Price competition and hospital cost growth in the United States (1989-1994)

Impacts of the medical arms race on medical expenses: a public hospital-based study in Shenzhen, China, during 2009-2013

BACKGROUND

Has the medical arms race (MAR) increased healthcare expenditures? Existing literature has yet to draw a consistent conclusion. Hence, this study aims to reexamine the relationship between the MAR and medical expenses by the data from public hospitals in Shenzhen, China, during the period of 2009 to 2013.

METHODS

This study's data were collected through panel datasets spanning 2009 to 2013 from the Shenzhen Statistical Yearbook, Shenzhen Health Statistical Yearbook, and annual reports from the Shenzhen Municipal Health Commission. The Herfindahl-Hirschman index and hierarchical linear modeling were combined for empirical analysis.

RESULTS

The MAR's impact on medical examination fees differed during the inpatient and outpatient stages. Further analysis verified that the MAR had the most significant impact on outpatient examination fees. Due to the characteristics of China's medical system, government regulations in the healthcare market may consequently accelerate the MAR among public hospitals. Strict government regulations on the medical system have also promoted increased medical examination costs to some extent. Once medical service prices are under strict administrative control, only drug and medical examination fees are the primary forms of extra income for hospitals. After the proportion of drug fees is further regulated, medical examinations will then become another staple method to generate extra revenue. These have distorted Chinese public hospitals' medical fees, which completely differ from those in other countries.

CONCLUSION

The government should confirm that they have allocated sufficient financial investments for public hospitals; otherwise, the competition among hospitals will transfer the burden to patients, and especially to those who can afford to pay for care. A core task for public hospitals involves providing safer, less expensive, and more reliable medical services.

Does Eco-Certification Correlate with Improved Financial Performance? Evidence From a Longitudinal Study in the US Hospital Industry

Health care-based negative production externalities, such as greenhouse gas emissions, underscore the need for hospitals to implement sustainable practices. Eco-certification has been adopted by a number of providers in an attempt, for instance, to curb energy consumption. While these strategies have been evaluated with respect to cost savings, their implications pertaining to hospitals' financial viability remain unknown. We specify a fixed-effects model to estimate the correlation between Energy Star certification and 3 different hospitals' financial performance measures (net patient revenue, operating expenses, and operating margin) in the United States between 2000 and 2016. The Energy Star participation indicators' parameters imply that this type of eco-certification is associated with lower net patient revenue and lower operating expenses. However, the estimated negative relationship between eco-certification and operating margin suggests that the savings in operating expenses are not enough for a hospital to achieve higher margins. These findings may indicate that undertaking sustainable practices is partially related to intangible benefits such as community reputation and highlight the importance of government policies to financially support hospitals' investments in green practices.

Does hospital competition improve efficiency? The effect of the patient choice reform in England

We use the 2006 relaxation of constraints on patient choice of hospital in the English NHS to investigate the effect of hospital competition on dimensions of efficiency including indicators of resource management (admissions per bed, bed occupancy rate, proportion of day cases, and cancelled elective operations) and costs (reference cost index for overall and elective activity, cleaning services costs, laundry and linen costs). We employ a quasi differences-in-differences approach and estimate seemingly unrelated regressions and unconditional quantile regressions with data on hospital trusts from 2002/2003 to 2010/2011. Our findings suggest that increased competition had mixed effects on efficiency. An additional equivalent rival increased admissions per bed by 1.1%, admissions per doctor by 0.9% and the proportion of day cases by 0.38 percentage points, but it also increased the number of cancelled elective operations by 2.5%.

Are cost differences between specialist and general hospitals compensated by the prospective payment system?

Prospective payment systems fund hospitals based on a fixed-price regime that does not directly distinguish between specialist and general hospitals. We investigate whether current prospective payments in England compensate for differences in costs between specialist orthopaedic hospitals and trauma and orthopaedics departments in general hospitals. We employ reference cost data for a sample of hospitals providing services in the trauma and orthopaedics specialty. Our regression results suggest that specialist orthopaedic hospitals have on average 13% lower profit margins. Under the assumption of break-even for the average trauma and orthopaedics department, two of the three specialist orthopaedic hospitals appear to make a loss on their activity. The same holds true for 33% of departments in our sample. Patient age and severity are the main drivers of such differences.

Association Between Medicare's Mandatory Hospital Value-Based Purchasing Program and Cost Inefficiency

BACKGROUND

The Patient Protection and Affordable Care Act instituted pay-for-performance programs, including Hospital Value-Based Purchasing (HVBP), designed to encourage hospital quality and efficiency.

OBJECTIVE AND METHOD

While these programs have been evaluated with respect to their implications for care quality and financial viability, this is the first study to assess the relationship between hospitals' cost inefficiency and their participation in the programs. We estimate a translog specification of a stochastic cost frontier with controls for participation in the HVBP program and clinical and outcome quality for California hospitals for 2012-2015.

RESULTS

The program-participation indicators' parameters imply that participants were more cost inefficient than their peers. Further, the estimated coefficients for summary process of care quality indexes for three health conditions (acute myocardial infarction, pneumonia, and heart failure) suggest that higher quality scores are associated with increased operating costs.

CONCLUSION

The estimated coefficients for the outcome quality variables suggest that future determination of HVBP payment adjustments, which will depend solely on mortality rates as measures of clinical care quality, may not only be aligned with increasing healthcare quality but also reducing healthcare costs.

Do hospitals respond to rivals' quality and efficiency? A spatial panel econometric analysis

We investigate whether hospitals in the English National Health Service change their quality or efficiency in response to changes in quality or efficiency of neighbouring hospitals. We first provide a theoretical model that predicts that a hospital will not respond to changes in the efficiency of its rivals but may change its quality or efficiency in response to changes in the quality of rivals, though the direction of the response is ambiguous. We use data on eight quality measures (including mortality, emergency readmissions, patient reported outcome, and patient satisfaction) and six efficiency measures (including bed occupancy, cancelled operations, and costs) for public hospitals between 2010/11 and 2013/14 to estimate both spatial cross-sectional and spatial fixed- and random-effects panel data models. We find that although quality and efficiency measures are unconditionally spatially correlated, the spatial regression models suggest that a hospital's quality or efficiency does not respond to its rivals' quality or efficiency, except for a hospital's overall mortality that is positively associated with that of its rivals. The results are robust to allowing for spatially correlated covariates and errors and to instrumenting rivals' quality and efficiency.

Has Price Competition Changed Hospital Revenues and Expenses in New York?

This study analyzes the factors that influenced hospital expenses and revenues prior to and following the enactment of the New York State Health Care Reform Act of 1996 (HCRA)—the period from 1994–1999. HCRA was expected to encourage price competition which in turn was anticipated to lower hospital revenues and expenses. We measured the differential effects on hospital revenues and expenses in markets with varying degrees of competition. We also measured the relationship between hospital revenues and expenses and the increased concentration resulting from the formation of local hospital systems. We found that revenues and expenses both grew more slowly for hospitals located in more competitive markets; hospital systems that increased concentration tended to have higher revenues. In the short run at least, price competition induced by HCRA did constrain both hospital expense and revenue growth, although the increase in hospital mergers countered this trend.

Free-Standing Ambulatory Surgery Centers and Hospital Surgery Volume

This paper examines the association of free-standing ambulatory surgery centers (ASCs) with hospital surgery volume, using data from the 2002 Medicare Online Survey Certification and Reporting System and the American Hospital Association Annual Surveys of Hospitals. From 1993 to 2001, the number of ASCs per 100,000 population in metropolitan statistical areas (MSAs) increased by 150%. During the same period, hospital outpatient surgeries increased 28%, while inpatient surgeries decreased by 4.5%. MSA and year fixed-effects regression analyses suggest that an increase of one ASC per 100,000 people was associated with a 4.3% reduction in hospital outpatient surgical volume, but was not associated with inpatient surgical volume.

Trends in Managed Care Cost Containment: An Analysis of the Managed Care Backlash

Consumer dissatisfaction with the quality and limitations of managed health care led to rapid disenrollment from managed care plans and demands for regulation between 1998 and 2003. Managed care organizations, particularly health maintenance organizations (HMOs), now face quality and coverage mandates that restrict them from using their most aggressive strategies for managing costs. This paper examines the effect of this backlash on managed care's ability to contain costs among short-term, non-federal hospitals between 1998 and 2008. The results show that the impact of increased HMO penetration on inpatient costs reversed over the study period, but HMOs were still effective at containing outpatient costs. These findings have important policy implications for understanding the continuing role that HMOs should play in cost containment policy and for understanding how effective the latest wave of cost containment institutions may perform in heavily regulated markets.

Decomposition of the drivers of the U.S. hospital spending growth, 2001-2009

BACKGROUND

United States health care spending rose rapidly in the 2000s, after a period of temporary slowdown in the 1990s. However, the description of the overall trend and the understanding of the underlying drivers of this trend are very limited. This study investigates how well historical hospital cost/revenue drivers explain the recent hospital spending trend in the 2000s, and how important each of these drivers is.

METHODS

We used aggregated time series data to describe the trend in total hospital spending, price, and quantity between 2001 and 2009. We used the Oaxaca-Blinder method to investigate the relative importance of major hospital cost/spending drivers (derived from the literature) in explaining the change in hospital spending patterns between 2001 and 2007. We assembled data from Medicare Cost Reports, American Hospital Association annual surveys, Prospective Payment System (PPS) Impact Files, Medicare Provider Analysis and Review (MedPAR) Medicare claims data, InterStudy reports, National Health Expenditure data, and Area Resource Files.

RESULTS

Aggregated time series trends show that high hospital spending between 2001 and 2009 appears to be driven by higher payment per unit of hospital output, not by increased utilization. Results using the Oaxaca-Blinder regression decomposition method indicate that changes in historically important spending drivers explain a limited 30% of unit-payment growth, but a higher 60% of utilization growth. Hospital staffing and labor-related costs, casemix, and demographics are the most important drivers of higher hospital revenue, utilization, and unit-payment. Technology is associated with lower utilization, higher unit payment, and limited increases in total revenue. Market competition, primarily because of increased managed care concentration, moderates total revenue growth by driving lower unit payment.

CONCLUSIONS

Much of the rapidly rising hospital spending growth in the 2000s in the United States is driven by factors not commonly known or well measured. Future studies need to explore new factors and dynamics that drive longer-term hospital spending growth in recent years, particularly through the channel of higher prices.

Effects of regulated competition on key outcomes of care: cataract surgeries in the Netherlands

Similar to several other countries, the Netherlands implemented market-oriented health care reforms in recent years. Previous studies raised questions on the effects of these reforms on key outcomes such as quality, costs, and prices. The empirical evidence is up to now mixed. This study looked at the variation in prices, volume, and quality of cataract surgeries since the introduction of price competition in 2006. We found no price convergence over time and constant price differences between hospitals. Quality indicators generally showed positive results in cataract care, though the quality and scope of the indicators was suboptimal at this stage. Furthermore, we found limited between-hospital variation in quality and there was no clear-cut relation between prices and quality. Volume of cataract care strongly increased in the period studied. These findings indicate that health insurers may not have been able to drive prices down, make trade-offs between price and quality, and selectively contract health care without usable quality information. Positive results coming out from the 2006 reform should not be taken for granted. Looking forward, future research on similar topics and with newer data should clarify the extent to which these findings can be generalized.

A study of regional variation in the inpatient cost of lower extremity amputation among patients with diabetes in the United States

OBJECTIVE

Understanding of the effects of providers' cost on regional variation in healthcare spending is still very limited. The objective of this study is to assess cross-state and cross-region variations in inpatient cost of lower extremity amputation among diabetic patients (DLEA) in relation to patient, hospital, and state factors.

METHODS

Patient and hospital level data were obtained from the 2007 US Agency for Healthcare Research and Quality Healthcare Cost and Utilization Project (HCUP). State level data were obtained from the US Census Bureau and the Kaiser Family Foundation websites. Regression models were implemented to analyze the association between in-patient cost and variables at patient, hospital, and state levels.

RESULTS

This study analyzed data on 9066 DLEA hospitalizations from 39 states. The mean cost per in-patient stay was $17,103. Four out of the five most costly states were located on the East and West coasts (NY and NJ, CA and OR). Age, race, length of stay, level of amputation, in-patient mortality, primary payer, co-morbidities, and type of hospital were significantly correlated with in-patient costs and explained 55.3% of the cost variance. Based on the means of costs unexplained by those factors, the three West coast states had the highest costs, followed by five Midwestern states, and four Southern states, and Kansas were the least costly.

CONCLUSIONS

Over 40% of the variations in DLEA hospital costs could not be explained by major patient-, hospital-, and state-level variables. Further research is needed to examine whether similar patterns exist for other costly surgical procedures among diabetic patients.

How much do hospitals cost shift? A review of the evidence

CONTEXT

Hospital cost shifting--charging private payers more in response to shortfalls in public payments--has long been part of the debate over health care policy. Despite the abundance of theoretical and empirical literature on the subject, it has not been critically reviewed and interpreted since Morrisey did so nearly fifteen years ago. Much has changed since then, in both empirical technique and the health care landscape. This article examines the theoretical and empirical literature on cost shifting since 1996, synthesizes the predominant findings, suggests their implications for the future of health care costs, and puts them in the current policy context.

METHODS

The relevant literature was identified by database search. Papers describing policies were considered first, since policy shapes the health care market in which cost shifting may or may not occur. Theoretical works were examined second, as theory provides hypotheses and structure for empirical work. The empirical literature was analyzed last in the context of the policy environment and in light of theoretical implications for appropriate econometric specification.

FINDINGS

Most of the analyses and commentary based on descriptive, industry-wide hospital payment-to-cost margins by payer provide a false impression that cost shifting is a large and pervasive phenomenon. More careful theoretical and empirical examinations suggest that cost shifting can and has occurred, but usually at a relatively low rate. Margin changes also are strongly influenced by the evolution of hospital and health plan market structures and changes in underlying costs.

CONCLUSIONS

Policymakers should view with a degree of skepticism most hospital and insurance industry claims of inevitable, large-scale cost shifting. Although some cost shifting may result from changes in public payment policy, it is just one of many possible effects. Moreover, changes in the balance of market power between hospitals and health care plans also significantly affect private prices. Since they may increase hospitals' market power, provisions of the new health reform law that may encourage greater provider integration and consolidation should be implemented with caution.

Managed care and measuring medical outcomes: did the rise of HMOs contribute to the fall in the autopsy rate?

The U.S. autopsy rate has fallen precipitously since the 1940s, decreasing from 50 percent of bodies to less than eight percent today. Much of the decrease occurred after 1971 when hospitals were no longer required to do a minimum number of autopsies for accreditation. Since this time, major changes in the health care sector have occurred in the United States, highlighted by the increased importance of managed care. Using data for 46 states from 1987 to 2000, we analyze the degree to which the rise in manage care explains the decrease in the autopsy rate. We find that increases in health maintenance organization market share explain 21 percent of the decrease in the autopsy rate over the years from 1987 to 2000 and reductions in the number of hospital deaths explain another 30 percent. In contrast, we find that increases in the availability of magnetic resonance imaging had no significant effect on autopsy rates when other factors are held constant. Reforming health care financing to restrain the growth in health care costs using incentive mechanisms similar to those employed by managed care organizations has been a recurring policy goal in the United States. Our results imply that these reforms may inadvertently reduce the incentive to monitor medical outcomes using techniques such as autopsies, which is often called the "gold standard" in measuring medical outcomes.

Trends in hospital cost and revenue, 1994-2005: how are they related to HMO penetration, concentration, and for-profit ownership?

OBJECTIVE

Analyze trends in hospital cost and revenue, as well as price and quantity (1994-2005) as a function of health maintenance organization (HMO) penetration, HMO concentration, and for-profit (FP) HMO market share.

DATA

Medicare hospital cost reports, AHA Annual Surveys, HMO data from Interstudy, and other supplemental data.

STUDY DESIGN

A retrospective study of all short-term, general, nonfederal hospitals in metropolitan statistical areas (MSAs) in the United States from 1994 to 2005, using hospital/MSA fixed-effects translog regression models.

PRINCIPAL FINDINGS

A 10 percentage point increase in HMO enrollment is associated with 4.1-4.2 percent reduction in costs and revenues in the pre-2000 period but only a 2.1-2.5 percent reduction in the post-2000 period. Hospital revenue in HMO-dominant markets (highly concentrated HMO market and competitive hospital market) is 19-27 percent lower than other types of markets, and the difference is most likely due mainly to lower prices and to a lesser extent lower utilization.

CONCLUSIONS

The historical difference of lower spending in high HMO penetration markets compared with low HMO markets narrowed after 2000 and the relative concentration between HMO and hospital markets can substantially influence hospital spending. Additional research is needed to understand how different aspects of these two markets have changed and interacted and how they are causally linked to spending trends.

Emergency department visits: the cost of trauma centers

Crowded emergency departments (EDs) have become a serious problem in the current U.S. healthcare system. Patient wait times and periods of ED diversion have increased, raising concerns about the timeliness, efficiency, and quality of ED treatment. This study addresses the question of whether there are economies of scale (EOS) in ED care, and the extent to which such economies vary across different types of EDs. A hospital cost function approach is taken to evaluate average and marginal costs of EDs designated as trauma centers. Data comes from acute care hospitals in Texas for the period 1998-2004. Cost functions corresponding to four different levels of ED trauma care are estimated using a translog panel data model with hospital fixed effects. The marginal costs (in 2004 dollars) of each trauma center level are: $53 (Level I), $177 (Level II), $119 (Level III), and $258 (Level IV). Average cost per ED visit for trauma centers exceeds marginal cost at all Levels, indicating the presence of EOS. The results support a possible expansion of ED size policy in order to improve the cost efficiency of ED services.

Hospital cost shifting revisited: new evidence from the balanced budget act of 1997

This paper analyzes hospital cost shifting using a natural experiment generated by the Balanced Budget Act (BBA) of 1997. I find evidence that urban hospitals were able to shift part of the burden of Medicare payment reduction onto private payers. However, the overall estimated degree of cost shifting is small and varies according to a hospital's share of private patients. At hospitals where Medicare is a small payer relative to private insurers, up to 37% of BBA cuts was transferred to private payers through higher payments. In contrast, hospitals with greater reliance on Medicare were more financially distressed, as these hospitals saw large BBA cuts but were limited in their abilities to cost shift.

Single Specialty Hospitals and Service Competition

Advocates for physician-owned hospitals specializing in cardiac, orthopedic, and surgical services claim that these facilities induce healthy competition, stimulating improved performance among acute care hospitals. This paper examines the effect of specialty hospital entry on one indicator of competition among hospitals: changes in service provision by general hospitals in local markets. Results suggest that general hospitals are stepping up their own offerings of services that are in direct competition with those of specialty hospitals. Entry of specialty hospitals is also associated with significantly higher growth in high-technology diagnostic imaging services in the general hospitals in those markets.

Managed care regulation in the States: the impact on physicians' practices and clinical autonomy

While the states engaged in an extended period of adopting and revising laws regulating managed care during the 1990s, there has been to date only limited empirical assessment of the impacts of these laws. For this analysis, we constructed a data set using information on state laws combined with survey responses of physicians. We distinguish regulations with a typology based on whether they affect the context or content of care and the target group of the regulation (consumer or provider). Our findings indicate that the context of care appears to be more efficaciously regulated than the content of care. Provisions concerning consumer access and contractual relationships lead to greater reported physician ability to obtain referrals and services, improved quality of clinical interactions, and greater perceived clinical autonomy. Regulations intended to enhance professional autonomy are associated with lower reported levels of utilization constraints and higher reported quality of clinical interactions. In contrast, consumer protection provisions, including procedures for appeals from plan decisions, appear to have had little impact on most physicians' practices. Despite structural and legal constraints on the potential effectiveness of these regulations, state managed care legislation appears to have provided some protections against managed care restrictions on physicians' clinical autonomy.

Managed care's price bargaining with hospitals

Research has shown that managed care (MC) slowed the rate of growth in health care spending in the 1990s, primarily via lower unit prices paid. However, the mechanism of MC's price bargaining has not been well studied. This article uses a unique panel dataset with actual hospital prices in Massachusetts between 1994 and 2000 to examine the sources of MC's bargaining power. I find two significant determinants of price discounts. First, plans with large memberships are able to extract volume discounts across hospitals. Second, health plans that are more successful at channeling patients can extract greater discounts. Patient channeling can add to the volume discount that plans negotiate.

Do HMO and its for-profit expansion jeopardize the survival of hospital safety net services?

This study examines the effect of health maintenance organizations (HMOs) and for-profit HMO share on the survival of safety net services in hospitals between 1990 and 2004. The primary data sources are the American Hospital Association Annual Surveys, the Medicare hospital cost reports, and the HMO enrollment and ownership data from Interstudy. I analyze the risks of shutting down each safety net service separately using the proportional hazard models. I find that the risks of shutting down hospital safety net services do not vary by different levels of overall HMO penetration. However, conditional on the overall HMO penetration level, increasing for-profit presence of HMO does increase the risks of shutting down several safety net services. Policies evaluating the for-profit expansion or ownership conversion of health plans should take this potential adverse effect into consideration.

Single Specialty Hospitals and Nurse Staffing Patterns

Advocates of physician-owned single specialty hospitals (SSHs) maintain that, through healthy competition, SSHs pressure competitor hospitals in local markets to improve performance. This paper investigates data trends on the effects of SSH entry on a potential indicator of quality of care in general hospital competitors: nurse staffing levels. We examined registered nurse (RN) staffing from 1997 to 2004 in ten states in which there was considerable SSH entry during this period. Regression estimates used longitudinal panel data models with hospital fixed effects to compare changes in numbers of RNs in general hospitals located in markets with SSHs with general hospitals located in markets where there were no SSHs. Results indicate that hospitals located in markets with orthopedic/surgical SSH presence raised their RN nurse staffing levels. Whether or not these changes are associated with improved patient outcomes is unknown.

Determinants of hospital choice of rural hospital patients: the impact of networks, service scopes, and market competition

Among 10,384 rural Colorado female patients who received MDC 14 (obstetric services) from 2000 to 2003, 6,615 (63.7%) were admitted to their local rural hospitals; 1,654 (15.9%) were admitted to other rural hospitals; and 2,115 (20.4%) traveled to urban hospitals for inpatient services. This study is to examine how network participation, service scopes, and market competition influences rural women's choice of hospital for their obstetric care. A conditional logistic regression analysis was used. The network participation (p < 0.01), the number of services offered (p < 0.05), and the hospital market competition had a positive and significant relationship with patients' choice to receive obstetric care. That is, rural patients prefer to receive care from a hospital that participates in a network, that provides more number of services, and that has a greater market share (i.e., a lower level of market competition) in their locality. Rural hospitals could actively increase their competitiveness and market share by increasing the number of health care services provided and seeking to network with other hospitals.

Specialty and full-service hospitals: a comparative cost analysis

OBJECTIVE

To compare the costs of physician-owned cardiac, orthopedic, and surgical single specialty hospitals with those of full-service hospital competitors.

DATA SOURCES

The primary data sources are the Medicare Cost Reports for 1998-2004 and hospital inpatient discharge data for three of the states where single specialty hospitals are most prevalent, Texas, California, and Arizona. The latter were obtained from the Texas Department of State Health Services, the California Office of Statewide Health Planning and Development, and the Agency for Healthcare Research and Quality Healthcare Cost and Utilization Project. Additional data comes from the American Hospital Association Annual Survey Database.

STUDY DESIGN

We identified all physician-owned cardiac, orthopedic, and surgical specialty hospitals in these three states as well as all full-service acute care hospitals serving the same market areas, defined using Dartmouth Hospital Referral Regions. We estimated a hospital cost function using stochastic frontier regression analysis, and generated hospital specific inefficiency measures. Application of t-tests of significance compared the inefficiency measures of specialty hospitals with those of full-service hospitals to make general comparisons between these classes of hospitals.

PRINCIPAL FINDINGS

Results do not provide evidence that specialty hospitals are more efficient than the full-service hospitals with whom they compete. In particular, orthopedic and surgical specialty hospitals appear to have significantly higher levels of cost inefficiency. Cardiac hospitals, however, do not appear to be different from competitors in this respect.

CONCLUSIONS

Policymakers should not embrace the assumption that physician-owned specialty hospitals produce patient care more efficiently than their full-service hospital competitors.

Hospital Staffing Decisions: Does Financial Performance Matter?

This study assesses the impact of changes in hospitals' financial conditions on changes in hospitals' staffing decisions. The sample consisted of community hospitals operating between 1995 and 2000. The analysis employed a generalized method of moments (GMM) estimator for its dynamic panel data. Cash flow and patient margin were used to measure financial condition. We estimated the effect of changing financial condition on the number of full-time equivalent personnel (FTEs), registered nurses (RNs), and licensed practical nurses (LPNs) per 1,000 adjusted patient days. Our results suggest that declining financial performance led to cutbacks in LPN FTEs per adjusted patient day, but the effects on total hospital FTEs and RN FTEs were mixed.

Contract management in USA hospitals: service duplication and access within local markets

This paper examines the extent to which hospitals that are under external contract management engage in service duplication, as well as the degree to which the various services they offer contribute to or detract from community access. The study incorporates all USA hospitals using data from the American Hospital Association Annual Survey Database, supplemented by county level measures obtained from the area resource file (ARF). Using data on the 3794 hospitals classified as acute care facilities in 2002, we performed a set of logistic regressions that analyzed whether a hospital offered each of 74 distinct services. For each service (regression), key independent variables measured the number of other hospitals in the local market area that also offered the service. Local area market definitions are the areas circumscribed by the hospital within distances of 10 and 20 miles. Results suggest that contract-managed (CM) hospitals display a more competitive pattern (service duplication) than hospitals in general, but CM hospitals that are the sole provider of services locally are less likely to offer services than traditionally managed sole hospital providers. Contract management does not appear to offer any particular advantages in improving access to hospital services.

The effect of payer mix on the adoption of information technologies by hospitals

BACKGROUND

Numerous studies have examined the relationship between organization characteristics and hospital adoption of information technology (IT). However, no known study has examined whether patient characteristics of those treated at a given hospital influences the decision to adopt IT.

PURPOSE

The present study combines primary and secondary data to examine the effect of payer mix (the combination of payers that make up a given hospital's patient discharges) on IT adoption in hospitals.

METHODS

Survey data from Florida hospitals were combined with the state's hospital discharge database. Multiple regression analyses were used to analyze the data.

RESULTS

When examining Medicare, Medicaid, traditional commercial insurance, and managed-care plans, only an increase of managed-care patients, as a percentage of hospital discharges, was associated with a significant increased likelihood to adopt clinical and administrative IT applications by hospitals.

PRACTICE IMPLICATIONS

Our results suggest that increasing cost pressures associated with managed-care environments are driving hospitals' adoption of clinical and administrative IT systems as such adoption is expected to improve hospital efficiency and lower costs. Given that such cost pressures are also emergent in Medicare, Medicaid, and traditional third-party payment environments, an opportunity exists for these parties to motivate hospital IT adoption as a means for cost reduction.

The Effects of Case Mix on Hospital Costs and Revenues for Medicare Patients in California

Hospital competition and managed care have negatively affected hospital profitability. In the current turbulent health care environment in the U.S., hospitals in California have argued that the rate of increase in hospital costs is faster than the rate of increase in hospital revenues. By employing Medicare case mix indexes (CMIs) as a primary policy variable, this study found that the coefficients for CMIs in hospital costs for Medicare patients were smaller than those in hospital revenues in the years of 1986, 1989 and 1998. However, the coefficients for CMIs in hospital costs for Medicare patients were greater than those in hospital revenues in the years of 1992 and 1995. Although there were some differences between the coefficients for CMIs in hospital costs and revenues for Medicare patients, those differences found to be statistically insignificant. In spite of claims on behalf of Californian hospitals, the rate of increase in hospital costs for Medicare patients had not been greater than that of hospital revenues for Medicare patients.

Competition in health insurance markets: limitations of current measures for policy analysis

Health care reform proposals often rely on increased competition in health insurance markets to drive improved performance in health care costs, access, and quality. We examine a range of data issues related to the measures of health insurance competition used in empirical studies published from 1994-2004. The literature relies exclusively on market structure and penetration variables to measure competition. While these measures are correlated, the degree of correlation is modest, suggesting that choice of measure could influence empirical results. Moreover, certain measurement issues such as the lack of data on PPO enrollment, the treatment of small firms, and omitted market characteristics also could affect the conclusions in empirical studies. Importantly, other types of measures related to competition (e.g., the availability of information on price and outcomes, degree of entry barriers, etc.) are important from both a theoretical and policy perspective, but their impact on market outcomes has not been widely studied.

The effects of multi-hospital systems on hospital prices

US hospital prices are rising again after years of limited growth. We analyze trends in hospital prices during a period of significant price growth (1999-2003) to assess whether hospitals that are part of multi-hospital systems were able to increase their prices faster than non-system hospitals. We find hospitals that were members of multi-hospital systems were able to increase their prices substantially more than comparable non-systems hospitals (34% for large systems and 17% for small systems). Further, we find that the systems effect is not confined to hospitals that have other system member hospitals in their local markets. One possible explanation is that hospitals belonging to non-local multi-hospital systems have improved their bargaining position vis-à-vis health plans.

The impact of payer-specific hospital case mix on hospital costs and revenues for third-party patients

Competition among hospitals and managed care have forced hospital industry to be more efficient. With higher degrees of hospital competition and managed care penetration, hospitals have argued that the rate of increase in hospital cost is greater than the rate of increase in hospital revenue. By developing a payer-specific case mix index (CMI) for third-party patients, this paper examined the effect of hospital case mix on hospital cost and revenue for third-party patients in California using the hospital financial and utilization data covering 1986-1998. This study found that the coefficients for CMIs in the third-party hospital revenue model were greater than those in the hospital cost model until 1995. Since 1995, however, the coefficients for CMIs in the third-party hospital revenue model have been less than those in hospital cost models. Over time, the differences in coefficients for CMIs in hospital revenue and cost models for third-party patients have become smaller and smaller although those differences are statistically insignificant.

The effect of market reform on racial differences in hospital mortality

OBJECTIVE

To determine whether racial differences in hospital mortality worsened after implementation of a New Jersey law in 1993 that reduced subsidies for uninsured hospital care and changed hospital payment from rate regulation to price competition.

DATA SOURCES/STUDY SETTING

State discharge data for New Jersey and New York from 1990 to 1996.

STUDY DESIGN

We used an interrupted time series design to compare risk-adjusted in-hospital mortality rates between states over time. Adjusting for patient characteristics, baseline interstate differences, and common intertemporal trends, we compared the effect sizes for whites and blacks in the following 4 groups: overall, uninsured, insured under age 65, and Medicare patients.

DATA COLLECTION/EXTRACTION METHODS

The study sample included 1,357,394 patients admitted to New Jersey or New York hospitals between 1990 to 1996 with stroke, hip fracture, pneumonia, pulmonary embolism, congestive heart failure, or acute myocardial infarction (AMI).

PRINCIPAL FINDINGS

The increase in mortality in New Jersey versus New York was significantly larger among blacks than among whites for AMI (2.4% points vs 0.1% points, P-value for difference .026) but not for the other 6 conditions. In groupings of conditions for which hospital admission is non-discretionary and conditions in which admission is discretionary, we found qualitatively larger increases in mortality for blacks but no statistically significant racial differences among patients overall, uninsured patients, insured patients under age 65, or Medicare patients.

CONCLUSIONS

Market-based reform and reductions in subsidies for hospital care for the uninsured in New Jersey were associated with worsening racial disparities in in-hospital mortality for AMI but not for 6 other common conditions.

Sustaining and Improving Hospital Performance

Using data from hospitals in ten states, this study examines the effects of organizational and market factors on the likelihood of becoming high-quality/low-cost providers during the period of 1997-2001. The findings highlight the important role of previous performance, internal operations, and market competition in hospital performance improvement. Achieving high-quality/low-cost performance is also incidentally found to be associated with improved profit margins.

Evidence Of Cost Shifting In California Hospitals

We used 1993-2001 data from private hospitals in California to investigate whether decreases in Medicare and Medicaid prices were associated with increases in prices paid for privately insured patients. We found that a 1 percent relative decrease in the average Medicare price is associated with a 0.17 percent increase in the corresponding price paid by privately insured patients; similarly, a 1 percent relative reduction in the average Medicaid price is associated with a 0.04 percent increase. These relationships imply that cost shifting from Medicare and Medicaid to private payers accounted for 12.3 percent of the total increase in private payers' prices from 1997 to 2001.

The effects of price competition and reduced subsidies for uncompensated care on hospital mortality

OBJECTIVE

To determine whether hospital mortality rates changed in New Jersey after implementation of a law that changed hospital payment from a regulated system based on hospital cost to price competition with reduced subsidies for uncompensated care and whether changes in mortality rates were affected by hospital market conditions.

DATA SOURCES/STUDY SETTING

State discharge data for New Jersey and New York from 1990 to 1996. Study Design. We used an interrupted time series design to compare risk-adjusted in-hospital mortality rates between states over time. We compared the effect sizes in markets with different levels of health maintenance organization penetration and hospital market concentration and tested the sensitivity of our results to different approaches to defining hospital markets.

DATA COLLECTION/EXTRACTION METHODS

The study sample included all patients under age 65 admitted to New Jersey or New York hospitals with stroke, hip fracture, pneumonia, pulmonary embolism, congestive heart failure, hip fracture, or acute myocardial infarction (AMI).

PRINCIPAL FINDINGS

Mortality among patients in New Jersey improved less than in New York by 0.4 percentage points among the insured (p=.07) and 0.5 percentage points among the uninsured (p=.37). There was a relative increase in mortality for patients with AMI, congestive heart failure, and stroke, especially for uninsured patients with these conditions, but not for patients with the other four conditions we studied. Less competitive hospital markets were significantly associated with a relative decrease in mortality among insured patients.

CONCLUSIONS

Market-based reforms may adversely affect mortality for some conditions but it appears the effects are not universal. Insured patients in less competitive markets fared better in the transition to price competition.

The Effects of HMO Ownership on Hospital Costs and Revenues: Is there a Difference between For-Profit and Nonprofit Plans?

We conducted multivariate analyses to examine whether high health maintenance organization (HMO) penetration and large share of for-profit health plans in a market reduced hospital cost and revenue growth rates between 1989 and 1998. We found that hospitals in high HMO areas experienced revenue and cost growth rates that were 21 and 18 percentage points, respectively, below hospitals in low HMO areas. We also found that, conditional on overall HMO penetration level, hospitals in areas with high for-profit HMO penetration experienced revenue and cost growth rates that were 10 percentage points below hospitals in areas with low for-profit penetration areas; the difference was especially evident within high HMO penetration areas.

Impact of managed care on the treatment, costs, and outcomes of fee-for-service Medicare patients with acute myocardial infarction

OBJECTIVE

To examine the effects of market-level managed care activity on the treatment, cost, and outcomes of care for Medicare fee-for-service acute myocardial infarction (AMI) patients.

DATA SOURCES/STUDY SETTING

Patients from the Cooperative Cardiovascular Project (CCP), a sample of Medicare beneficiaries discharged from nonfederal acute-care hospitals with a primary discharge diagnosis of AMI from January 1994 to February 1996.

STUDY DESIGN

We estimated models of patient treatment, costs, and outcomes using ordinary least squares and logistic regression. The independent variables of primary interest were market-area managed care penetration and competition. The models included controls for patient, hospital, and other market area characteristics.

DATA COLLECTION/EXTRACTION METHODS

We merged the CCP data with Medicare claims and other data sources. The study sample included CCP patients aged 65 and older who were admitted during 1994 and 1995 with a confirmed AMI to a nonrural hospital.

PRINCIPAL FINDINGS

Rates of revascularization and cardiac catheterization for Medicare fee-for-service patients with AMI are lower in high-HMO penetration markets than in low-penetration ones. Patients admitted in high-HMO-competition markets, in contrast, are more likely to receive cardiac catheterization for treatment of their AMI and had higher treatment costs than those admitted in low-competition markets.

CONCLUSIONS

The level of managed care activity in the health care market affects the process of care for Medicare fee-for-service AMI patients. Spillovers from managed care activity to patients with other types of insurance are more likely when managed care organizations have greater market power.

The effect of financial pressure on the quality of care in hospitals

This paper examines the effect of financial pressure on hospital quality, using health outcomes after treatment for acute myocardial infarction (AMI) as quality indicators. The financial pressure variables are: fiscal pressure from the Prospective Payment System (PPS) for inpatient care, and changes in health maintenance organization (HMO) penetration at the county level. The study shows that both types of financial pressures adversely affect short-term health outcomes, but do not affect patient survival beyond 1 year after patients' hospital admissions. Furthermore, the impact of HMO penetration appears to differ from that of Medicare payment changes for certain hospitals because HMO penetration encourages price competition.

Changes in hospital competitive strategy: a new medical arms race?

OBJECTIVE

To describe changes in hospitals' competitive strategies, specifically the relative emphasis placed on strategies for competing along price and nonprice (i.e., service, amenities, perceived quality) dimensions, and the reasons for any observed shifts.

METHODS

This study uses data gathered through the Community Tracking Study site visits, a longitudinal study of a nationally representative sample of 12 U.S. communities. Research teams visited each of these communities every two years since 1996 and conducted between 50 to 90 semistructured interviews. Additional information on hospital competition and strategy was gathered from secondary data.

PRINCIPAL FINDINGS

We found that hospitals' strategic emphasis changed significantly between 1996-1997 and 2000-2001. In the mid-1990s, hospitals primarily competed on price through "wholesale" strategies (i.e., providing services attractive to managed care plans). By 2000-2001, nonprice competition was becoming increasingly important and hospitals were reviving "retail" strategies (i.e., providing services attractive to individual physicians and the patients they serve). Three major factors explain this shift in hospital strategy: less than anticipated selective contracting and capitated payment; the freeing up of hospital resources previously devoted to horizontal and vertical integration strategies; and, the emergence and growth of new competitors.

CONCLUSION

Renewed emphasis on nonprice competition and retail strategies, and the service mimicking and one-upmanship that result, suggest that a new medical arms race is emerging. However, there are important differences between the medical arms race today and the one that occurred in the 1970s and early 1980s: the hospital market is more concentrated and price competition remains relatively important. The development of a new medical arms race has significant research and policy implications.

Hospitals' negotiating leverage with health plans: how and why has it changed?

OBJECTIVE

To describe how hospitals' negotiating leverage with managed care plans changed from 1996 to 2001 and to identify factors that explain any changes.

DATA SOURCES

Primary semistructured interviews, and secondary qualitative (e.g., newspaper articles) and quantitative (i.e., InterStudy, American Hospital Association) data.

STUDY DESIGN

The Community Tracking Study site visits to a nationally representative sample of 12 communities with more than 200,000 people. These 12 markets have been studied since 1996 using a variety of primary and secondary data sources.

DATA COLLECTION METHODS

Semistructured interviews were conducted with a purposive sample of individuals from hospitals, health plans, and knowledgeable market observers. Secondary quantitative data on the 12 markets was also obtained.

PRINCIPAL FINDINGS

Our findings suggest that many hospitals' negotiating leverage significantly increased after years of decline. Today, many hospitals are viewed as having the greatest leverage in local markets. Changes in three areas--the policy and purchasing context, managed care plan market, and hospital market--appear to explain why hospitals' leverage increased, particularly over the last two years (2000-2001).

CONCLUSIONS

Hospitals' increased negotiating leverage contributed to higher payment rates, which in turn are likely to increase managed care plan premiums. This trend raises challenging issues for policymakers, purchasers, plans, and consumers.

Hospital selective contracting without consumer choice: what can we learn from Medi-Cal?

In the selective contracting era, consumer choice has generally been absent in most state Medicaid programs, including California's (called Medi-Cal). In a setting where beneficiary exit is not a threat, a large payer may have both the incentives and the ability to exercise undue market power, potentially exposing an already vulnerable population to further harm. The analyses presented here of Medi-Cal contracting data, however, do not yield compelling evidence in favor of the undue market power hypothesis. Instead, hospital competition appears to explain with greater consistency why certain hospitals choose to contract with Medi-Cal while others do not, the trends in inpatient prices paid by Medi-Cal over time, and the effect of price competition on service cutbacks, such as emergency room closures.

Physician fees and managed care plans

One of the objectives of managed care organizations (MCOs) has been to reduce the rate of growth of health care expenditures, including that of physician fees. Yet, due to a lack of data, no one has been able to determine whether MCOs have been successful in encouraging the growth of price competition in the market for physician services in order to slow the growth in physician fees. This study uses a unique, national-level data set to determine what factors influenced the physician fees that MCOs negotiated during the 1990-92 period. The most influential characteristics were physician supply and managed care penetration, which suggest that the introduction of competition into the health care market was an effective force in reducing physician fees.