For-Profit Enterprise in Health Care (1986) / Chapter Skim
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14 Investor-Owned Multihospital Systems: A Synthesis of Research Findings
14 Investor-Owned Multihospital Systems: A Synthesis of Research Findings
Pages 474-491
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From page 474... ...
These figures include psychiatric and specialty hospitals, as well as community hospitals which grew at a considerably slower rate than psychiatric hospitals. For-profit independent hospitals managed by investor-owned systems are excluded.
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From page 475... ...
al Profile of the Investor-Oumed Hospital industry 1982; Federation of American Hospitals, 1983 Annual Report; Federation of American Hospitals, 1985 Directory. Investor-Owned Hospital Management Companies.
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From page 476... ...
The growth rate for nursing homes exceeded 50 percent per year, while investor-owned systems increased their ownership of psychiatric hospitals at greater than 30 percent per year.~7 In addition to psychiatric hospitals and nursing homes, investor-owned systems have entered such diverse health fields as alcohol and chemical dependency treatment, home health services, health maintenance organizations, preferred provider organizations, as well as FOR-PROFIT ENTERPRISE IN HEALTH CARE ownership and management of hospitals in more than 20 foreign nations. In 1983, 6 percent of hospitals managed or owned by investor-owned systems were located in foreign nations.28 These systems also operate nonhealth-related lines of business such as office building management, insurance company management, and real estate development.
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From page 477... ...
Investorowned hospitals can choose between debt and equity approaches, depending on such factors as interest rates and stock prices,34 giving them the option of using the leverage of their stocks to help finance capital projects.35 The types of debt financing generally used by investor-owned systems include takable bonds, bank lines of credit, commercial paper, and convertible subordinated debentures drawing on both the domestic and foreign capital markets. The larger pool of outside investors available to investor-owned systems has been instrumental in their growth.
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From page 478... ...
This feature is being reviewed in light of the Medicare prospective payment system with indications that return-on-equity payments may be eliminated in the near future.40 While there appears to be a consensus that systems enjoy an advantage in access to capital, no research has documented the extent that improved access translates into reduced cost of capital. Investor-owned systems' higher bond ratings may merely offset the tax advan FOR-PROFIT ENTERPRISE IN HEALTH CARE sages of the nonprofit hospitals.
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From page 479... ...
Systems are increasingly entering nonhospital lines of business such as HMOs, preferred provider organizations, home health services, nursing homes, emergency centers, and surgery centers in order to increase revenues, control patient movement into and out of hospitals, and facilitate local market growth.49 Management contracting, where one organization assumes responsibility for the management of another hospital or department, illustrates this point. In the short run, management contracting offers increased revenues and the opportunity to spread fixed costs over more units.s° In the long run, management contracting may pave the way for fixture acquisition of the managed hospitals In 1983, investor-owned systems managed 56 percent of the nation's contract-managed hospitals.S2 The literature is rich with case studies and anecdotes describing diversification efforts of individual systems.53 Absent from the literature are empirical studies of"economies of scope," i.e., whether the production of other products lowers unit costs for hospital services.
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From page 480... ...
payment for Medicare patients, hospitals are entering an era of prospective payment. Systems and independent nonprofit hospitals may behave in a radically different manner when they are rewarded rather than penalized for providing services at lower costs.
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From page 481... ...
for 1969; 5,094 nonprofit hospitals and 157 for-profit chain hospitals Hill and Stewart California nonprofit independent (1971163 hospitals, for-profit independents, and for-profit chains Ruchlin et al. (1973~64 Lewin and Associates (1976~65 56 for-profit chain hospitals matched with 11 independent local government hospitals and 45 independent voluntaries in 1970 345 hospitals from five Blue Cross Plan areas: 114 for-profit system hospitals, 90 independent forprofit hospitals, 141 independent nonprofit hospitals Coyne (1918~66 Eight nonprofit systems; six investor-owned systems Bays (1979~67 46 California hospitals including 12 for-profit chain hospitals For bed sizes less than 200 beds, for-profit chain hospitals had greater per diem expenses For hospitals greater than 200 beds, chain hospitals' per diem expenses were 29 percent less Per admission expenses average 11 percent less for for-profit hospitals For-profit chain hospitals had higher expenses than independent for-profits or independent nonprofit hospitals Revenue per adjusted day was 4 percent greater for the for-profit chain hospitals Expense per adjusted day was equivalent Revenues per day were 29 percent greater for for-profit system hospitals than nonprofit hospitals Charges for same diagnoses were 18 percent greater for the for-profit system hospitals System expenses per day were 20 percent greater per adjusted day System hospitals were newer; capital costs were nearly double those of nonprofits Markups for for-profits were 20 percent more for lab and x-ray services than nonprofits For most measures, acquired system hospitals were less expensive than system "indigenous hospitals" Ownership had no erect on expenses per day Centrally organized systems were found to be more efficient; geographically concentrated systems had higher occupancy rates For-profit chain status reduced expense per case by 12 percent relative to nonprofit hospitals For-profit chains' case my was similar to nonprofits' case mix; this was not so for independent proprietaries
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From page 482... ...
community hospitals in 1979 Investor-owned hospitals in Florida had 7 to 21 percent lower revenue per patient day than other hospitals Charges per admission were 4 to 9 percent lower in Utah, 5 percent lower in Texas Investor-owned hospitals' charges per inpatient day were 8 percent higher for routine charges and 36 percent higher for ancillary services per admission charges, 4 percent higher for routine and 26 percent higher for ancillary services Expenses per day were 13 percent higher and 8 percent higher admission for investor-owned hospitals Gross revenues per day were 18 percent higher per day and 12 percent higher per admission for investor-owned hospitals For nearly all measures of cost, investorowned chains were the most expensive group Revenues per admission and per day were 10 percent higher for for-profit chains than voluntaries Expenses per admission and day were 2 percent and 6 percent higher for for-profit chains than voluntaries Ancillary revenues per admission and day were 29 percent and 38 percent greater for the chains than for the voluntaries Daily service revenues were 7 percent and 11 percent higher per admission and day for the chain than for the voluntaries Net operating Finds (operating revenues taxes) per admission were identical Net operating expenses per admission were 4.5 percent less for investor-owned chain hospitals Investor-owned chain hospitals had 3.4 percent greater net operating fiends per day and 2.7 percent less per per-diem net operating expenses Religious, other nonprofit, and investorowned system hospitals significantly raised the expense per case and per day, with investor-owned hospitals being the most expensive Investor~wned chain hospitals that have joined chains in the last 4 years have per diem expenses 10 percent higher than independent nonprofits and per admission expenses 12 percent higher
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From page 483... ...
No significant differences were found between system and independent hospitals.89 The last measure of access to care tested was hospital case mix. Based on limited analysis of diagnostic case mix, no significant differences were found between investor-owned system and other hospitals.90 Measures of Quality Four studies compared the quality of care in investor-owned system hospitals with matched independent nonprofit hospitals.
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From page 484... ...
annual surveys of hospitals for 1978 through 1982 345 system and independent forprofit and nonprofit hospitals located in five Blue Cross areas: Los Angeles, California; Florida; Texas; Kentucky; and Richmond, Virginia 32 matched pairs of contractmanaged and traditionally managed hospitals; hospitals under contract were nonprofit Access For-profit chain facilities received about 35 percent of revenues from public third parties; nonprofits received about 60 percent from these payers Quality Gross death rates averaged 2.48 for nonprofits and 1.99 for for-profit chain hospitals; authors note these differences could be due to different patient case mixes No discernible differences in educational residency and training programs, although for-profits had a lower percentage of residency positions filled (5 percent versus 13 percent) Access Investor-owned system hospitals provided 15 percent less uncompensated care (defined as bad debt or charity care)
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From page 485... ...
for 1971 and 1972 112 Florida nonfederal, shortterm, nonteaching hospitals under 400 beds (52 nonprofit, 45 investor-owned system, and 15 investor-owned independent) somewhat broader range of services" although not a statistically significant difference Quality No statistically significant difference between matched samples in terms of: percent board-certified staff physicians, extent to which hospitals provide full-time coverage in their emergency rooms, hospital accreditations, and hospital participation in a quality assurance program Access No significant difference between hospitals on treatment of Medicare patients Location, size, and type of hospital may be more significant than ownership in admission of Medicaid patients; however, public hospitals had highest Medicaid revenues, investor-owned chain lowest No significant difference in amount of charity care delivered Quality Investor-owned chain and nonchain performed no research activities; the rest of the peer group spent 0.4 percent on research Investor-owned chain spent 0.07 percent and nonchain spent 0.2 percent on teaching compared with 0.14 percent for the whole peer group and 0.81 percent for all California hospitals Access No significant differences in case mix between nonprofits and multihospital system for-profits Access No significant difference in Medicare and M edicaid utilization Except for cardiac care, no differences in services offered Investor-owned are more likely to over emergency room services, but less likely to provide outpatient psychiatric care, although more offer clinical psychological services Nonprofits offer more "unprofitable" services as well as "profitable" services No differences in charity care or bad debt adjustments to revenue NOTE: "Charges" refers to what the hospital bills the patient.
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From page 486... ...
Two studies report that investor-owned system hospitals treat similar percentages of uncompensated care (defined as bad debt plus charity care) as do control hospitals, although neither system nor control hospital treated many.93 One study found that investor-owned system hospitals provided a lower percentage of uncompensated care.94 Four studies examined differences in quality
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From page 487... ...
Data from the AMA's Center for MultiInstitutional Arrangements indicate that between 1979 and 1983 the number of hospital beds controlled by non-profit multihospital systems grew at an average annual rate of 0.4 percent while investor-owned systems grew at 5.2 percent. 22American Hospital Association, Hospital Statistics, 1984 Edition.
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From page 488... ...
Stewart (1973) Proprietary hospitals versus nonprofit hospitals: A matched sample analysis in California, Blue Cross Reports 9:10-16; and Steinwald, B., and D
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From page 489... ...
Katz (1982) Investor-owned hospital management companies: Growth strategies and their impli cations, draft contract final report for Bureau of Health Facilities, Health Resources Administration, U.S.
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From page 490... ...
Katz (1982) Investor-owned hospital management companies: Growth strategies and their implications, draft contract final report for the Bureau of Health Facilities, Health Resources Administration, U
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From page 491... ...
(1984) Austin questions HCAs loyalty to town, Modern Healthcare 4:38; Dallek, G
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