hospital costs in particular. In New York State, efforts at control have followed one of several paths, including reduction of Medicaid program expenditures, elimination of hospital beds, and prospective reimbursement of hospital costs. Although some success has been achieved in each of these areas, hospital costs containment has not been as successful as had been hoped. A new project called MAXICAP, being developed in the Rochester region, seeks to link payment with regional hospital planning. MAXICAP represents a voluntary attempt by hospitals, third party payers, planners, consumers, and governmental agencies to devise a prospective hospital payment system. Under this system community hospital plans in the Rochester region would be integrated and a cap imposed on both revenues and expenses for acute hospital care. The principal advantage of the MAXICAP is that it offers a mechanism for linking hospital planning with payment functions on a regional basis. The principal disadvantage is that the success of the MAXICAP depends upon the voluntary cooperation of the vast majority of the acute care hospitals in the area--hospitals that may be scattered throughout a relatively large region.     

The effect of selective contracting on hospital costs and revenues

OBJECTIVE: To examine the effects of selective contracting on California hospital costs and revenues over the 1983-1997 period. DATA SOURCES/STUDY SETTING: Annual disclosure data and discharge data sets for 421 California general acute care hospitals from 1980 to 1997. ANALYSIS: Using measures of competition developed from patient-level discharge data, and financial and utilization measures from the disclosure data, we estimated a fixed effect multivariate regression model of hospital costs and revenues. FINDINGS: We found that hospitals in more competitive areas had a substantially lower rate of increase in both costs and revenues over this extended period of time. For-profit hospitals lowered their costs and revenues after selective contracting was initiated relative to the cost and revenue levels of not-for-profit hospitals. The Medicare PPS has also led high-cost hospitals to lower their costs. CONCLUSIONS: The more competitive the hospital's market, the greater degree to which it has had to lower the rate of increase in costs. A similar pattern exists with regard to hospital revenues. Both of these trends appear to result from the growth of selective contracting. It remains unclear to what extent these cost reductions were the result of increased efficiency or of reduced quality. Since hospital cost growth is sensitive to the competitiveness of its market, antitrust enforcement is a critical element in any cost containment policy.     

Factors and perspectives affecting nursing resource consumption in community hospitals.

The consumption of professional and non-professional nursing resources on medical/surgical nursing units varies sharply among community hospitals. In an effort to explain the variation, this study examines several factors: socio-economic characteristics of the population; supply of registered nurses; hospital characteristics such as size, complexity and diversity of services; patient characteristics such as case mix index and nursing care acuity index; and production system characteristics such as efficiency of technical support systems and the structure of nursing care delivery. Nursing skill mix varies more than the staffing levels among hospitals. The research suggests that factors associated with a clinical-rational model such as nursing acuity index and the efficiency of clinical/support systems explains little, whereas factors associated with economic-rational model of hospital revenues--like case mix, number of hospital services, poverty (through Medicaid program) and age distribution (through Medicare program)--do significantly affect nursing resource consumption. The results point to the presence of resource allocation to nursing based on hospital revenues rather than patient care needs.     

From the emergency department to the general hospital: hospital ownership and market factors in the admission of the seriously mentally ill

General hospitals are becoming the safety net provider for the seriously mentally ill (SMI) in the United States, but these patients are faced with a number of potential barriers when accessing these hospitals. Hospital ownership and market forces are two potential organizational and healthcare system barriers that may affect the SMI patient's access, because the psychiatric and medical services they need are unprofitable services. This study examines the relationship among hospital ownership, market forces, and admission of the SMI patient from the emergency department into the general hospital. This was a cross-sectional study of a large sample of SMI patients from the 2002 State Inpatient Datasets for five states. Multiple logistic regression was applied in the multivariable analysis. After controlling for patient, hospital, and county covariates and when compared with not-for-profit hospitals, public hospitals were more likely to admit while investor-owned hospitals were less likely to admit SMI patients. Hospitals in competitive markets were less likely to admit while hospitals with capitation revenues were slightly less likely to admit these patients. Policy options that can address this "market failure" include strengthening the public psychiatric inpatient care system, making private health insurance coverage of the SMI more equitable, revising Medicare prospective payment system to better reimburse the treatment of the SMI, and allowing not-for-profit hospitals to count care of the SMI as a community benefit. Results of this study will be useful to healthcare managers searching for ways to reduce unnecessary administrative costs while continuing to maintain the level of administrative activities required for the provision of safe, effective, and high-quality care.     

Long‐Term Impact of Medicare Payment Reductions on Patient Outcomes

Objective

To examine the long-term impact of Medicare payment reductions on patient outcomes for Medicare acute myocardial infarction (AMI) patients.

Data Sources

Analysis of secondary data compiled from 100 percent Medicare Provider Analysis and Review between 1995 and 2005, Medicare hospital cost reports, Inpatient Prospective Payment System Payment Impact Files, American Hospital Association annual surveys, InterStudy, Area Resource Files, and County Business Patterns.

Study Design

We used a natural experiment—the Balanced Budget Act (BBA) of 1997—as an instrument to predict cumulative Medicare revenue loss due solely to the BBA, and basing on the predicted loss categorized hospitals into small, moderate, or large payment-cut groups and followed Medicare AMI patient outcomes in these hospitals over an 11-year panel between 1995 and 2005.

Principal Findings

We found that while Medicare AMI mortality trends remained similar across hospitals between pre-BBA and initial-BBA periods, hospitals facing large payment cuts saw smaller improvement in mortality rates relative to that of hospitals facing small cuts in the post-BBA period. Part of the relatively higher AMI mortalities among large-cut hospitals might be related to reductions in staffing levels and operating costs, and a small part might be due to patient selection.

Conclusions

We found evidence that hospitals facing large Medicare payment cuts as a result of BBA of 1997 were associated with deteriorating patient outcomes in the long run. Medicare payment reductions may have an unintended consequence of widening the gap in quality across hospitals.     

Reimbursement of sole community hospitals under Medicare's prospective payment system.

Under the prospective payment system (PPS), designated sole community hospitals (SCH's), usually smaller than other rural hospitals but offering comparable services, have had higher average cost levels, in part because of underutilization of plant and equipment. This has resulted in negative operating margins on patient revenues, although local financial support and other revenue sources bring margins on total revenues into the positive range. The PPS legislation has also provided SCH's temporary protection from volume declines. SCH's are more likely than other rural hospitals to experience large volume swings, but only for declines greater than the threshold specified under PPS.     

Penalizing patients and rewarding providers: user charges and health care utilization in Vietnam

The introduction of a comprehensive system of user charges in 1995 provided public health facilities in Vietnam, especially hospitals, with a growing source of revenue. By 1998 revenues from user charges accounted for 30% of public hospital revenues. Increasingly, provider incomes have relied on fee revenues and provision-based bonuses, the effect of which is that a poorly regulated fee-for-service system has replaced a salary system based upon a centrally determined global budget. This paper examines the potential influence of providers' on the use of publicly provided health services. Using facility-based data over the period 1996-98, the relative contribution of treatment intensity is compared and contrasted under the two sources of hospital revenues from patients, namely a user charge system and a third party payment system based on fee-for-services. The primary focus of the comparison is on the treatment intensity for all hospital contacts, hospital admissions and the length of hospital stays, decisions normally taken by the providers and over which patients have little or no influence. The results indicate that growth in patient revenues was associated with large increases in intensity. The growth in intensity was more pronounced in the case of inpatient contacts. Moreover, both the admission rate and the length of hospital stay were far higher for better off individuals than for the poor, and greater for the insured than the uninsured. The increase in the intensity of hospital care for both health insurance enrollees and the uninsured can be seen as, among other things, an attempt on the part of providers to increase revenue from health insurance premiums and user charges in the face of a shrinking share of public resources allocated to hospitals, and low wages and salaries.     

Munificent environments, management control, and the cost of rural hospital care.

Rural hospitals have been threatened by declining revenues. Control over costs will be necessary to help these hospitals survive. Investigation of the determinants of hospital costs in Iowa reveals that costs are primarily caused by environmental factors, rather than variables over which managers have control. Furthermore, efforts by policy makers to improve hospital efficiency by stimulating competition among hospitals may have been ineffective, since the level of competition was not found to be associated with hospital production costs.     

A profile of preacquisition proprietary hospitals

A study was conducted to compare the financial, hospital, and market characteristics of proprietary hospitals prior to their acquisition by investor-owned hospital chains to free-standing proprietary hospitals and not-for-profit preacquisition hospitals.     

Urban and rural hospitals: how do they differ?

When the Health Care Financing Administration implemented the Medicare prospective payment system (PPS), the payment rates for inpatient hospital operating costs were derived on an urban and rural basis within each region. The rates were also adjusted for area wage levels and other factors affecting hospital costs. The effect of PPS on rural hospitals is of widespread interest. This article provides data on rural and urban hospital facilities, utilization, and charges, as of April 1985. Almost 48 percent of the 5,821 short stay hospitals included in the PPS recalibration file for Federal fiscal year 1984 are located in rural areas. Rural and urban areas are designated by the Executive Office of Management and Budget or, in some instances by regulation.     

The costs of hospital mergers

Most hospital mergers are sold to the community as a way to reduce service and staffing duplications, consolidate clinical programs, achieve economies of scale and increase profits to add services. But two new studies on hospitals that merge in small markets indicate such mergers don't always deliver on promised savings because of the costs of new construction and expansion into high-technology services.     

The effects of case mix on hospital costs and revenues in managed care environments

Due to competition and managed care, hospitals have argued that the rate of increase in hospital cost is greater than the rate of increase in hospital revenue. It is important to pay hospitals based on the expected resource use of patients that hospitals treat. However, managed care organizations pay hospitals based on negotiated prices that do not consider the expected resource use of patients. The purpose of this paper is to provide a better understanding of those factors affecting hospital cost and revenue in California using the hospital financial and utilization data for selected years from 1986 to 1998. By developing case mix indexes (CMIs) using all hospital discharges in California, this study found that the coefficients for CMIs in total and inpatient hospital revenue models were greater than those in hospital cost models. Over time, however, the differences in coefficients for CMIs in hospital revenue and cost models become smaller and smaller. Thus, this study shows that the difference between hospital revenues and hospital costs, looking at hospital case mix, has decreased, although hospital revenues are still greater than hospital costs.     

A comparative analysis of revenue and cost-management strategies of not-for-profit and for-profit hospitals

Not-for-profit (NFP) and for-profit (FP) hospitals were compared on several performance indicators including revenues, costs, productivity/efficiency, and profitability. The indicators were adjusted, where appropriate, for outpatient activity and a case-mix index for all patients. FP hospitals had higher profit margins as well as higher gross and net revenues per case-mix adjusted admission. On the other hand, NFP hospitals had lower total cost per case-mix adjusted admission even after subtracting taxes from FP hospital costs. There were no significant differences between the two groups on efficiency and productivity indicators--paid hours per case-mix adjusted admissions, occupancy levels, and case-mix adjusted ALOS. The higher profits of FP hospitals were attributed to revenue management rather than cost and efficiency management.     

Electronic Medical Records, Nurse Staffing, and Nurse-Sensitive Patient Outcomes: Evidence from California Hospitals, 1998�C2007

Objective

To estimate the effects of electronic medical records (EMR) implementation on medical-surgical acute unit costs, length of stay, nurse staffing levels, nursing skill mix, nurse cost per hour, and nurse-sensitive patient outcomes.

Data Sources

Data on EMR implementation came from the 1998–2007 HIMSS Analytics Databases. Data on nurse staffing and patient outcomes came from the 1998–2007 Annual Financial Disclosure Reports and Patient Discharge Databases of the California Office of Statewide Health Planning and Development (OSHPD).

Methods

Longitudinal analysis of an unbalanced panel of 326 short-term, general acute care hospitals in California. Marginal effects estimated using fixed effects (within-hospital) OLS regression.

Principal Findings

EMR implementation was associated with 6–10 percent higher cost per discharge in medical-surgical acute units. EMR stage 2 increased registered nurse hours per patient day by 15–26 percent and reduced licensed vocational nurse cost per hour by 2–4 percent. EMR stage 3 was associated with 3–4 percent lower rates of in-hospital mortality for conditions.

Conclusions

Our results suggest that advanced EMR applications may increase hospital costs and nurse staffing levels, as well as increase complications and decrease mortality for some conditions. Contrary to expectation, we found no support for the proposition that EMR reduced length of stay or decreased the demand for nurses.     

Strategic planning in rural health care organizations.

Is strategic planning associated with higher levels of performance in health care organizations? Is strategic planning effective? This article examines strategic planning's impact on rural hospital and rural nursing facility performance, organizational characteristics, and strategy. The findings suggest that strategic planning in rural hospitals is strongly associated with higher profits, operating margins and planning effectiveness, and associated to a lesser extent with lower costs and higher revenues per patient day. However, strategic planning does not appear to be associated with higher performance in nursing facilities. The implications for strategic planning in rural health care organizations are discussed.     

Improving operating room schedules

Operating rooms (ORs) in US hospitals are costly to staff, generate about 70 % of a hospital’s revenues, and operate at a staffed-capacity utilization of 60-70 %. Many hospitals allocate blocks of OR time to individual or groups of surgeons as guaranteed allocation, who book surgeries one at a time in their blocks. The booking procedure frequently results in unused time between surgeries. Realizing that this presents an opportunity to improve OR utilization, hospitals manually reschedule surgery start times one or two days before each day of surgical operations. The purpose of rescheduling is to decrease OR staffing costs, which are determined by the number of concurrently staffed ORs. We formulate the rescheduling problem as a variant of the bin-packing problem with interrelated items, which are the surgeries performed by the same surgeon. We develop a lower bound (LB) construction algorithm and prove that the LB is at least (2/3) of the optimal staffing cost. A key feature of our approach is that we allow hospitals to have two shift lengths. Our analytical results form the basis of a branch-and-bound algorithm, which we test on data obtained from three hospitals. Experiments show that rescheduling saves significant staffing costs.