Roice D. Luke

Ownership and organizational performance. A comparison of technical efficiency across hospital types.

Using a national data base of urban hospitals, the effect of ownership (government, nonprofit, and for-profit) on the technical efficiency of hospitals was examined. Efficiency scores were computed using a method called data envelopment analysis. Controlling for environmental and hospital characteristics, for-profit hospitals were found somewhat less frequently and government hospitals consistently more frequently in the efficient category. When examining highly inefficient hospitals as a percentage of those receiving inefficient scores, for-profit hospitals appeared to be highly inefficient relative to the other ownership forms. Government and nonprofit hospitals were somewhat indistinguishable from one another regarding their percentages of highly inefficient scores. For-profit hospitals also tended to use supply and capital asset (hospital size) inputs less efficiently, and service and labor inputs more efficiently than hospitals in the other ownership categories.

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.

The efficiency of hospital-based clusters: evaluating system performance using data envelopment analysis.

Background: The rapid increase in the number of hospitals becoming members of multihospital systems in recent decades has led to the formation of local and regional clusters that have the potential to function as regional systems, a model long advocated as a policy strategy for improving health system performance. Purpose: This study addresses both cluster efficiency and the hierarchical configuration with which hospitals are grouped into clusters. Methodology/Approach: This study uses 2004 data from the American Hospital Association Annual Survey multihospital system designations updated to 2005. Efficiencies are measured using data envelopment analysis. Principal Findings: The data envelopment analysis results show that 20 clusters or 5.8% of the sample of 343 clusters are highly efficient; the remaining 323 or 94.2% of the clusters received lesser efficiency scores, averaging 0.73 on the data envelopment analysis measure. The study found the number of beds in the primary hospitals and the percentage of hospitals in the clusters that were urban, two of three variables that reflect patterns of regional model service configurations, to be significantly correlated with cluster efficiency. Conclusion: Results suggest that many hospital clusters have evolved service configurations that are consistent with historically conceptualized regional organizational forms and that the particular regional pattern of distributing service capacities across cluster members might contribute to measured performance. The study also confirms the applicability of data envelopment analysis for assessing the performance of complex, multiunit organizations.

Local Hospital Systems: Forerunners of Regional Systems?

Summary Over the past several decades, the hospital industry has been undergoing a major organizational change that has until now been little examined. Local hospital systems (LHSs) are combinations of two or more hospitals that are in the same company and located in or around the same metropolitan areas in this country. This article presents the first detailed examination of the 402 such systems that have been identified to date. LHSs offer great potential for achieving the cost, quality, and access benefits that are often attributable to regional systems. The degree to which LHSs have attained some basic structural features expected of regional systems are examined. Differences are compared within ownership categories. Issues and challenges facing leaders in the field, should they hope to achieve the potential of regional systems, are discussed.

Health Care Delivery Restructuring and Productivity Change: Assessing the Veterans Integrated Service Networks (VISNs) Using the Malmquist Approach

This study evaluates the productivity changes for the Veterans Integrated Service Networks (VISNs) that the Veterans Health Administration (VHA) created, comparing performance in 1994 with that in 2004. This represents periods before and after the VHA in 1995 reconfigured provider units into 21 regionalized delivery systems and engaged in other important system innovations. Productivity is measured using the Malmquist Index approach (a longitudinal version of the data envelopment analysis [DEA]). Results indicate that the VISN restructuring generally produced improvements in overall productivity (Malmquist scores) and in VISN adaptations to structural/technological change. They also show that the VISNs overall did not produce “changes in efficiency,” reflecting challenges they may have faced in making “technical change” through management adaptations. The findings are consistent with what would be expected, given the major changes that did occur within the VHA in recent years as well as the before and after design used in this study.

Hospital service duplication: evidence on the medical arms race.

Background: Hospital administrators face challenging decisions about whether to maintain, cut, or add services in response to changes in consumer demand or managed-care pressures. The challenge is heightened for services that are also offered by other hospitals in the local community. Purposes: This study provides evidence on the financial effects of providing services that are also provided by other hospitals in the same county. Its purpose is to help guide administrators and policy makers in assessing the wisdom of service duplication at the local level. Methodology/Approach: The unit of analysis is the individual hospital. The study reports data from the 2,204 general acute care hospitals located in counties with more than one hospital. A longitudinal path model is constructed for the years 1998, 2000, and 2002, with environmental and organizational factors from 1998 affecting service duplication in 2000, which in turn affects financial performance in 2002. Maximum likelihood estimation in linear structural relations is used to evaluate the path model and its coefficients. Findings: Hospital competition is associated with higher levels of duplication of inpatient, ancillary, and high-tech services. Duplication of inpatient services is associated with higher costs but also with higher operating margin. Duplication of ancillary services is associated with higher return on assets. Duplicated high-tech services are financial losers for hospitals. Higher levels of duplicated high-tech services are associated with higher cost per day, higher cost per discharge, and lower operating margin. Practice Implications: From the standpoint of financial impact on the hospital, administrators should reexamine the costs and benefits of offering high-tech services that are offered by other providers in the local area. The higher costs may not be offset by revenues. Duplicated ancillary and inpatient services, on the other hand, produce some positive financial returns.

Factors underlying organizational change in local health care markets, 1982-1995.

This article examines the association between characteristics of local health care market areas in 1982 and the penetration of new organizational forms in those markets in 1995. The Northeast and South exhibit less organizational form development than the West. Local markets with higher population size and greater density of specialty physicians in 1982 are associated with greater proportions of the markets being covered by a wide variety of organizational forms in 1995.

Better to receive than to give? Interorganizational service arrangements and hospital performance.

BACKGROUND The literature points to possible efficiencies in local-hospital-system performance, but little is known about the internal dynamics that might contribute to this. Study of the service arrangements that nearby same-system hospitals have with one another should provide clues into how system efficiencies might be attained. PURPOSES The purpose of this research was to better understand the financial and operational effects of service sharing and receiving arrangements among nearby hospitals belonging to the same systems. METHODOLOGY/APPROACH Data are compiled for the 1,227 U.S. urban acute care hospitals that belong to multihospital systems. A longitudinal structural equation model is employed-environmental pressures and organizational characteristics in 1997 are associated with service sharing and receiving arrangements in 2000; service sharing and receiving arrangements are then associated with performance in 2003. Service sharing and receiving are measured by counts of services focal hospitals report that are not duplicated by other-system hospitals within the same county. Linear Structural Relations (LISREL) is used to estimate the model. FINDINGS In general, market competition from managed care and hospitals influences hospitals to exchange services. For individual hospitals, service sharing has no effects on operational efficiency and financial performance. Service receiving, however, is related to greater efficiencies and higher profits. PRACTICE IMPLICATIONS The findings underscore the asymmetrical relationships that exist among local-system hospitals. Individual hospitals benefit from service receiving arrangements but not from sharing arrangements-it is better to receive than to give. To the extent that individual hospitals independently determine service capacities, systems may not be able to effectively rationalize service offerings.

A post-1990s assessment of strategic hospital alliances and their marketplace orientations: time to refocus.

In past years, many SHAs formed in local urban markets to better compete for managed care contracts. In response to 1990s forces, these SHAs appear to have adapted product, production, and selling orientations to their markets, aimed at large institutional purchasers of health care. However, health care markets have evolved differently than anticipated. SHAs and their hospitals should now adopt the marketing orientation and focus more on patients and enrollees.

System transformation: USA and international strategies in healthcare organisation and policy

This paper draws attention to the US clusters and frames them in the context of regionalisation. It does this in three steps. First, it highlights key moments in US history in which regionalisation emerged as a central albeit unsuccessful policy strategy. Second, it considers how the strategic moves of multi-hospital systems contributed, especially in the 1990s, to the formation of hospital clusters. And third, it provides a broad overview of regional system formation internationally. The paper concludes that greater priority in both policy and research needs to be given to the provider clusters that now spread across this countrys healthcare landscape.