For-Profit Enterprise in Health Care (1986) / Chapter Skim
Currently Skimming:
An Analysis Based on California Data, 1978-1982
An Analysis Based on California Data, 1978-1982
Pages 290-302
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From page 290... ...
4. All of the sectors apparently became more aggressive in their use of pricing strategies, shifting inpatient revenues toward ancillary and away from daily (room and board)
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From page 291... ...
While the to tal number of hospitals and beds in the sample remained almost constant over the 4-year pe riod (a net decline of 11 hospitals and 1,210 pronely unproved, bad debts were re- beds, or 5 and 3 percent, respectively) , this duced, and the accounting value of assets, debt, was not true within individual ownership cat equity, and capital expenses increased dra- egories.
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From page 292... ...
Table 2 reveals that operating margins, defined here as net operating revenues divided by total operating revenues, were highest for the IO chains, followed in order by the voluntaries, IO independents, and publics. Public hospitals consistently operated at a loss, and this loss worsened over the period, from 11 percent in 1977-1978 to 14 percent in 19811982.
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From page 293... ...
(The reader is cautioned, however, that this measure has little validity for public hospitals, which frequently do not report equity capital on their balance sheets.) In the previous study, based only on 19791980 data, net income (after tax profit)
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From page 294... ...
As revealed in Table 4, the increase in the ratio of inpatient ancillary to daily service charges indicates that all sectors adopted a pricing strategy in which ancillary services became relatively more important as a revenue source when compared to daily (room and board) services.
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From page 295... ...
Gross patient charges Deductions Net patient revenue Operating expense Net income (profit) after tax 70 147 58 58 110 69 147 59 59 106 60 145 48 52 9 78 152 67 69 75 74 143 61 56 149 aAdjusted discharges are the total discharges times the ratio of total patient revenue (inpatient and outpatient)
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From page 296... ...
. These increases in charges, however, did not translate directly into increases in patient revenues, as deductions from revenue (which in clude Medicare and Medi-Cal contractual allowances as well as charity care, bad debts, and other contractual allowances)
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From page 297... ...
There was relatively little difference between the other sectors. Medicare contractual allowances are a reflection of (1)
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From page 298... ...
TABLE 7 Patient Charges per Unit of Servicea for Important Daily and Ancillary Services, 1981-1982 Ownership Category Investor-Owned Investor-Owned Year/Variable All Voluntary Public Independent Chain 192 180 200 care 464 463 419 479 486 Ancillary services Clinical labs 0.98 0.92 0.71 1.24 1.19 Pharmacy 49.34 40.20 22.18 84.11 85.14 Diagnostic radiology 7.28 6.90 7.43 8.92 6.79 Surgery 4.65 4.43 3.53 6.07 5.22 Central service and supply 32.26 24.95 16.21 44.00 58.85 Emergency 46.80 44.41 41.96 57.49 52.65 Inhalation therapy 16.46 17.78 12.79 16.10 16.98 aUnits of service are defined by the California Health Facilities Commission.
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From page 299... ...
The data do not reveal whether this was due to the recession environment during 19811982 or to less aggressive management of accounts receivable, but it is clear that bad debts became a significant problem for the public hospitals over the period. Hospitals That Changed Ownership During the Period Our previously published study based on a single year's data (1979-1980)
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From page 300... ...
, and (3) a relatively high level of uncollectable accounts (2.7 percent of billed charges)
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From page 301... ...
These observations are consistent with intuitive and anecdotal evidence regarding purchases of independent IO hospitals by the chains during the late 1970s and early 1980s. The policy implications are less clear, especially as Me hospital industry enters a new financial environment in which the targets for acquisition appear increasingly to be more complex, larger teaching facilities.
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From page 302... ...
302 results, by demonstrating the more vigorous response of the IO sector to the previous costbased incentives reimbursement system, help to shed light on what we may expect in the new reimbursement environment being implemented in California and in may other parts of the United States. If the IO sector, as demonstrated in our analysis, is quickest to respond to these new incentives, we may expect its growth to continue or even to accelerate.
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