For-Profit Enterprise in Health Care (1986) / Chapter Skim
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6 Hospital Acquision and Their Effects: Florida, 1979-1982
6 Hospital Acquision and Their Effects: Florida, 1979-1982
Pages 303-321
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From page 303... ...
However, the characteristics of hospital acquisitions have received only limited attention to date (Florida Hospital Cost Containment Board, 1983~. This paper will contribute to an understanding of these issues by examining two major questions: (1)
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From page 304... ...
Percent charity and bad debt patients-deductions from revenue due to bad debt and charity patients as a percent of total patient care revenues. Efficiency of Operations Operating expense per adjusted admission a ratio of total operating expense and total adjusted admissions.
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From page 305... ...
As Table 3 demonstrates, the hospitals that underwent an ownership change were quite diverse. They ranged in size from 27 to 771 licensed beds; in service index scores from 12 to 62; in Medicare caseloads from 18 to 74 percent; in Medicaid caseloads from O to 48 percent, and in total margins from - 54 percent to 9 percent.
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From page 306... ...
The three not-for-profit hospitals that underwent a change of ownership were dramatically smaller and less complex than other not-for-profit hospitals and other hospitals that changed ownership. Government-owned hospitals whose ownership did not change were notable in their low percentage of Medicare patients and high Medicaicl caseloads, and this pattern was particularly true for the four government hospitals that subsequently changed ownership.
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From page 307... ...
The acquired government hospitals that underwent an ownership change were on average larger, more complex, and had smaller Medicare caseloads than other government hospitals and other hospitals that had an ownership change. Investor-owned hospitals, both chain and independent, that subsequently changed ownership had higher Medicaid and lower Medicare levels than other investor-owned hospitals, although their levels were about average for hospitals that underwent a change in ownership.
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The results in Table 5 suggest that the hospitals that subsequently changed ownership had the potential for changes in patient mix since their Medicaid caseloads and their charity and bad debt level were higher than those of other hospitals. In addition, the Medicare caseload for the hospitals whose ownership subsequently changed was comparatively low.
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From page 313... ...
Overall Characteristics of Hospitals That Subsequently Changed Ownership In conclusion, the hospitals that subsequently underwent an ownership change differed Dom other hospitals in several important ways. They had significantly lower total profit margins, which were not due to lower charges (their charges were actually slightly higher)
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Profitability The data in Table 6 reveal that the profit margins for the hospitals that underwent an ownership change increased dramatically faster between 1979 and 1982 than they did for the hospitals whose ownership did not change. Operating margins for the hospitals whose ownership changed increased at a rate of over 200 percent in the 3-year period, compared to approximately 38 percent for other hospitals.
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From page 317... ...
In sum it appears that the hospitals that changed ownership changed their patient mix in the post-acquisition period to reduce their clependence on less reliable revenue sources and to increase the proportion of patients with more reliable reimbursement. The hospitals acquired by investor-owned chains mirrored the general pattern of reductions in the percentage of revenue written off to bad debt and charity care, despite the fact that these facilities had comparatively low bad debt and charity writeoffs in the pre-acquisition period.
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From page 318... ...
The study reveals that the hospitals that changed ownership had significantly lower profit margins than other hospitals prior to the ownership change. The 1979 average total margin for hospitals that subsequently changed ownership was 0.76 percent,
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From page 319... ...
From this standpoint the acquisition process may be extremely beneficial in substantially improving margins for hospitals that have been unable or unwilling to generate necessary and healthy margins. The study reveals that overall increases in profit levels for hospitals that changed ownership in the 3-year period were dramatic; operating margins increased by an average of more than 200 percent and average total margins increased by over 400 percent.
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From page 320... ...
The introduction of prospective reimbursement under Medicare wiB undoubtedly affect future decisions concerning hospital acquisitions and We behavior of those facilities after acquisitions. The incentives under the new system for reducing costs and service utili7~lion and for promoting the provision of care in profitable diagnostic categories will probably change significantly the behavior of indi FOR-PROFIT ENTERPRISE IN HEALTH CARE vidual hospitals and corporate chains.
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From page 321... ...
Psychiatric Acute Care SPECIALTIES INCLUDED IN PHYSICIAN MIX SCORE 1. Allergy and Immunology 2.
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