Jan P. Clement

Hospital Financial Condition and Operational Decisions Related to the Quality of Hospital Care

Financial pressure mounted for hospitals nationwide during the late 1990s. Our study examines how this affected the quality of their operations in terms of organizational infrastructure and processes that support the delivery of care. Our sample consisted of community hospitals operating between 1995 and 2000. Financial pressure was measured based on changes in net patient revenues per adjusted patient day and the ratio of cash flow to total revenues. The authors examined effects on hospital investments in plant and equipment and on hospital standards compliance with selected Joint Commission on Accreditation of Healthcare Organization performance areas. The results suggest that increasing financial pressures did lead to cutbacks in these areas. These findings suggest the importance of looking broadly across hospital operations to identify factors that may contribute to poor patient outcomes. Given the findings of earlier studies, these results suggest that poor outcomes may in part result from deterioration in supporting infrastructure and organizational processes.

Charity care: do not-for-profits influence for-profits?

This study further examines whether not-for-profit hospitals exert pressure on for-profit hospitals to provide charity care and whether for-profit hospitals react differently than not-for-profit hospitals to managed care pressures and hospital competition in providing charity care. A two equation model is estimated using 1996 data from California hospitals. The results indicate that in mixed ownership markets, for-profit hospitals provide significantly less charity care as not-for-profit hospitals in the market provide more. Unexpectedly, study for-profit hospitals were not more influenced by price competition than other hospitals with respect to charity care. Having a unique role in providing charity care may justify continuing tax exemption for not-for-profit hospitals and enhance interest in payment and other policies with regard to conversions to ensure that not-for-profit hospitals continue to be represented in market areas.

Does the patient's payer matter in hospital patient safety?: a study of urban hospitals.

Background:Previous studies have documented that hospitals decrease costs in response to reimbursement cutbacks. However, research concerning how this may affect quality of care has produced mixed results. Until recently, the ability to study changes in patient safety and payment has been limited. Objective:The objective of the study was to determine whether changes in 4 hospital patient safety indicator (PSI) rates are related to changes in the generosity of payers over time. Data and Methods:Study data are drawn from 1995–2000 hospital discharges in 11 states in the Agency for Healthcare Research and Quality Healthcare Cost and Utilization Project State Inpatient Database. Following the same organizations over time, we estimate hospital fixed-effects regression models of the association of payer-specific time and post Balanced Budget Act (BBA) payment changes with risk-adjusted hospital PSI rates controlling for patient, organizational, and market characteristics. Four PSIs relevant to a large number of patients and hospitals that reflect general care processes are studied. Results:The time trend during 1995–2000 is consistently significantly positive for private and Medicare hospital PSI rates. Thus, after controlling for patient characteristics and organizational and market factors, performance worsened. The trend is less consistent for Medicaid and does not exist for self-pay hospital PSI rates. After adjusting for multiple comparisons, we also find that the Medicare trend is fairly consistently higher than that of the other payers. In contrast, there is a less consistent BBA effect, especially for Medicare.

Does hospital diversification improve financial outcomes

Service or product diversification is a popular recommendation made to hospitals to increase profitability and reduce financial risk as they face a more hostile environment. This paper presents results from an empirical study of these claims. Using data from all California nonprofit hospitals, the study finds that diversification, regardless of whether it is related or unrelated to preexisting services, is not associated with either increased profitability or reduced financial risk. However, other variables that do have these effects are identified in the research. Future research should evaluate the effect of both the size of and the length of time since the initial diversifying investment on financial variables.

Managed care, vertical integration strategies and hospital performance.

AbstractObjective. 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 hospitals financial performance in todays competitive health care market.

STRATEGIC HOSPITAL ALLIANCES: DO THE TYPE AND MARKET STRUCTURE OF STRATEGIC HOSPITAL ALLIANCES MATTER?

BACKGROUND Throughout the 1990s, hospitals formed local alliances to defend against increasingly powerful hospital rivals and to improve their market positions relative to aggressive and consolidating managed-care organizations. An important consequence of hospitals combining or aligning horizontally at the local level is a significant consolidation of hospital markets. OBJECTIVE The aim of this study was to examine the relationship between the type of the local strategic hospital alliances (SHAs), market, environment, and operational factors with financial performance. METHODS The study is a cross-sectional analysis of the financial performance across SHAs in all metropolitan statistical areas in 1995. RESULTS SHAs with dominant or dominant for-profit (FP) hospitals are not more financially successful than other SHAs. SHAs in markets with high health maintenance organization (HMO) or SHA penetration have lower revenues per case-mix adjusted discharge. The operational characteristics, proportion of teaching members in the SHA, and SHA bed size, result in higher revenues and expenses, whereas greater SHA technical efficiency results in lower costs. CONCLUSIONS Health care organizations are centralizing their operations and governance. This study shows that this trend has not added financial value to hospital collectives, at least at this point in their development.

Community Benefit Activities of Private, Nonprofit Hospitals

The definition of hospital community benefits has been intensely debated for many years. Recently, consensus has developed about one group of activities being central to community benefits because of its focus on care for the poor and on needed community services for which any payments received are low relative to costs. Disagreements continue, however, about the treatment of bad debt expense and Medicare shortfalls. A recent revision of the Internal Revenue Services Form 990 Schedule H, which is required of all nonprofit hospitals, highlights the agreed-on set of activities but does not dismiss the disputed items. Our study is the first to apply definitions used in the new IRS form to assess how conclusions about the adequacy of nonprofit hospital community benefits could be affected if bad debt expenses and Medicare shortfalls are included or excluded. Specifically, we examine 2005 financial data for California and Florida hospitals. Overall, we find that conclusions about community benefit adequacy are very different depending on which definition of community benefits is used. We provide thoughts on new directions for the current policy debate about the treatment of bad debts and Medicare shortfalls in light of these findings.

Nursing Home Price and Quality Responses to Publicly Reported Quality Information

OBJECTIVE To assess whether the release of Nursing Home Compare (NHC) data affected self-pay per diem prices and quality of care. DATA SOURCES Primary data sources are the Annual Survey of Wisconsin Nursing Homes for 2001-2003, Online Survey and Certification Reporting System, NHC, and Area Resource File. STUDY DESIGN We estimated fixed effects models with robust standard errors of per diem self-pay charge and quality before and after NHC. PRINCIPAL FINDINGS After NHC, low-quality nursing homes raised their prices by a small but significant amount and decreased their use of restraints but did not reduce pressure sores. Mid-level and high-quality nursing homes did not significantly increase self-pay prices after NHC nor consistently change quality. CONCLUSIONS Our findings suggest that the release of quality information affected nursing home behavior, especially pricing and quality decisions among low-quality facilities. Policy makers should continue to monitor quality and prices for self-pay residents and scrutinize low-quality homes over time to see whether they are on a pathway to improve quality. In addition, policy makers should not expect public reporting to result in quick fixes to nursing home quality problems.

ASSESSING THE CHARACTERISTICS OF HOSPITAL BOND DEFAULTS

OBJECTIVES The authors identify market, operational, and financial characteristics associated with the default of hospital revenue bonds using logistic regression analysis. METHODS Data from 22 defaulted hospitals and 260 nondefaulted hospitals from 1988 to 1992 are analyzed. RESULTS Findings indicated that defaulted hospitals had smaller market shares, were located in near-urban markets, and incurred higher expenses per discharge than nondefaulted hospitals. Defaulted hospitals also were highly leveraged and had lower debt service coverage ratios compared with nondefaulted hospitals. CONCLUSIONS Results suggest that market share, ability to generate sufficient case flow to meet debt service, and amount of debt on hand are critical factors in avoiding a bond default but not government payer mix.

Hospital corporate restructuring and financial performance.

In the last decade, an important innovation in the organizational structure of acute care hospitals occurred. Many hospitals restructured by creating subsidiaries that segment assets or services into separate corporations. We know relatively little about the effects of such restructuring. This paper examines the association of restructuring with financial performance of not-for-profit hospital firms. The study uses data from all not-for-profit acute care hospital firms in Virginia, the only state for which the unique study data are available. We find that the consolidated financial performance of hospital firms is influenced by factors that affect the hospitals financial performance (i.e., payer-mix, staffing and service mix) but not the number or size of non-hospital subsidiaries. Future research should examine the effect of restructuring on other types of performance.