For-Profit Enterprise in Health Care (1986) / Chapter Skim
Currently Skimming:
4 The Effects of Ownership and Multihospital System Membership on Hospital Functional Strategies and Economic Performance
4 The Effects of Ownership and Multihospital System Membership on Hospital Functional Strategies and Economic Performance
Pages 260-289
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From page 260... ...
This study attempts to separate differences associated with system membership from those associated with ownership form and to develop answers to the following questions: · Are there differences in demographics, reimbursement systems, and regulatory structures between areas where multihospital system members are located and those in which freestanding hospitals are located? Are there differences between the areas where IO and NFP hospitals locate?
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From page 261... ...
Office for Civil Rights' 1980 Survey of Hospitals.2 Finally, the Health Care Financing Administration (HCFA) supplied wage and casemix indices and lists of hospitals that were sole community providers.
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From page 262... ...
This allows the study to be national in scope, rather than limited only to states in which the hospital classes under study are located, and increases one's confidence that the measures calculated represent average relationships nationwide. Second, because the regression technique is not limited in its application to two equal-sized samples, differences among IO and NAP system hospitals and IO and NFP freestanding hospitals can be examined explicitly at the same time.
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From page 263... ...
Markups and profitability Gross patient care markup ratio Revenue deduction ratio Nonoperating revenue to total gross revenue Total markup ratio Return on total assets Return on equity or fund balance MCR, as above MCR, as above MCR, as above MCR, as above MCR, as above MCR: total liabilities/total assets MCR: current assets/current liabilities MCR: depreciation, interest, and capital leases/total operating costs MCR: depreciation, interest, capital leases and Medicare ROE/total operating costs MCR: accumulated depreciation plant/depreciation expense MCR: fixed assets/beds MCR: gross patient revenues/ operating expenses MCR: (gross patient revenues - net patient revenues) /gross patient revenues MCR: nonoperating revenue/ (operating revenue + nonoperating revenue)
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From page 264... ...
These were measured by total fixed assets per bed, debt-to-asset and current ratios, capital costs as a percentage of operating costs, and accounting age of plant (defined as accumulated depreciation divided by depreciation expense)
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From page 265... ...
and surgical proportions, and lower in obstetrical and outpatient proportions than NFP freestanding ones. We hypothesized that IOMS revenues and administrative and home office costs per case would be higher than either freestanding or system NFPs, but their total operating and patient care expenses per case would be equivalent to the NFPs.
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From page 266... ...
covered by rate setting survey and state rate setting agencies 559 5.8147 21.0005 Case mix and patient selection Case-mix index Inpatient surgeries per 100 admissions Births per 100 admissions Percent of admissions covered by charge-based payers Association HCFA, Federal Register AHA Annual Survey AHA Annual Survey OCR survey and Blue Cross 561 560 560 0.9894 37.3481 6.6276 0.0822 17.3455 6.6465 539 41.3264 18.0965 Input cost and regional practice differences Wage index HCFA, Federal Register 5610.99270.1595 Located in Census Region 9 (D) AHA 5610.15690.3640 Capacity and facility utilization Number of beds MCR (available beds)
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From page 267... ...
However, we expected higher proportions of surgical admissions and a lower overall case-mix index at freestanding IOs than freestanding or system NFPs, lower overhead costs due to the absence of home office costs, and lower fixed assets per bed and debt-toasset ratios than system IOs. We hypothesized that in many ways government hospitals would resemble freestanding NFPs.
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From page 268... ...
NFPMS and government hospitals were about as likely as freestanding NFPs to be located in suburban metropolitan areas, but less likely than IO chains to be in the suburbs. Wage Index and Sole Community Provider Status As a consequence of their differing patterns of urban-rural location, the wage indices de veloped by BCFA were slightly higher for the investor-owned hospitals (both those in multihospital systems and freestanding ones)
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From page 270... ...
Third-Party Coverage and Rate Setting We found essentially no difference in the percentage of admissions covered by Medicare and Medicaid across the hospitals. However, the shares of the insurance market held by Blue Cross and the bases for Blue Cross payment differ across geographic regions and show in lower proportions of Blue Cross admissions at the IO and government hospitals than at the NFPs of both classes.
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From page 271... ...
NFPMS members were not significantly different from freestanding NFP hospitals on any of the measures, but showed slightly higher case-mix indices and outpatient proportions, and lower surgeries and births per 100 admissions than freestanding NFPs. IO freestanding hospitals had the lowest casemix indices (0.982)
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From page 272... ...
* 0.0640.001 - 7.431E-s Outpatient revenue to total gross revenue (rabo)
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From page 273... ...
Finally, government hospitals had lower revenues and costs per case than freestanding NFPs, especially lower administrative costs. Hospitals contract managed for less than 3 years, whether by IO or NFP managers, in 1980 had home office costs per adjusted admission $18 higher than hospitals that were not contract managed, but hospitals that had been managed for 3 years or more showed only slightly higher home office costs than those not managed ($17.72 - $15.46 = $2.26)
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From page 274... ...
* 82.74-8.84 Not-for-profit chain-87.85- 46.604.02- 35.27 Investor-owned freestanding104.4422.3744.47-73.86 Government- 65.98- 80.09- 66.93- 87.56 Contract management and length of affiliation Contract managed in 198042.8639.6889.9454.76 Chain affiliated in 1977 and 1980- 58.48- 47.17- 73.13- 59.35 Contract managed in 1977 and 1980196.84164.57115.49135.35 Competition and regulation Sole community provider119.7956.6431.2625.11 Percent of admissions covered by rate setting- 1.51-2.05*
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From page 275... ...
- 15.46131.08 Competition and regulation Sole community provider1.9414.10* -60.33 Percent of admissions covered by rate setting0.090.053.53 Case mix and patient selection Case-mix index 1,807.76 Inpatient surgeries per 100 admissions1.18*
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From page 276... ...
Each additional percentage point of occupancy increased the hospital's total pa FOR-PROFIT ENTERPRISE IN HEALTH CARE tient care revenue per case by about $4, but reduced total operating expenses per case by about $2, total patient care expenses per case by about $2.50, and the general and administrative component of total operating costs per case by a little over $3. Finally, in 1980, before the Medicare revenue enhancements for medical education, each additional dollar of expense for residents and interns per bed added only about 9 cents to the total patient care expense per admission and about 8 cents to total patient care revenues per admission.
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From page 277... ...
Nonoperating revenue was a larger portion of the total gross revenues of government hospitals than of freestanding NFPs, but these classes of hospitals differed little on markups and profitability. Freestanding IO hospitals achieved a better return on equity (ROE)
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From page 279... ...
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From page 280... ...
Government hospitals had lower debt-to-asset ratios (0.13 lowers, lower capital costs as a percentage of operating costs, and lower fixed-asset values per bed ($9,559 less) than freestanding NFPs.
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From page 283... ...
Capacity and facility utilization had statistically significant but small effects on capital structure ratios. Higher occupancy rates resulted in lower capital cost as a percentage of total operating costs, showing the effect of spreading the fixed capital costs over greater volumes.
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From page 286... ...
However, despite their lower occupancy, IO chain hospitals employed 0.28 fewer FlEs per adjusted average daily census than NFP system hospitals. NFP system members showed slightly better total asset turnover numbers than freestanding NFPs, but showed no other significant differences from NFPs on these measures of activity and productivity.
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From page 287... ...
The NFP members of multihospital systems in our study differed from freestanding NFPs only on the measures of home office costs, markup ratios, and asset turnover. Clearly, in 1980 the strategies and performance of IO and NFP multihospital system hospitals had not converged as some observers believe they have today.
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From page 288... ...
This disadvantage would persist in the long run as well to the extent that the IO hospitals higher current capital costs are an artifact of the revaluation of order assess on purchase, rasher then related to physically newer buildings. Fourth, the current magnitude of the indirect teaching cost adjustment under Medicare gives teaching hospitals an edge over nonteaching ones that may become even more important as the payment formula becomes based more on national averages.
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From page 289... ...
Using the Medicare designation, none of the IO hospitals in our sample are sole community providers. However, using other definitions, HCA, among other systems, may have a large number of sole community provider hospitals.
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