the big picture: a look at hospitals in a volatile healthcare environment gloria j. bazzoli, ph.d....

The Big Picture: A Look at Hospitals in a Volatile Healthcare Environment

Gloria J. Bazzoli, Ph.D.Professor of Health AdministrationVirginia Commonwealth University

Gloria BazzoliGloria Bazzoli

Hospital Closures and Mergers

Time Period

Closed

# %Merged

# %

1986 – 88 253 3.6% 153 2.2%

1989 – 91 224 3.3% 138 2.0%

1992 – 94 247 3.7% 179 2.7%

1995 – 97 192 3.0% 368 5.8%

1998 – 00 197 3.2% 135 2.2%

Data on all US registered hospitals

Source: AHA Annual Survey, Public Use File documentation


Industry Financial Performance & Closure/Merger Trends

0

50

100

150

200

250

300

350

400

1986-88 1989-91 1992-94 1995-97 1998-00

# of closures

# of mergers

% with negmargins

Source: AHA Annual Survey, Public Use File documentation &

MedPAC reports to Congress, 1999 & 2002.


Organizational Change: Distressed and Non-Distressed Community Hospitals

1985-90

Distressed Not Distressed

1994-98

Distressed Not Distressed

Closed 6.0% 5.6% 3.8% 1.2%

Acquired through

Merger 1.7% 3.2% 6.0% 6.7%

Survived 92.3% 91.2% 90.2% 92.1%

Source: Bazzoli and Andes, H&HSA, 1995; analysis replicated for 1994-98 period


Financial Pressures and Hospital Operations

• When confronted with financial pressures, hospitals:– reduce staffing levels

– reduce intensity of service (especially for patients whose payers reduce reimbursement)

– provide less charity care & limit public health/specialty services

– seek new revenue sources

– face higher costs of capital


Changes in Hospital Credit Ratings: Last Decade


Hospital Mergers and Financial Performance

• Large increase in number of mergers in the mid-1990s– response to growing market pressures

– desire to develop regional health delivery systems

• Research suggests merger cost savings exist but:– small in $ amount

– result of one-time administrative streamlining

– more common in small hospitals

– promise of savings from clinical consolidation went unfulfilled


Hospital Mergers and Financial Performance

• Research suggests mergers increase hospital prices/profits:– especially for high market share services

– especially in markets with low managed care penetration & limited hospital competition

• Research suggests hospitals gaining leverage vis-à-vis health plans:– managed care backlash has reduced payer power

– increased evidence of provider-insurer “show-downs”


Special Pressures on Hospital Safety Net

• Safety net hospitals faced same pressures as other hospitals in 1990s and 2000s plus:– large and growing number of uninsured

– confusion about Medicaid eligibility under Welfare Reform

– reductions or limited growth in indigent care subsidies

– Medicaid managed care

• Total margins of DSH hospitals have declined


Trends in Total Margins of DSH and Non-DSH Hospitals

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

Non-DSH

DSH Rural

DSH-LargeUrban

Source: MedPAC Report to Congress, March 2002


The Balance Sheet: UC Costs and Subsidies (billions of $)

1997 UC costs of public/private hospitals: . . . . . . . . . . . . . . . . . . . . . . . . $18.5

1997 UC subsidies to public/private hospitals:

Medicare DSH . . . . . . . . . . . . . . . . . . $ 4.2 Medicare IME . . . . . . . . . . . . . . . . . . . $ 4.4 Medicaid DSH:

gross: . . . . . . . . . .$15.9 net: . . . . . . . . . . ~$ 8.3

net to hospitals: . . ~60% . . . . . .$ 5.0 TOTAL UC subsidies: . . . . . . . . . . . . . . . . . . . . . . $13.6

DIFFERENCE . . . . . . . . . . . $ 4.9

Sources: Melnick et al., 2000 and Coughlin et al., 1999


Evidence of Declining Voluntary Charity Care

• Financial pressures of urban hospitals leading to reduction in their charity care provision

• Physician involvement in charity care also appears to be on the decline

• Increasingly, indigent care is concentrated in a small group of hospitals and physicians

• Whether these trends will accelerate or diminish in the future is unclear


Needed Research:Financial Pressures and Hospital Operations

• We need to know:

– effects of financial performance on hospital investments in technology and infrastructure

– effects of financial performance on quality of patient care and health outcomes

– hospital turnaround strategies and their effectiveness

– how communities managed and coped with hospital closures


Needed Research:Hospital Safety Net and Financial Pressures

• How have core safety net providers been affected in terms of:– their indigent patient volumes?

– their ability to maintain physical plant, high cost technology, services and staffing?

– ultimately, the care received by the indigent?

• How will State budget crises affect:– State Medicaid/SCHIP benefits and eligibility?

– provider payments and ultimately, provider willingness to participate in State programs?


Data to Assess Hospital Trends: National Sources

• AHA Annual Survey

• CMS Medicare cost reports

• AHRQ National Inpatient Sample (NIS)

• Financial data and reports of investment banking firms

• National Hospital Indicator Survey (commissioned by CMS and MedPAC, conducted by AHA)


Data to Assess Hospital Trends: State Sources

• AHRQ HCUP initiative:

– State Inpatient Discharge (SID) databases

– State Ambulatory Surgery Database (SASD)

• Hospital financial reports filed due to disclosure requirements

• Hospital community benefit reports filed due to disclosure requirements

the big picture: a look at hospitals in a volatile healthcare environment gloria j. bazzoli, ph.d....

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