Proceed with care. Hospital board fiduciary responsibilities

Historically, there has been a tendency to give deference to the business deliberations and decisions of non-profit hospital boards. Today there is growing evidence that these decisions are coming under closer scrutiny as the result of an increase in transactional activity in the health care corporate environment and corresponding regulatory initiatives.

Tax-exempt/proprietary partnerships: how the deal gets done

Joint venture partnerships between tax-exempt healthcare providers and proprietary companies represent a type of provider-sponsored network. Tax-exempt /proprietary partnerships can help tax-exempt providers attain their strategic objectives and, at the same time, retain some governance involvement and healthcare decision-making authority. Proprietary companies that enter into such partnerships are able to expand their market presence and revenue potential without spending capital on an acquisition. Proprietary companies also gain the tax-exempt partners' goodwill, which could take them years to develop on their own. Before negotiating a partnership agreement, potential partners must assess their respective financial, cultural, organizational, and strategic strengths and weaknesses as well as their overall compatibility. Then they must develop contract terms to bring into the partnership negotiations. These terms include purpose, legal structure, assets/liabilities, governance, management, valuation, profit/loss sharing, capitalization/working capital, human resources, withdrawal from the partnership, noncompete covernants, and tax exemption issues.

Transition to capitation. Aligning incentives for success

Horror stories abound about providers that have failed to modify their incentive systems and have exhausted their annual capitation budget in the first six months of the plan year. Aligning the business strategy and financial incentives in advance is the best way to ensure that your integrated delivery system's transition to capitation is a success story. Rarely are physicians or hospitals with experience limited to the fee-for-service arena prepared to jump into a managed care or capitated compensation system. The transition can be eased by implementing a "shadow" capitation or similar arrangement that will test physician performance under a risk arrangement in advance. The information can be used to restructure the compensation system to ensure that the behaviors being encouraged will promote successful care and fiscal management.

The Health Insurance Portability and Accountability Act of 1996 (P.L. 104-191)

The purpose of this article is to provide a general overview and reference source for the Health Insurance Portability and Accountability Act, which was signed into law by President Clinton last August. The focus of the article is on Title I--Improved Availability and Portability of Health Insurance Coverage, and on Title III--Tax-Related Health Provisions. The author points out that due to the trend towards an incremental approach to health care legislation, this act must be viewed as one of a series of initiatives being taken by the federal government intended to impact the cost of the U.S. health care delivery system.

Undercontribution bias in health care spending account decisions

Results from this work describe 239 responses to a mailed survey regarding employee benefits decisions at a large eastern university. The primary objective of this work is to test for an undercontribution bias in health care financing decisions. The results establish the existence of an undercontribution bias in both actual employee decisions and hypothetical flexible spending account contribution decisions. We describe this bias within the context of related biases including loss aversion, mental accounting, status quo and omission biases. Surprisingly, we find a significant order effect in this study and posit that preference construction in this context is an active, reference-dependent process. In addition, results from this work demonstrate the endogenous nature of health care flexible spending account expenditures. The results have important implications both for the descriptive framework of and the normative solution to the flexible spending account contribution decision.

In Virginia, Trigon and its opponents fight over how to split up the Blues' money. Trigon BlueCross BlueShield, Richmond, Va

Blue Cross/Blue Shield organizations around the country are all undergoing radical change, and not without controversy. A citizens group in California, for example, won a raucous public relations battle, getting the Blues to put $3.2 billion into two charitable trusts. Then, in Virginia, Trigon BlueCross BlueShield squared off against a citizens group when it, too, tried to reorganize itself.

Assessing the characteristics of hospital bond defaults

OBJECTIVES

The authors identify market, operational, and financial characteristics associated with the default of hospital revenue bonds using logistic regression analysis.

METHODS

Data from 22 defaulted hospitals and 260 nondefaulted hospitals from 1988 to 1992 are analyzed.

RESULTS

Findings indicated that defaulted hospitals had smaller market shares, were located in near-urban markets, and incurred higher expenses per discharge than nondefaulted hospitals. Defaulted hospitals also were highly leveraged and had lower debt service coverage ratios compared with nondefaulted hospitals.

CONCLUSIONS

Results suggest that market share, ability to generate sufficient case flow to meet debt service, and amount of debt on hand are critical factors in avoiding a bond default but not government payer mix.

Emerging state policy trends related to medical group practice: Alpha Center

This article examines how state health care policy affects new ventures involving medical group practices. It will review briefly traditional state authorities related to the health care sector in general and physician organizations in particular. The article will then discuss state policies related to a range of physician organizations, including those aligned with larger provider systems. State policies related to physician organization in the competitive marketplace include several topics: referral practices, tax exemption, corporate practice of medicine, and antitrust and insurance regulation. Finally, it will discuss the implications of these trends for future enterprises undertaken by medical group practices.

The conversion foundations: a pot of gold or Pandora's Box for communities

The new charitable foundations being created when tax-exempt hospitals and HMOs go for-profit are enriching their communities with grants for health, education, housing and other worthy causes, but critics charge some deals shortchange the public. HSL Founding Publisher Barry S. Badfer looks at what the conversion foundations are doing and how to increase their accountability to serve the public good.

Solid foundations

For non-profit selling to investor-owned companies, no question is more critical than what will be done with the proceeds. Private foundations have become the preferred vehicle for redirecting those charitable assets to the public good. But great care is required, lest they be squandered.

Do nonprofit hospitals pay their way?

Using 1988 and 1991 data from nonprofit voluntary hospitals in California, we find that the vast majority of nonprofit hospitals provide community dividends in excess of the tax subsidies they receive. However, nearly 20 percent of nonprofit hospitals do not meet this standard. Further, those hospitals that do not meet the standard tend to not meet the standard over time. We recommend more explicit identification of the community dividends expected in return for special tax treatment and more explicit accounting on the part of nonprofit hospitals.

Dimensions of accountability for not-for-profit hospitals and health systems

This article examines four dimensions of accountability as they apply to not-for-profit hospitals and health systems: political accountability, particularly relating to the retention of tax-exempt status; commercial accountability associated with the nonprofit hospital's role of selling low cost and high value health services to a variety of commercial payers; community accountability in terms of addressing community health and other social needs, and clinical/patient accountability in terms of access and quality outcomes.

Charity and community: the role of nonprofit ownership in a managed health care system

As American medicine has been transformed by the growth of managed care, so too have questions about the appropriate role of nonprofit ownership in the health care system. The standards for community benefit that are increasingly applied to nonprofit hospitals are, at best, only partially relevant to expectations for nonprofit managed care plans. Can we expect nonprofit ownership to substantially affect the behavior of an increasingly competitive managed care industry dealing with insured populations? Drawing from historical interpretations of tax exemption in health care and from the theoretical literature on the implications of ownership for organizational behavior, we identify five forms of community benefit that might be associated with nonprofit forms of managed care. Using data from a national survey of firms providing third-party utilization review services in 1993, we test for ownership-related differences in these five dimensions. Nonprofit utilization review firms generally provide more public goods, such as information dissemination, and are more "community oriented" than proprietary firms, but they are not distinguishable from their for-profit counterparts in addressing the implications of medical quality or the cost of the review process. However, a subgroup of nonprofit review organizations with medical origins are more likely to address quality issues than are either for-profit firms or other nonprofit agencies. Evidence on responses to information asymmetries is mixed but suggests that some ownership related differences exist. The term "charitable" is thus capable of a definition far broader than merely the relief of the poor. While it is true that in the past Congress and the federal courts have conditioned the hospital's charitable status on the level of free or below cost care that it provided for indigents, there is no authority for the conclusion that the determination of "charitable" status was always so limited. Such an inflexible construction fails to recognize the changing economic, social and technological precepts and values of contemporary society. -Circuit Court of Appeals, District of Columbia, Eastern Kentucky Welfare Rights Organization v. Simon (1974).

Medical savings accounts: in the spotlight on Capitol Hill

Medical savings accounts (MSAs) have emerged as one of the key health care proposals under consideration in the 104th Congress. These tax-free accounts, which are viewed as an alternative to traditional "comprehensive" health care coverage, would allow individuals and their employers to set aside money to pay for major health care expenses. Depending on how they are designed, MSAs could have significant implications for HMOs and other managed care arrangements.