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PubMed1986

The comparative economic performance of investor-owned chain and not-for-profit hospitals.

We examined the differences in the economic performance of 80 matched pairs of investor-owned chain and not-for-profit hospitals in eight states during 1978 and 1980, and considered how their operating strategies might affect their relative success in a more price-conscious market. We found that total charges (adjusted for case mix) and net revenues per case were both significantly higher in the investor-owned chain hospitals, mainly because of higher charges for ancillary services; there were no significant differences between the two groups of hospitals in regard to patient-care costs per case (adjusted for case mix), but the investor-owned hospitals had significantly higher administrative overhead costs; investor-owned hospitals were more profitable; investor-owned hospitals had fewer employees per occupied bed but paid more per employee; investor-owned hospitals had funded more of their capital through debt and had significantly higher capital costs in proportion to their operating costs; and the two groups did not differ in patient mix, as measured by their Medicare case-mix indexes or the proportions of their patients covered by Medicare or Medicaid. We conclude that investor-owned chain hospitals generated higher profits through more aggressive pricing practices rather than operating efficiencies - a result not unexpected in view of past cost-based reimbursement policies. Recent changes in these policies are creating new pressures for cost control and moderation in charges, to which both types of hospitals must adapt. Neither type has a clear-cut advantage in the ability to make the necessary changes.

Capital Financing↗
PubMed1987

How did Medicare's prospective payment system affect hospitals?

Using data from 1982 and 1984, we examined how Medicare's prospective payment system affected hospitals. The study showed that hospitals paid through the prospective payment system had significantly lower increases in Medicare costs and greater declines in Medicare use than did other hospitals. Unlike these other hospitals, for which Medicare costs approximately equaled Medicare revenues, hospitals receiving prospective payment kept Medicare costs from rising as fast as Medicare revenues, earning the profit that the prospective payment system allowed. The opportunity to earn a profit led hospitals to slow increases in Medicare costs, regardless of the level of revenue constraint. However, the more the prospective payment system constrained hospitals' revenues, the more hospitals slowed increases in Medicare costs. In the most constrained hospitals, slower increases in Medicare costs were accompanied by slower increases in total hospital spending. The least constrained hospitals slowed Medicare cost increases the least and did not show their overall spending. These hospitals nevertheless increased their profit margins the most, since the prospective payment system's federal rate paid them the highest rates relative to base-year costs. Since federal rates produced extra profits, not extra cost containment, their appropriateness is questionable. The prospective payment system should be modified to eliminate windfalls while continuing to promote cost containment.

Cost Control↗
PubMed1984

A Markov sensitivity model for examining the impact of cost allocations in hospitals.

The cost allocation process in hospitals typically entails an accounting step-down procedure whereby costs are allocated from non-revenue producing service centres to revenue centres. The resulting revenue centre costs are then compared with the third party (Blue Cross, Medicare, Medicaid) allowable costs. Any costs in excess of the allowable costs are not reimbursable. This procedure has been conceptualized using a Markov chain in a recent journal article. The purpose of this paper is to demonstrate how the Markov model may be used to assess the impact of various changes in the original data without having to recalculate the entire step-down process via a Markov model or any other procedure. The changes include an alternate step-down model, a different cost allocation basis for one or more service centres, and the expansion or contraction of one or more service centres.

Cost Allocation↗
PubMedDate not supplied

Strategies one hospital group has developed for successful change.

Evangelical Health Systems has developed its own patient care software program and is marketing it to other hospitals under the name FasTrack Systems, Inc. The hospital communications and software package was installed in three EHS hospitals in 18 months.

Financial Management↗