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OCR for page 127
6 Qmlityof Care
The growth of for-profit health care has
prompted concern and speculation about the
quality of cared Some observers are doubt-
ful that the increasingly visible investor-
owned companies would risk their capital
investments, reputations, and the possibil-
ity of tighter regulation by deciding to cut
corners on quality. Nevertheless, problems
could develop if the upper management of
art organization emphasizes economic per-
formance or efficiency to such an extent that
subordinates make decisions that reduce
quality, even if that is not intended. Some
concern about the quality of care rests on
the assumption that for-profit organizations
are more likely than not-for-profit organi-
zations to judge the performance of man-
agers on narrow economic grounds, thereby
inducing them to take steps that could neg-
atively affect quality. On the other hand,
clearly no general assumption is warranted
that goals of high quality are inconsistent
with goals of profitability in an organization.
The question of the relationship between
for-profit status and quality of care is em-
pirical, not definitional. This chapter ex-
amines the limited data now available.
QUALITY OF HOSPITAL CARE
Approaches to the appraisal of health care
quality generally fall into three broad cat-
egones evaluation of structure, evaluation
727
of process, and evaluation of outcome or end
results (Donabedian, 1969:2~. Structural in-
dicators inclucle not only physical aspects of
facilities and equipment, but also charac-
teristics of the organization and qualifica-
tions of its health professionals. Process
measures pertain to the activities of health
professionals in the care of patients. Out-
come measures may be stated in terms of
health or in terms of patient or family sat-
isfaction. Quality indicators vary in their
comprehensiveness, their importance, their
face validity, and their availability in exist-
ing data sources.
Evidence regarding the relationship be-
tween hospital ownership and quality of care
is fragmentary and limited. Ideally, the
committee would have liked to examine pa-
tient outcome data from carefully matched
for-profit and not-for-profit settings, as well
as from chain and independent institutions,
in order to draw inferences about quality.
Unfortunately, the committee had access only
to studies using statistical controls and struc-
ture and process quality measures, such as
hospital accreditation, board certification
rates of staff physicians, and perceptions of
physicians and hospital board chain, as
well as some aggregate but nondefinitive
pooled outcome data.
OCR for page 128
128
Accreditation
Probably the most elemental single in-
dicator of the overall quality of care is vol-
untary accreditation by the loins Commission
on Accreditation of Hospitals dCAH). Ac-
creditation is based on the evaluation of re-
ports by site visit teams who assess
institutional compliance with more than 2,200
separate standards. Although experts agree
that accreditation addresses quality, the
process also has its limitations. It is based
heavily on structural indicators, although
some process indicators are also included.
Furthermore, accreditation represents a kind
of threshold or minimum baseline, and be-
cause of its global nature it does not capture
many important differences among institu-
tions. Not all institutions seek accreditation;
attitudes about the importance of accredi-
tation vary in different parts of the country.
The American Hospital Association, in its
annual survey of hospitals, collects data on
whether hospitals are accredited. A second
source of data on ICAlI accreditation is from
a paper prepared for the committee by Gary
Gaumer (1986), using data that had been
compiled for a study of state hospital rate-
setting programs. The sample of hospitals
included all short-term hospitals in IS states
that have prospective payment programs plus
a 25 percent random sample of aD other U. S.
short-term hospitals. Information about fills,
two-year accreditation and provisional, one-
year accreditation was obtained by Gaumer
directly from JCAH. Finally, in response to
a request Tom the committee, ICAH itself
prepared an analysis of the outcomes of one
year's accreditation visits to independent and
chain for-proEt and not-for-profit hospitals
(Longo et al., 1986~. This analysis focused
not only on accreditation itself but also on
"contingencies" attached by ICAH in its ap-
proval of an institution's compliance with
particular ICAH standards.
Table 6.1 shows that the highest per-
centage of accreditation is found among hos-
pitals in investor-ownecl systems, while the
FOR-PROFIT ENTERPRISE IN HEALTH CARE
lowest rates are found among the indepen-
dent investor-owned hospitals and among
hospitals owned by state or local govern-
ments. There is virtually no difference be-
tween investor-owned and not-for-profit chain
hospitals. Since much of the past growth of
investor-ownec! chains has been through ac-
quisition of independent for-profit hospitals,
the growth of investor-owned systems likely
has resulted in the accreditation of a number
of hospitals that were not previously ac-
credited.
Table 6.2 shows the results of the JCAH
staffs own analysis, which is consistent with
the AHA and Gaumer data shown in Table
6.1. Using data from accreditation visits con-
ducted during the fiscal year ending May
31, 1983, the hospitals that were part of
investor-owned chains were most likely to
be accredited (and to be accredited without
contingencies) and least likely to have failed
to pass accreditation. Differences between
these investor-owned and not-for profit hos-
pitals were very small and again were in
striking contrast to independent for-profit
hospitals.
Qualifications of Medical Staff
There is some evidence that investor-
owned hospitals are less selective in ap-
proving physicians for staffprivileges.2 In a
paper prepared for the committee, Morrisey
et al. (1986) report data on the percentage
of physician-applicants approved in 1981 for
privileges in various hospital groupings. They
found that hospitals in investor-owned sys-
tems approved 89.8 percent of applicants,
compared with 81.4 percent in freestanding
hospitals (for-profit and not-for-profit com-
bined), 86.8 percent in religiously affiliated
system hospitals, 81.4 percent in other not-
for-profit systems, and 76.4 percent in con-
tract-managed hospitals. (However, the dif-
ferences among hospitals from investor-
owned, religious, and not-for-profit systems
were not statistically significant.)
Regarding board certification of sta~phy
OCR for page 129
QUALITY OF CARE
TABLE 6.1 Rates of JCAH Accreditation, by Type of Hospital, 1983
129
Investor- Not-for- Not-for- State and
Owned For-profit profit profit Local
Chain Independent Chain Independent Government
Accreditation Status (%) (%) (%) (%) (%)
Accredited, AHA
data, 1983a 91 52 87 83 59
Full (2-year)
accreditation, 1981b 79 50 74 55
Average All
accreditation,
1974-1981b 69 42 69 54
Average provisional
accreditation,
197~1981b 10 10 14 12
aPeter Kralovec, Hospital Data Center, American Hospital Association, 1985.
bJCAH data. Gaumer (1986:Table 10~.
sicians,3 Morrisey et al. (1986) found no sta-
tistically significant differences between
investor-owned system hospitals and other
types of hospitals in their requirements that
at least some specialists be board certified,
with approximately 30 percent of the hos-
pitals having such requirements. "Proprie-
b~ry" hospitals (a term that was used to include
both chain and independent for-profit hos-
pitals) have more board-cerdfiec! medical staff
per 100 beds than do "nonproprietary" hos-
pitals (28.8 versus 24.6) (American Medical
Association, 1984~. However, this is because
on average they have more physicians on
their medical staffs (49. 8 versus 37.34. These
data, from the 1982 AHA annual survey,
show higher rates of board certification among
physicians in nonproprietary hospitals than
in proprietary hospitals (66 percent versus
58 percent); this is also true of the specialty
groupings compared genera]Jfamily prac-
lice (41 percent versus 37 percent), medical
specialties (68 percent versus 60 percent),
surgical specialties (73 percent versus 64
percent), and hospital-based specialties (78
percent versus 69 percent) (American Mecl-
ical Association, 1984~.
These same data, however, were analyzed
in a paper prepared for the committee, and
it was found that when chain hospitals are
separated Dom independent inshtubons, He
rates of board certification of staff physicians
TABLE 6.2 Results of ICAH Accreditation Visits for Fiscal Year Ending May 31, 1983
Accreditation Outcome
Accredited Accredited
Without with
Contingencies Contingencies
(%) (%)
Not
Accredited
(%)
Systemlinvestor-owned 48.1 51.3 0.6
System/not-for-profit 43.2 55.9 1.0
Independent/for-profit 46.4 51.8 1.8
Independent/not-for-profit 36.5 62.4 1.1
SOURCE: Longo et al. (1986~.
OCR for page 130
130
vary little across types of hospitals (Morrisey
et al., 1986~. The lowest rates of board cer-
tification of staff physicians (58 percent) were
found in publicly owned system hospitals
and in contract-managed hospitals; the high-
est rates (65 percent) were reported for hos-
pitals in religious systems and in other not-
for-profit systems; the rates for hospitals in
investor-owned systems and freestanding
hospitals of all types were in an intermediate
position (61 percent). In a multivariate anal-
ysis, only public hospitals were statistically
different Cower) from other types of hospi-
tals.
In another paper prepared for the com-
mittee (Musacchio et al., 1986), data from a
1984 American Medical Association survey
of physicians show that the lowest rates of
board certification were among physicians
whose primary hospital was owned by an
investor-owned system (61.4 percent) and
the highest rates were among physicians
practicing primarily in not-for-profit hospi-
tals (almost 69 percent), with physicians as-
sociated with public hospitals in an
intermediate position; however, these dif-
ferences were not statistically significant. At
the committee's request, a table was pre-
pared to display accreditation rates among
several specialties. Table 6.3 shows a puz-
zling and inconsistent pattern: lye for-profit
chain hospitals show comparatively high rates
of board certification among the medical
specialties and comparatively low rates among
the surgical specialties, including OB/GYN.
However, the difference between for-profit
and not-for-profit system hospitals was not
statistically significant.
Nursing Personnel
If data on the relationship between phy-
sicians and quality are sparse, evidence re-
lating quality of care to nursing services is
even more meagre. The only available proxy
measures are numbers of nursing personnel
per patient. Table 6.4 displays data from the
1983 AHA annual survey of hospitals and
FOR-PROFIT ENTERPRISE IN HEALTH CARE
shows no important differences between
investor-owned chain hospitals and not-for-
profit hospitals, although both inclependent
for-profit hospitals and state and local gov-
ernment hospitals had lower levels of reg-
istered nurses.
Physicians' Evaluations
At the committee s request, the American
Medical Association asked the physicians re-
sponding to its 1984 core survey to compare
their primary hospital with other hospitals
that they might be familiar with on four di-
mensions: the adequacy of nursing support,
the responsiveness of the hospital's admin-
istration, the level of patient satisfaction, and
the adequacy of technical resources and
equipment (Musacchio et al., 1986~. These
data are perceptual in nature, and since they
pertain to the hospital where physicians ad-
mit most of their patients, the possibility of
favorable biases cannot be dismissed. Still,
these evaluations from a national probability
sample of approximately 3,200 responding
physicians are subject to a different set of
biases that result from studies based on data
provided voluntarily by institutions. No
comparable source of data has previously
existed.
As shown in Table 6.5, when responses
to the four questions are averaged, differ-
ences among physicians in not-for-profit and
for-profit system hospitals and independent
hospitals are small; they are very favorable
in comparison to the responses of physicians
whose primary hospital is owned by state/
local governments. (Because independent
for-profit hospitals are typically owned by
physicians, that category possibly includes
some evaluations from owners and therefore
is not included in this chapter's tables; sta-
tistics for these tables appear in Musacchio
et al., 1986.)
The averages displayed in Table 6.5 con-
ceal some interesting differences in physi-
cian evaluations on the four dimensions
studied. Table 6.6 shows physician evalua
OCR for page 131
QUALITY OF CARE
TABLE 6.3 Percent of Physicians flat Are Board Certified, by Hospital Ownership
Status and Selected Specialty Breakdown, 1984
.
Multihospital Systems
737
Independent
State and Private State and Private
Physicians' Local Not-for- For- Local Not-for- For
Specialties Government profit profit Government profit profit
All physicians 68.7 68.6 61.4 63.8 68.7 63.0
Generallfamily
practitioners 33.3 43.3 40.8 53.9 43.1 18.8
Medical specialty 66.7 67.3 75.0 65.0 70.3 54.6
Surgical specialty other
than OB/GYN 73.9 82.1 69.6 73.3 78.8 82.4
OB/GYN 81.1 69.8 59.1 75.0 72.3
Othera 75.9 70.1 67.2 63.2 70.0 73.9
a Psychiatrists, radiologists, anesthesiologists, and pathologists.
NOTE: This breakdown showing the percentage of board-certified physicians by specialty and hospital type is
statistically significant (chi-square = 111.316 with 45 degrees of freedom). Chi-square tests of significance show
no diEerer~ce between not-for-profit and for-profit multihospital systems when all five sDecialtv Shrouds were
considered or when only medical, surgical, and OB/GYN were considered.
SOURCE: Musacchio et al. (19861.
tions of how nursing, hospital administra-
tion, patient satisfaction, and technical
equipment in their primary hospital com-
pares with other hospitals. The perception
of greater administrative responsiveness at
investor-owned hospitals is particularly
striking; also noteworthy are the less-favor-
able evaluations given to for-profit chain
hospitals than to not-for-profit hospitals on
the other three dimensions: nursing sup-
port, patient satisfaction, and technical re-
sources and equipment.
Data Dom another national AMA survey
conclucte`d in 1984 show that 32 percent of
physicians believed that not-for-profit hos
.~ < ~r~ A
pitals provide better quality of care than do
for-profit hospitals, while only 5 percent be-
lieved the opposite to be true (Musacchio
et al., 1986:Table 111. (The remainder of
physicians believed there is no difference or
they had no opinion.) Interestingly, of the
physicians who had some staff privileges at
a for-profit hospital (and data are not avail-
able on whether proprietary or investor-
owned hospitals are involved), 24 percent
believed that not-for-profits provide better
quality of care, and 8 percent believed that
for-profits provided better care. Musacchio
et al. (1986) attribute this difference, at least
in part, to the fact Mat most physicians who
TABLE 6.4 Nursing Personnel per 100 Adjusted Census, Short-Term General and Over
Special Hospitals, 1983
Investor- For- Not-for- Not-for- State and
Owned profit profit profit Local
Chain Independent Chain Independent Government
RNs/100 patients 82 70 84 83 71
LPNs/100 patients 32 28 26 25 30
SOURCE: Peter Kralovec, Hospital Data Center, American Hospital Association, 1985.
OCR for page 132
132
FOR-PROFIT ENTERPRISE IN HEALTH CARE
TABLE 6.5 Physicans Average Evaluation of Their Primary Hospital on Four
Dimensions, 1984a
Type of Primary Hospital
Investor-Not-for- Not-for- Nonfederal Nonfederal
Ownedprofit profit Government Government
Primal ChainChain Independent Chain Independent
Hospital Is (%)(%) (%) (%) (%)
Better 53.155.4 55.4 31.0 47.6
Same 41.640.3 39.1 44.1 34.8
Worse 5.34.4 5.6 25.0 17.0
a Physicians were asked to compare their primary hospital to other hospitals with which they were familiar on
four dimensions: (1) adequacy of nursing support, (2) responsiveness of the hospital administration, (3) level of
patient satisfaction, and (4) technical resources and equipment. Numbers in the table are averages across these
four dimensions.
SOURCE: American Medical Association, 1984 Socioeconomic Monitoring System Core Survey. Calculated
from Table 11 in Musacchio et al. (1986~.
perceive a difference in the amount of clin-
ical discretion allowed physicians believe that
physicians, have less discretion at for-profit
hospitals. Implications for quality are quite
unclear.
Board Chairman Evaluations
Another source of perceptions comes from
a survey of hospital governing board chair-
men that was conducted by Arthur Young
for the American Hospital Association's
Trustee Magazine in 1983 (Arthur Young,
19831. Table 6.7 shows responses on which
board responsibilities were "very impor-
tant" and which responsibilities were being
performed "excellently." Although these are
hardly direct or objective measures of in-
stitutional quality, the responses of chair-
men show some are interesting contrasts in
the different types of institutions. In com-
parison with board chairmen Dom not-for-
profit hospitals, board chairmen from inves-
tor-owned hospitals reported comparatively
Tow levels of board involvement in financial
and management issues (such decisions are
TABLE 6.6 Percent of Physicians Evaluating Their Primary Hospital as Better or Worse
Than Other Hospitals with Which They Were Familiar, 1984
Type of Primary Hospital
Investor-Not-for- Not-for- Nonfederal Nonfederal
Oaredprofit profit Government Government
ChainChain Independent Chain Independent
Dimension (%)(%) (%) (%) (%)
Nursing support Better 48.259.7 56.3 29.0 50.0
Worse 5.12.0 3.5 11.8 7.9
Responsiveness of the Better 60.247.3 46.8 29.? ~.5
hospital Worse 7.010.2 11.3 25.3 41.8
administration
Level of patient Better 51.556.6 57.6 31.9 45.7
satisfaction Worse 4.61.7 2.8 14.3 6.7
Technical resources Better 52.557.8 60.9 33.3 51.4
and equipment Worse 4.53.8 4.6 48.4 11.8
SOURCE: American Medical Association, 1984 Socioeconomic Monitoring System Core Survey; Musacchio et
ad. (1986).
OCR for page 133
QUALITY OF CARE
TABLE 6.7 Perceptions of Hospital Governing Board Chairmen of Their Own Board's
Activities, by Type of Hospital (percent of chairmen giving each response)
133
Investor-
Owned
(%)
Religious
(%)
Other
Not-for-
profit
(%)
Government Total
(%) (%)
Which board responsibilities are viewed
as "very important"?
Ensure integrity of operations
Perfonn strategic planning
Monitor CEO
Monitor financial reporting
Ensure competitive position
Ensure quality patient care
Ensure standards are met
Monitor legal liability
Approve medical stag
Which board responsibilities are being
performed "excellently"?
Ensure integrity of operations
Perform strategic planning
Monitor CEO
Monitor financial reporting
Ensure competitive position
Ensure quality patient care
Ensure standards are met
Monitor legal liability
Approve medical stab
88
31
28
22
33
84
71
38
47
52
14
21
17
24
64
57
36
40
78
48
45
39
31
83
59
29
44
50
22
24
41
15
52
39
23
34
81
43
42
42
28
84
56
28
32
54
22
21
42
16
49
35
23
25
15
33
39
46
29
83
60
29
37
51
18
24
38
20
57
39
~2
28
80
42
41
41
29
84
58
29
36
53
21
22
40
17
52
38
23
28
SOURCE: The Hospital Governing Board Chairman: Profile and Opinions: A National Study by Trustee Mag-
azine and Arthur Young (1983~.
Often made at the regional or corporate level
in multi-institutional systems) and as much
or more concern with issues that bear on
quality. This may reflect another finding from
the same survey 43 percent of the board
chairmen in investor-owned hospitals were
physicians, compared with 2-3 percent of
chairmen at government, religious, and other
not-for-profit hospitals.
Because several studies have provided ev-
idence that greater medical staB participa-
tion in governing is associated with higher-
quality hospital care (Neuhauser, 1971;
Shortell et al., 1976; Shortell and LoGerfo,
1981; Flood et al., 1982; Scott et al., 1979),
it is worth noting that investor-owned hos-
pitals have particularly high levels of phy-
sician participation in hospital governing
(Alexander et al., 1986; Arthur Young, 19831.
These data are discussed at greater length
in Chapter 9.
Outcome Measures
Of all the possible measures of quality of
care, outcomes are the most important.
Ideally, comparisons of quality in for-profit
and not-for-profit settings would include
standardized case-fatality ratios; rates of such
events as intra- and postoperative compli-
cations, wound infections, and drug reac-
tions; and unnecessary care. Unfortunately,
few such comparisons exist.
The only major attempt at examining the
relationship between patient outcomes and
investor ownership of hospitals was done for
the committee by Gaumer (19861. He ex-
amined postoperative mortality (during the
OCR for page 134
134
hospital stay and within 180 days of dis-
charge) and 90-day post-discharge readmis-
sion rates among Medicare patients who had
undergone one of eight types of elective sur-
gery between 1974 and 1981.4 Gaumer con-
cluded that hospital ownership was not a
"strong or consistent influence on post-op-
erative mortality rates," in that significant
differences that were found were "not prop-
agated across all procedures categories." For
example, proprietary status was associated
with lower in-hospital mortality in several
cases, but chain affiliation was sometimes
associated with higher mortality, and the
data on mortality within 180 days after dis-
charge tended to be the reverse of findings
for in-hospital mortality. Chain affiliates
tended to have higher 90-day readmission
rates. Conceding that his study had not been
a conclusive test of the quality-of-care ques-
tion, Gaumer noted the methodological
problems that are involved in studying in-
stitutional differences in relatively rare events
(such as mortality from elective surgery).
Even though several years' data from a 25
percent sample of U. S. hospitals were used,
only differences larger than 10-12 percent
would have been detected by this analysis.
However, no pattern of large and persistent
ownership differences could be detected for
the serious, postsurgical outcomes that Gau-
mer studied.
The possibility that the profit-seeking ori-
entation milt lead to more unnecessary
surgery at for-pro~Rt hospitals could not be
examined directly, but some data are avail-
able on Caesarean sections. Although high
rates of elective Caesarean sections are con-
sidered by some as an indication of excessive
surgery, the great professional debate about
indicators for elective Caesarean sections
makes it difficult to place too much reliance
on such rates as a measure of excessive sur-
gery. However, data from the National Hos-
pital Discharge Survey show Caesarean
section rates to be higher in "proprietary"
hospitals than in governmental hospitals in
all four areas of the country examined and
FOR-PROFIT ENTERPRISE IN HEALTH CARE
higher than voluntary not-for-profit hospi-
tats in three of four areas of the country, as
is shown in Table 6.8 (Placek et al., 1983~.
These data do not distinguish chain from
independent hospitals, unfortunately, nor
do they control for possible variations in pa-
tient characteristics. The analysis of primary
Caesarean section rates in California by Wil-
liams and Chen (1983) fails to show signifi-
cant differences by ownership category.
These data are also shown in Table 6.8.
QUALITY OF CARE IN
NURSING HOMES
Other than hospitals, nursing homes are
the only type of health care providers about
which there is literature linking quality-of-
care concerns and types of ownership. A1-
though the committee did not focus its at-
tention heavily on nursing homes, because
of time and budget constraints and because
the problem of nursing home regulation is
the subject of another Institute of Medicine
study (1986), it did commission an extensive
review of the nursing home literature (Hawes
and Phillips, 19861.
There are important similarities and dif-
ferences between hospitals and nursing
homes in the United States. Both have early
histories as charitable institutions and both
have been significantly affected by govern-
mental policies. Since the passage of the
Medicare and Medicaid programs in 1965,5
both hospitals and nursing homes have wit-
nessed a substantial decline in locally owned
proprietary facilities and the development
and rapid growth of investor-owned com-
panies that own and manage large numbers
of facilities. However, in contrast to hospi-
tals, where the not-for-profit sector has long
predominated (and is still more than 80 per-
cent of the total), more than 75 percent of
America's nursing homes are proprietary.
Another important difference between the
hospital and long-term-care sectors is that
while the investor-owned hospital compa-
nies developed during an era of generous
OCR for page 135
QUALITY OF CARE
TABLE 6.8 Caesarean Section Rates for Nonfederal Short-Stay Hospitals, by Hospital
Ownership
135
For-pro~t Not-for-pro~t Government
United States --1981 (% of births) 22.0 18.5 15.4
Northeast 25.5 20.4 14.9
Norm Central 30.4 15.9 14.5
Soup 18.9 15.8 20.4
West 22.5 17.4 15.5
Primary Ceasarean sections,
California 1978-1980
Observed rate (% of births) 12.4 13.3 12.5a
Expected rateb 11.4 12.4 11.9
Standardized ratio 108.8 107.9 105.2
a"District" hospitals only.
bExpected rate based on risk factors such as maternal age; panty; infant's sex, race, and birthweight; and type
of presentation (e.g., breech).
SOURCE: U.S. data: Placek et al. (1983:862~; California data: Williams and Chen (1983:865~.
funding (Medicare's cost-based reimburse-
ment, with most other third-party payers
paying charges), prospectively set rates have
characterized much of the financing of nurs-
ing home care. Ibus, hospitals have had fewer
financial incentives which might have led
them to consider cost reductions that had
quality-of-care implications; reductions in
nursing home expenses have long translated
much more directly into profits, because
revenues were substantially based on fixed
rates, rather than reimbursement for costs
incurred. As Beverly Enterprises Chairman
Robert Van Tuyle noted in 1982, because
Beverly would serve 60,000,000 meals that
year, "every penny saved per meal trans-
lates into $600,000" (Los Angeles Times, May
25, 1982).
The presence and influence of medical
personnel, particularly physicians, who play
an important agency role in hospitals but
not in nursing homes is another difference
with important implications. As physician-
oriented institutions, hospitals have a Tong
history of genuine self-regulatory activity;
nursing home quality has long been seen
primarily as a problem of governmental reg-
ulation, not of self-regulation. The relatively
minor role of physicians in nursing homes
also contributes to the comparatively lim-
ited role of market forces in the Tong-term-
care sector. Whereas most American hos-
pitals have long had surplus capacity and
have vigorously competed for the loyalty of
physicians who controlled the flow of pa-
tients, nursing home beds in most parts of
the country are in very short supply, and
physicians tend not to be involved in the
referral process or in the day-to-day care of
nursing home residents. Because of their
physical and mental disabilities and social
isolation, and owing to the scarce financial
resources of Medicaid patients, many nurs-
ing home residents are less able than hos-
pitalized patients to look out for their own
interests or to have advocates to do so.
In other words, economic incentives in
support of quality of care are less apparent
in nursing homes than in hospitals. Except
for the relatively few nursing homes whose
facilities and prices are aimed at a wealthy
clientele, the primary incentives that op-
erate in favor of quality are based either on
ethics and community or religious values or
on avoidance of regulatory problems. Arid,
nursing home regulation has generally con-
centrated enforcement on building and fire
safety standards rather than on health and
OCR for page 136
136
patient care standards. All of these factors
help to explain the pattern of scandal in the
history of American nursing homes, as well
as the frequently expressed concern about
providers whose motivation lies in econom-
ics rather than "religious responsibility or
fraternal solidarity" (VIadeck, 1980:1261.
Regarcling quality of care and type of
nursing home ownership, two major limi-
tations of much of the available literature
should be noted (Hawes and Phillips, 19869.
First, as with hospitals, most studies use
resource measures rather than outcome
measures and, as such, are subject to meth-
odological dispute and difference of inter-
pretation. Second, and more unfortunate for
a study that is oriented toward understand-
ing implications for the future, most studies
lump together as "proprietaries" the inde-
pendent "mom-and-pop" nursing homes that
have been on the decline since the very
different investor-owned chain facilities have
appeared and have been rapidly growing.6
To broadly summarize available evi-
dence, most studies on quality (or surrogate
measures) of nursing home care tend to fa-
vor the not-for-profit mode of organization.
This finding holds up across a wide range of
measures amount of patient care staff, ex-
penditures on food, complaints to state reg-
ulatory agencies, nonconformity with
regulatory requirements, and, in one study,
on the following outcome measures: care
planning, quarterly review of patients, room
conditions, and quality of living environ-
ment (Lee, 19841. These studies are sum-
marized in some detail by Hawes and Phillips
(1986), who conclude that "the preponder-
ance of evidence suggests the superiority of
not-for-profits-particularly of the church-
related not-for-profits." Similar conclusions,
and an important caveat about variations,
were also reached by VIadeck in his book,
Unloving Care.
. . . on the average, voluntary facilities are some-
what better than proprietary ones. The worst
nursing homes are almost exclusively proprie-
tary. But in the middle ranges, there is substan
FOFt-PROFIT ENTERPRISE IN HEALTH CARE
tial overlap. The best way to visualize the
difference might be to conceive of the range of
quality in each of the two types of nursing homes
as a quasi-normal distribution.... The two dis-
tributions overlap markedly, with the mean for
the voluntaries slightly higher thar1 the mean for
proprietaries, and with the voluntaries having a
shorter low-quality tail (Vladeck, 1980:123~.
However, Hawes and Phillips also note
that most studies have been flawed in one
way or another, and "that the lumping to-
gether of various types of not-for-profits
(government, church-related, and private)
and of independent and chain for-profits may
obscure some significant differences in per-
formance." A particular problem in making
quality comparisons across the for-profit/not-
for-profit line is that not-for-profit nursing
homes may have, on average, higher reve-
nues than for-profits. For example, Hawes
anc! Phillips cite Texas data showing that
not-for-profits have 19 percent higher rev-
enues (as well as 31 percent higher expen-
ditures) than for-profits.
-
Not-for-profits have
a nigher percentage of non-Medicaid pa-
tients, who in most states pay higher charges
than patients covered by the state Medicaid
program. Many not-for-profit facilities also
benefit from subsidies from their sponsoring
organizations (e.g., church or synagogue) or
from other sources.
Hospitals, Nursing Homes, and Quality
Although the limitations of existing stud-
ies must be acknowledged, it is clear that
there are some differences associated with
type of ownership of nursing homes that do
not appear among hospitals. The reasons for
this are not fully clear, but their implications
are important.
If the relatively favorable comparisons of
quality between for-profit and not-for-profit
hospitals are due to factors that are associ-
ated with the growth of investor-owned
chains, then the continued growth of the for-
profit nursing home chains may lead to im-
provement in nursing home quality. The
OCR for page 137
QUALITY OF CARE
analysis by Hawes and Phillips (1986) does
suggest that, as was the case with hospitals,
the replacement of small proprietary nurs-
ing homes by better-financed and better-
managed investor-owned chain nursing
homes has frequently improved quality.
However, the difference between hospi-
tals and nursing homes could be due to other
factors, such as the greater presence and
influence of physicians in hospitals (as well
as other health professionals), who fee] a
responsibility to act as agent or advocate for
their patient. It is important to consider why
physicians do not play a similar role in nurs-
ing homes. Is it a lack of patient need, a
lack of money to pay for physician services,
or a lack of physician interest in the kinds
of problems that are presented by residents
of long-term-care facilities in contrast to the
more acute and dramatic cases seen in the
hospital? The most likely answer is the last.
A second question to be considered is how
the agency aspect of the physicians' role in
the hospital setting may be affected by the
entrepreneurial trends that are taking place
in health care. This issue is discussed in
Chapters 8 and 9 of this report.
Another possible explanation of the dif-
ference between hospitals and nursing homes
is the lack of competitive conditions among
nursing homes because ofthe tight supply
of beds. If so, differences between hospitals
and nursing homes will persist so long as
the hospital world is relatively competitive
(including competition on the basis of qual-
ity as well as price) in comparison with the
nursing home market.
Still another possible explanation of the
difference in the relative performance offor-
profits and not-for-profits in nursing homes
and hospitals is the stringent financial con-
straints under which nursing homes oper-
ate, which are a reflection of societal values
and public policy decisions. If constrained
resources do play a role, quality problems
could increase in investor-owned hospitals
(or, perhaps, in all hospitals in which bot-
tom-line considerations are important) un
137
der Medicare's prospective payment and
increasing financial constraints. In any event,
there is a need for improved monitoring of
quality-related patient care outcomes. The
possibility that financial goals may supplant
quality of care at least under some circum-
stances must be recognized, although some
reassurance comes from studies of quality of
care in HMOs (Luit, 1981).
Although quality care clearly requires a
certain level of funding, research has yet to
establish a clear relationship between the
level at which long-term care is funded and
the quality of care that institutions provide.
Unless a change takes place in the cultural
values that afford high prestige and funding
for hospitals and low prestige and, fre-
quently, meager funding for long-term care,
the unfortunate contrast between hospitals
and nursing homes may remain.
QUALITY OF CARE AND THE NEED
FOR MONITORING
Assurance of health care quality has long
relied heavily on professional and institu-
tional self-regulatory mechanisms and on
monitoring efforts focusing primarily on
structural and procedural measures- staff-
ing patterns, requirements for obtaining staff
privileges, existence of certain facilities and
procedures, and the operation of institu-
tional quality assurance systems. However,
as our health care system becomes more
competitive and as effects of economic in-
centives gain recognition, it is becoming more
apparent that there is a need to supplement
self-regulatory mechanisms and structural
indicators of quality with more ongoing
monitoring mechanisms that focus on utili-
zation patterns and outcome measures. For
Medicare, professional review organizations
(PROs) have been assigned this responsi-
bility. Because of concerns about cost con-
trol, as well as about quality, insurance
companies and large employers are showing
increased interest in monitoring patterns of
care provided to beneficiaries.
OCR for page 138
138
The task is not confined to hospital care.
For various reasons, continued expansion of
the outpatient and Tong-term-care sectors
seems inevitable. Quality-of-care concerns
wiB increase as these sectors expand and for-
profit participation accelerates. These qual-
ity-of-care concerns wiD culminate in a de-
mand for quality monitoring in all settings
and under all financing mechanisms.
Data systems already exist or are being
developed that wiD allow monitoring of such
things as
· Caesarean section rates
· wound infection rates after surgery
· nosocomial infections
· readmission rates
· complication rates
· fatality rates (with adjustments for di
agnoses and severity)
· functional status of nursing home pa-
tients
· health status measures in geographic
areas.
Because the results of one institution's
quality problems may turn up at another
institution's door, focusing on events that
take place within the wads of particular in-
stitutions is not adequate. Thus, it is highly
desirable that the monitoring of quality of
care be done by organizations that have ac-
cess to information about the total health
care utilization experience of a population.
Data systems are needed that allow linkage
of patients' experiences in one institution
with subsequent utilization of other insti-
tutions; for example, to establish the rates
of hospitalization among patients who had
undergone a particular surgical procedure
in venous institutions within the previous
six months. For the foreseeable future, the
data systems that have the most potential
value in monitoring the health care expe-
rience of defined populations are connected
with payers, including large employers.
Several statewide data systems look prom-
ising, but they face formidable problems in
moving beyond a focus on particular insti
FOR-PROFIT ENTERPRISE IN HEALTH CARE
tutions and types of institutions to a focus
on populations.
CONCLUSION
Evidence now available does not support
the fear that for-profit health care is incom-
patible with quality of care, nor the belief
Mat public ownership might provide some
assurance of quality. Among hospitals, most
available (although rudimentary) measures
show that investor-owned hospitals are sirn-
ilar in quality to not-for-profit hospitals, and
on some measures they are better. Investor-
owned hospitals also appear superior to the
type of hospitals they have substantially re-
placed independent proprietary hospitals.
However, as with many other topics in
this report, the past may not predict the
fixture. Some sources of support for quality
care are changing as hospitals find ways to
market around physicians (e.g., by selling
health care plans directly to employers) and
as payment methods are changed to reward
institutions for finding ways to cut costs. Al-
though there are many differences from hos-
pitals, evidence from nursing homes is not
reassuring regarding how investor-owned
institutions will behave if profits require that
quality be traded off against cost. Entrepre-
neural trends that are stimulating the growth
of diagnosis and treatment in various types
of freestanding centers and through home
care organizations, 7 also raise concerns about
quality, particularly since quality assurance
mechanisms and standards are less well de-
veloped outside of hospitals.
For these reasons, the committee con-
cludes that the monitoring of health care
quality, and the research required to in-
crease the sophistication of such monitor-
ing, should be major items on the nation's
health policy agenda.8 (The need for more
resources devoted to long-term care by the
public and private sectors is also apparent,
but is a subject for another study.) A worth-
while goal is the development of quality as-
surance systems Mat would make their results
OCR for page 139
QUALITY OF CARE
available to the public, although safeguards
are needed to avoid unwarranted harm to
individual and institutional reputations (e.g.,
mortality rates for excellent surgeons or in
stitutions would be misleading when their
referrals include disproportionate numbers
of complicated cases). The publicly funded
PRO system is a place where this can begin,
although the PRO program (and its PSRO
ancestor) has relied to some degree on vol
untary participation by physicians, who re
flect the long-standing resistance among
providers against public disclosure of the
results of review activities (Institute of Med
icine, 1981).
The possibility of public disclosure of the
results of privately funded quality assurance
activities is limited by several factors. The
loins Commission for Accreditation of Hos
pitals is a vol,,~ry organization, Ended and
controlled by providers who have strong his
torical attachments to self-regulatory mech
ani.cms in which confidentiality is a hallmark.
Also, payers and large employers have little
incentive to make public the results of their
utilization review and quality assurance ac
tivities.
However, if providers fail to respond to
information developed through these still
embryonic monitoring activities, the threat
of public disclosure will undoubtedly come
into play. The possibility must also be rec
ognized that institutions that have high stan
dards of care and that are proud of the
outcomes of the care they provide may find
public relations advantages in mailing known NOTES
such facts as how their surgical mortality or
readmission rates compare with other insti
tutions' rates.
In sum, if market forces are given in
creasingly free reign in health care and if
cost containment pressures increase, both
the interests of patients and the continuing
debate over public policy in health care will
require an increasing need to monitor He
quality of care. Quality should be monitored
in all settings, regardless of type of owner
ship. Although lack of uniform standards for
139
reporting outcomes other than death make
the monitoring of outcomes more difficult,
research, standard development, and mon-
itoring of other outcomes infection rates,
readmission rates, complication rates,
changes in functional status of nursing home
patients are clearly needed. To assess
broader changes in the health care system
not only the growth of the for-profit sector,
but also of multi-institutional arrangements,
new freestanding centers, and vertically in-
tegrated organizations, the monitoring of
national and regional health status measures
is essential. Important health status indices
include infant and maternal mortality, mor-
tality of children, and death from potentially
controllable diseases (e.g., diabetes and such
infectious diseases as tuberculosis).
Formidable methodological, bureau-
cratic, and political problems are raised by
the idea of more monitoring of, and public
accountability about, the performance of
health care organizations. Yet, the multiple
changes taking place in the organization and
ethos of health care, as well as in the reg-
ulatory and economic environment, should
place the monitoring of the performance of
health institutions and of the health status
of the population high on the public policy
agenda ant] on the agenda of organizations
(such as third-party payers) that are in a po-
sition to monitor key aspects of institutions'
performances.
11he theoretical relationship between quality and
for-profitinot-for-profit status is complex. Some of the
concern about fior-profits and quality may result from
the sense that the orientation offor-profit organizations
is toward markets and marketing, although a marketing
orientation increasingly pervades both for-profit and
not-for-profit health care. Excessive attention to mar-
ket factors Could affect aspects of quality either posi-
tively or negatively. Weisbrod' and Schlesinger (1983)
observe that in fields characterized by "asymmetric
information" (e.g., the seller knows much more than
the buyer), a potential for misrepresentation exists in
the form of promises to deliver one level of quality
while actually delivering lower, less costly, quality.
OCR for page 140
140
When it is difficult for the purchaser to write and en-
force contract contingencies against such misrepresen-
tation, consumers seek protective mechanisms such as
governmental regulation or devices to limit market en-
try of providers who are thought likely to exploit their
informational superiority. Weisbrod and Schlesinger
hypothesize that proprietary firms are more likely than
not-for-profit or public firms to take advantage of an
informational superiority. Medical care is a classic ex-
ample of a service characterized by asymmetric infor-
mation (Arrow, 1963~. However, Weisbrod and
Schlesinger (1983) also recognize that patients (or, pre-
sumably, their physician-agents) are aware of some as-
pects of institutional performance, such as the
responsiveness of floor nurses, while other aspects are
more difficult or costly to monitor. Thus, they hypoth-
esize that proprietary firms will perform as well as or
better than not-for-profit firms on "outputs" that can
be monitored by consumers, but that they will perform
worse than not-for-profit firms on "outputs" that the
consumer cannot readily monitor.
The premise that for-profit organizations have greater
sensitivity toward markets also suggests that in com-
petitive markets proprietary firms will perform as well
as or better than not-for-profit firms, but in noncom-
petitive situations, such as when all facilities are near
capacity or when a community has only one provider,
they will perform worse than would a not-for-profit
institution in similar circumstances.
2There are also differences between for-profit and
not-for-profit hospitals regarding the specialty com-
position of their medical staff (Musacchio et al., 1986),
with for-profit hospitals having fewer internists and more
generaVfa~nily practitioners. Interpretion of this spe-
cialty composition in terms of quality must be tem-
pered by several considerations. First, the relationship
between specialty composition of staff and institutional
quality of care has not been demonstrated. Second, no
data are available regarding restrictions on hospital
privileges of general/family practitioners (or other spe-
cialties) in different types of hospitals. Third, the not-
for-profit percentages undoubtedly reflect, in part, that
many large teaching hospitals are in this category. In
this regard, it is important to note that the data come
from a survey of physicians, not of institutions. Because
the probability that a particular hospital's staff physi-
cians would appear in the sample is related to the size
of its medical staff, the not-for-profit category reflects
Me influence of very large institutions, of which vir-
tually none are for-profit. Finally, the specialty com-
position of for-profit hospitals is very similar to public
hospitals.
3 Board certification is generally accepted by the
medical profession as an indicator of competency at a
given time in a professional career. As with all indi-
cators, it must be kept in perspective when judging
the overall quality-of care questions raised in this study.
FOR-PROFIT ENTERPRISE IN HEALTH CARE
Board certification is conveyed by the 23 specialty boards
upon candidates who have completed an accredited
training program and then passed a cer~ing exami-
nation.
4Wil]ia~lS (1979) reports another outcome study, which
found that "for-profit" hospital status had a very small,
but significant, relationship to perinatal mortality in
California. Unfortunately, the date were for 1960-1973,
a period that preceded most of the substantial growth
of the modern investor-owned hospital companies.
5However, whereas Me federal Medicare program
is the most important source of dollars for hospitals, it
is the state/federal Medicaid program that has become
the single most important financier of nursing home
care.
6A notable exception in a literature that generally
does not distinguish between chain and independent
proprietary nursing homes are two studies that focused
or the single largest nursing home company: "Beverly
Enterpnses Patient Care Record" and "Beverly En-
terprises in Michigan: A Case Study of Corporate Take-
over of Health Care Resources." These studies, which
were done in 1983 by the Food and Beverage Trades
Department of the AF~CIO and two other AFL-CIO
affiliates, both suggest a disturbing pattern of quality-
of-care problems in Beverly Enterprises nursing homes
with respect to complaints of patient abuse and viola-
tions of state regulations. However, because these re-
ports were prepared as part of an innovative "corporate
campaign" strategy (English, 1985) to exert pressure
on Beverly Enterprises to come to the bargaining table
with the unions, the fairness and accuracy of these
studies' findings are open to question. Because the
committee did not have the time and resources to make
its own assessment of the catalog of charges raised by
the union against Beverly Enterprises, it chose not to
use the information in these reports.
7Quality of care in ambulatory care settings has not
been examined in this chapter because of the absence
of studies in which for-profit/not-for-profit comparisons
are made. Ike few existing studies of ambulatory sur-
gery centers are confined to the experience of partic-
ular centers. Some studies with quality implications
regarding for-profit and not-for-profit hemodialysis
centers do exist; however, because of the specialized
aspects of that technology and of Medicaid's End Stage
Renal Disease Program, the committee decided not to
review these studies.
Researchers at the Rand Corporation have pub-
lished a very valuable and detailed research agenda for
monitoring the effects of Medicare's prospective pay-
ment system on the quality of care (Lohr et al., 1985~.
Virtually all of the ideas in the Rand report could be
usefully applied to studies of ownership-related differ-
ences in the quality of care.
OCR for page 141
QUALITY OF CARE
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Representative terms from entire chapter:
nursing home
