For-Profit Enterprise in Health Care (1986) / Chapter Skim
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7 Hospital Ownership and Comparative Hospital Costs
7 Hospital Ownership and Comparative Hospital Costs
Pages 322-353
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From page 322... ...
Hospital Ownership and Comparative Hospice Costs Craig G Coelen INTRODUCTION Proprietary hospitals have become increasingly common in the United States in the past decade, and this trend has provoked a debate about the relative cost of patient care in propnetary versus nonprofit hospitals.
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From page 323... ...
ANALYTIC METHODS lbe method used to estimate costs, charges, utilization rates, and margins among groups of hospitals is multiple regression analysis. This technique computes intergroup differences that are adjusted for geographic location, catchment area charactenstics, presence/absence of regulatory programs (prospective reimbursement, certificate-of-need programs, and binding professional standards review organization review [PSRO]
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From page 324... ...
. · Four dummy variables representing ur ban, nonurban, and regional location of hos pitals; · Three dummy variables indicating pres encelabsence of regulatory programs for each hospital year prospective reimbursement, binding PSRO utilization review, and certifi cate of need; and ~ Sixteen continuous variables to control for relevant characteristics of the catchment areas (counties)
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From page 325... ...
Only those differences in performance indicators across groups that are not associated with differences, location, case mix, and other factors are re~ected in our measures of di~erences due to ownership. Experience per Discharge Total hospital expense per adjusted discharge varies by as much as 10 percent among the average hospitals in each ofthe four groups, or by as much as $250 per case in 1981 dolIars.2 Independent hospitals are less expensive than chainmperated hospitals, and a~nong independent institutions, proprietary hospitals are percent less expensive than nonprofit hospitals.
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From page 326... ...
Propne~y chains treat slightly fewer patients, on average, and independent nonprofit hospitals slightly more patients, on average, than other hospitals. Occupancy rates are lowest for the average proprietary chain and slightly above average for the average nonprofit chain.6 The average chain-operated hospital appears to be growing slightly faster than the average independent institution.
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From page 327... ...
Non-Profit Independents =3 Propriesery Chains Non-Prof it I ndependen~s 30 20 , <70 70~9 90-110 llt-130 131-150 PERCENT OF NATIONAL AVERAGE B Proprietary Independents vs.
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From page 328... ...
For ancillary charges per case, however, differences are quite large: compared to nonprofit independents, proprietary chains bil134 percent more per patient for ancillary services on average; proprietary independents bill 15 percent more; and nonprofit chains bill 5 percent more. Figure 3 compares the dispersion of expense and ancillary charges per case among hospitals in each of the four groups.
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From page 329... ...
On the one hand, our results tend to disprove the claim that proprietary chains can operate more cost effectively than the traditional independent nonprofit hospital as a result of economies of scale. A1though independent proprietary hospitals operate at a 4 percent cost advantage relative to independent nonprofit institutions, proprietary chains operate, on average, at a 6 percent cost disadvantage.
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From page 330... ...
Seethe cost advantage of proprietary independents relative to independent nonprofits actually declines as the result of adjustment for bed size and case mix, from 10 percent to the 4 percent differential shown in Table 2. 6Because number of beds appears as an explanatory variable in the equations for length of stay and number of discharges, the sum of differences shown in Table 2 for length of stay and discharges can be interpreted as the average difference in occupancy rates across groups of hospitals.
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From page 331... ...
In fact, it is likely that some proprietary hospitals did not include profit tax in their computation of net income on total revenue (see Lewin et al.
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From page 332... ...
>8 <-8 -8 to-3 -3 to O Oto3 3to8 MARGIN ON PATIENT REVENUE (%) FIGURE 4 Comparative dispersion of margins on patient revenue (years 1975 through 1979~.
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