Hospital mergers and savings for consumers: exploring new evidence.

This study analyzes changes in costs and prices from 1989 to 1997 for 1,767 short-term hospitals, including 204 hospitals involved in mergers; 653 hospitals that were rivals to these merging hospitals; and 910 nonmerging nonrival hospitals. We find that merging hospitals generally had lower growth in costs and prices compared with their rivals and also with nonmerging nonrival hospitals. We find that the presence and extent of these savings varied based on market and hospital conditions. However, our findings suggest that cost and price savings resulting from mergers may be smaller than estimated in earlier studies, especially through our comparison of merging hospitals with their rivals.

Models for community health partnerships.

More so than ever, the collaborative efforts of community partnerships are considered a powerful means of improving community health. These partnerships--voluntary collaborations of diverse community organizations--can enhance organizational and personal relationships in the community and thus promote the health of residents. But when major institutions and community leaders join forces, they frequently face problems in organizing their efforts. Some leading cross-sectoral partnerships have made major strides in overcoming these problems and in demonstrating tangible results.

Tracking the changing provider landscape: implications for health policy and practice.

Throughout the 1990s health care providers were interested in developing organized delivery systems. However, industry observers have increasingly questioned the sense of these efforts. Using an established taxonomy of health networks and systems, we examined whether there was a nationwide trend away from the vertical and horizontal arrangements that serve as the backbone to organized delivery systems. Studying 1994-1998, we found that both health networks and systems became less centralized in their hospital services, physician arrangements, and insurance product development. We did not find a general pathway to disintegration but instead found considerable experimentation in organizational form.

The financial performance of hospitals belonging to health networks and systems.

The U.S. health industry is experiencing substantial restructuring through ownership consolidation and development of new forms of interorganizational relationships. Using an established taxonomy of health networks and systems, this paper develops and tests four hypotheses related to hospital financial performance. Consistent with our predictions, we find that hospitals in health systems that had unified ownership generally had better financial performance than hospitals in contractually based health networks. Among health network hospitals, those belonging to highly centralized networks had better financial performance than those belonging to more decentralized networks. However, health system hospitals in moderately centralized systems performed better than those in highly centralized systems. Finally, hospitals in networks or systems with little differentiation or centralization experienced the poorest financial performance. These results are consistent with resource dependence, transaction cost economics, and institutional theories of organizational behavior, and provide a conceptual and empirical baseline for future research.

The effect of changing state health policy on hospital uncompensated care.

This paper examines the effect of changing state policy, such as Medicaid eligibility, payment generosity, and HMO enrollment on provision of hospital uncompensated care. Using national data from the American Hospital Association for the period 1990 through 1995, we find that not-for-profit and public hospitals' uncompensated care levels respond positively to Medicaid payment generosity, although the magnitude of the effect is small. Not-for-profit hospitals respond negatively to Medicaid HMO penetration. Public and for-profit hospitals respond negatively to increases in Medicaid eligibility. Results suggest that public insurance payment generosity is an effective but inefficient policy instrument for influencing uncompensated care among not-for-profit hospitals. Further, in localities with high HMO penetration or high penetration of for-profit hospitals, it may be necessary to establish explicit payments for care of the uninsured.

Classifying health networks and systems: managerial and policy implications.

This article illustrates how a new approach to classifying health networks and systems can be used to evaluate the readiness of health care organizations to accept risk. Examples are provided from the Harris-Methodist, Henry Ford, and SSM Health Care Systems. The classification system can also be used to assist executives and physician leaders in making decisions involving the centralization of services, the number of different services to offer, and decisions to enter into various strategic alliances. The classification system can be updated to help track the evolution of the U.S. health care system over time.

Capitated contracting roles and relationships in healthcare.

Capitated contracting of health providers has created substantial change in healthcare markets. This article assesses how capitation affects the roles and relationships of healthcare organizations. In-depth case studies were conducted of eight major hospital-led integrated health networks/systems and two large integrated medical groups. Types of capitated contracts employed, contract support capabilities developed, relationships among providers in the support services, and lessons learned about capitation were explored. The experiences of these organizations provide valuable guidance for health executives as they develop or refine capitated contracting strategies.

Impact of HMO market structure on physician-hospital strategic alliances.

OBJECTIVE: To assess the impact of HMO market structure on the formation of physician-hospital strategic alliances from 1993 through 1995. The two trends, managed care and physician-hospital integration have been prominent in reshaping insurance and provider markets over the past decade. STUDY DESIGN: Pooled cross-sectional data from the InterStudy HMO Census and the Annual Survey conducted by the American Hospital Association (AHA) between 1993 and the end of 1995 to examine the effects of HMO penetration and HMO numbers in a market on the formation of hospital-sponsored alliances with physicians. Because prior research has found nonlinear effects of HMOs on a variety of dependent variables, we operationalized HMO market structure two ways: using a Taylor series expansion and cross-classifying quartile distributions of HMO penetration and numbers into 16 dummy indicators. Alliance formation was operationalized using the presence of any alliance model (IPA, PHO, MSO, and foundation) and the sum of the four models present in the hospital. Because managed care and physician-hospital integration are endogenous (e.g., some hospitals also sponsor HMOs), we used an instrumental variables approach to model the determinants of HMO penetration and HMO numbers. These instruments were then used with other predictors of alliance formation: physician supply characteristics, the extent of hospital competition, hospital-level descriptors, population size and demographic characteristics, and indicators for each year. All equations were estimated at the MSA level using mixed linear models and first-difference models. PRINCIPAL FINDINGS: Contrary to conventional wisdom, alliance formation is shaped by the number of HMOs in the market rather than by HMO penetration. This confirms a growing perception that hospital-sponsored alliances with physicians are contracting vehicles for managed care: the greater the number of HMOs to contract with, the greater the development of alliances. The models also show that alliance formation is low in markets where a small number of HMOs have deeply penetrated the market. First-difference models further show that alliance formation is linked to HMO consolidation (drop in the number of HMOs in a market) and hospital downsizing. Alliance formation is not linked to changes in hospital costs, profitability, or market competition with other hospitals. CONCLUSIONS: Hospitals appear to form alliances with physicians for several reasons. Alliances serve to contract with the growing number of HMOs, to pose a countervailing bargaining force of providers in the face of HMO consolidation, and to accompany hospital downsizing and restructuring efforts. IMPLICATIONS FOR POLICY, DELIVERY, OR PRACTICE: Physician-hospital integration is often mentioned as a provider response to increasing cost-containment pressures due to rising managed care penetration. Our findings do not support this view. Alliances appear to serve the hospital's interest in bargaining with managed care plans on a more even basis.

Is provider capitation working? Effects on physician-hospital integration and costs of care.

BACKGROUND: Capitation holds health providers fiscally responsible for the services they deliver or arrange and thus provides strong motivation for physicians and hospitals to integrate activities and reduce costs of care. OBJECTIVES: The objective of this study was to assess 2 potential effects of capitation: (1) its effects on the integration of functional, financial, and clinical processes between hospitals and physicians and (2) its effects, in conjunction with process integration, on hospital costs. STUDY DESIGN: We studied a 1995 American Hospital Association (AHA) special survey that has information on 44 different physician-hospital integrative activities and on global capitation contracts held by management service organizations, physician-hospital organizations, and other similar entities. These data were combined with the AHA's Annual Survey of Hospitals, InterStudy HMO data, the area resource file, and state regulation data. Multivariate analysis was used to assess the relationship between capitation and integration and then to examine the influence of these factors and others on hospital costs. We studied 319 urban hospitals with complete data. FINDINGS: Provider capitation was found to promote integration between hospitals and physicians in relation to administrative/practice management, physician financial risk sharing, joint ventures to create new services, computer linkages, and an overall measure of physician-hospital integration. However, anticipated effects of integration and capitation on hospital costs were not evident. CONCLUSIONS: Global capitation is motivating tighter integration between physicians and hospitals in a number of respects. Although capitation is currently having the intermediate effect of encouraging process integration, it is not yet having the ultimate anticipated effect of lowering hospital costs.

Community-based trauma system development: key barriers and facilitating factors.

BACKGROUND: Local progress in developing trauma systems has been slow, because of a variety of political, financial, social, and organizational challenges. The purpose of this study is to discuss effective community strategies for dealing with these obstacles to trauma system development. METHODS: In-depth case studies were conducted in 12 study sites across the United States. These communities had similar sociodemographic characteristics (e.g., resident populations of 1 million or more) but had varying progress in the development of trauma systems. RESULTS: Several factors were identified in community and leadership characteristics that promoted the development of comprehensive trauma systems. CONCLUSION: The most important strategies included broad-based participation of key stakeholders (especially community representatives), local trauma leaders who were patient and resourceful, local events (some of which were orchestrated) that demonstrated the need for change in trauma delivery, and financial programs that recognized the needs of trauma centers with high numbers of uninsured patients.

A taxonomy of health networks and systems: bringing order out of chaos.

OBJECTIVE: To use existing theory and data for empirical development of a taxonomy that identifies clusters of organizations sharing common strategic/structural features. DATA SOURCES: Data from the 1994 and 1995 American Hospital Association Annual Surveys, which provide extensive data on hospital involvement in hospital-led health networks and systems. STUDY DESIGN: Theories of organization behavior and industrial organization economics were used to identify three strategic/structural dimensions: differentiation, which refers to the number of different products/services along a healthcare continuum; integration, which refers to mechanisms used to achieve unity of effort across organizational components; and centralization, which relates to the extent to which activities take place at centralized versus dispersed locations. These dimensions were applied to three components of the health service/product continuum: hospital services, physician arrangements, and provider-based insurance activities. DATA EXTRACTION METHODS: We identified 295 health systems and 274 health networks across the United States in 1994, and 297 health systems and 306 health networks in 1995 using AHA data. Empirical measures aggregated individual hospital data to the health network and system level. PRINCIPAL FINDINGS: We identified a reliable, internally valid, and stable four-cluster solution for health networks and a five-cluster solution for health systems. We found that differentiation and centralization were particularly important in distinguishing unique clusters of organizations. High differentiation typically occurred with low centralization, which suggests that a broader scope of activity is more difficult to centrally coordinate. Integration was also important, but we found that health networks and systems typically engaged in both ownership-based and contractual-based integration or they were not integrated at all. CONCLUSIONS: Overall, we were able to classify approximately 70 percent of hospital-led health networks and 90 percent of hospital-led health systems into well-defined organizational clusters. Given the widespread perception that organizational change in healthcare has been chaotic, our research suggests that important and meaningful similarities exist across many evolving organizations. The resulting taxonomy provides a new lexicon for researchers, policymakers, and healthcare executives for characterizing key strategic and structural features of evolving organizations. The taxonomy also provides a framework for future inquiry about the relationships between organizational strategy, structure, and performance, and for assessing policy issues, such as Medicare Provider Sponsored Organizations, antitrust, and insurance regulation.

Capitated contracting of integrated health provider organizations.

This paper examines global capitation of integrated health provider organizations that link physicians and hospitals, such as physician-hospital organizations and management service organizations. These organizations have proliferated in recent years, but their contracting activity has not been studied. We develop a conceptual model to understand the capitated contracting bargaining process. Exploratory multivariate analysis suggests that global capitation of these organizations is more common in markets with high health maintenance organization (HMO) market share, greater numbers of HMOs, and fewer physician group practices. Additionally, health provider organizations with more complex case mix, nonprofit status, more affiliated physicians, health system affiliations, and diversity in physician organizational arrangements are more likely to have global capitation. Finally, state regulation of provider contracting with self-insured employers appears to have spillover effects on health plan risk contracting with health providers.

Community-based trauma systems in the United States: an examination of structural development.

OBJECTIVE: To examine the organizational, political, and community characteristics that facilitate or impede community progress in developing a coordinative network of health services for trauma delivery. STUDY SETTING/DESIGN: A comparative case study design was used to examine trauma network development in 6 U.S. cities with a population of 1,000,000 or more. Five key coordinative activities were selected for study. Each study site varied in the set of activities that had been implemented. DATA SOURCES: Information on the structure and composition of local trauma coordinating councils; interviews with a common set of informants in each site using a semi-structured interview protocol. STUDY METHODS: The literature on interorganizational community structures and local policy development was drawn upon to create a conceptual framework for assessing the development of a coordinative service network. Analytical techniques included network analysis to understand the linkages across organizations in overseeing trauma network operations, assessment of leadership structures to identify central actors and organizations, and pattern matching techniques of case study analysis to identify factors that affected trauma network development. PRINCIPAL FINDINGS: Leaders capitalized on local events and were instrumental in keeping network development on the top of the political agenda. Successful leaders spent substantial time and energy documenting problems, assessing the needs and understanding of stakeholders, educating stakeholders and politicians, and creating trust and shared understanding of values. CONCLUSIONS: Prior research has documented the importance of central actors and organizations in developing coordinative networks. The unique contribution of our research is its insights on how central actors and organizations are more likely to motivate collaboration in situations where they lack control over the allocation of payments across involved organizations. Our research suggests that under these circumstances central players should focus their time and energy educating stakeholders and developing a shared understanding rather than using their centrality to impose a particular coordinative structure. To date, U.S. trauma networks have served as models for other industrialized countries, and thus, lessons learned in the U.S. about implementing interorganizational networks of trauma care can assist other countries achieve more effective coordination and avoid mistakes that impede progress.

Assessing the extent of integration achieved through physician-hospital arrangements.

In this article we examine management service organizations (MSOs), physician-hospital organizations (PHOs), hospital-affiliated independent practice associations (IPAs), and hospital-sponsored "group practices without walls" (GPWWs) that allow physicians to retain their practices and link hospitals and health systems to physicians through contractual arrangements. Also examined were medical foundations (MFs), integrated salary models (ISMs), and integrated health organizations (IHOs) that own the physical assets of physician practices and contract with payors for physician and hospital services. The research provides several new insights for understanding the structure and process of physician-hospital integration. It was found that the extent of processual integration in physician-hospital organizational arrangements can be measured along six dimensions: administrative and practice management services; physician financial risk-sharing; joint ventures to create new services; computer linkages; physician involvement in strategic planning; and salaried physician arrangements. These dimensions are consistent with the conceptual and empirical dimensions developed by others. These findings refute the notion raised by some industry observers that the new physician-hospital organizational models simply formalize integrative activities already in place. Earlier studies from the 1980s reported that hospitals integrated physicians through involvement in governance, capital planning, and the provision of practice management services. In contrast, we found that current integration.

Managed care, market stages, and integrated delivery systems: is there a relationship?

This DataWatch evaluates four-stage models of market evolution developed initially by the University HealthSystem Consortium (UHC). Such models suggest that increasing health maintenance organization (HMO) penetration is linked with increases in hospital consolidation and vertical integration between physicians and hospitals. These claims are tested using national data for 1992-1995. Results suggest that such models accurately classify the markets of UHC member hospitals according to their levels of HMO penetration only. Moreover, they do not discern evolutionary stages of market development and may not be generalizable to the markets of non-UHC member hospitals. Researchers and policymakers should exercise caution in applying such models.

Factors that enhance continued trauma center participation in trauma systems.

OBJECTIVES: To examine hospital, trauma system, and reimbursement factors that offset the financial burdens of trauma care delivery and to assess how proposed Medicaid and Medicare budget cuts may affect the ability of hospitals to alleviate financial pressures related to trauma care delivery. DESIGN AND SETTING: In-depth interviews and data collection for trauma centers in 12 metropolitan areas with populations of 1 million or more. PARTICIPANTS: Seventy trauma centers in these large urban communities that indicated a continuing commitment to providing trauma services for the foreseeable future. MAIN OUTCOME MEASURES: Hospital, trauma system, and reimbursement characteristics that distinguish hospitals that are better able to alleviate the financial burdens of indigent trauma care and a financial analysis that assesses payment adequacy for different payers and overall financial outcomes. DATA SOURCES: Data from a variety of sources were obtained to measure the factors that affect the operation and financing of trauma centers: published and unpublished hospital data from the American Hospital Association; trauma center level, length of operation, and the availability of alternative centers from a recently published study; Health Care Financing Administration data on Medicare and Medicaid program characteristics; automobile insurance requirements; and patient discharge data. Most data are reflective of 1992. RESULTS: Public hospitals, teaching hospitals, and institutions receiving supplemental indigent care payments appear to be best able to mitigate the financial burdens of uncompensated trauma care, especially those with moderate indigent care loads. A detailed financial analysis found that private hospitals with trauma centers were near break-even in 1992 for trauma care delivery and public hospitals experienced financial losses. Proposals to reduce Medicaid and Medicare would create substantial reductions in hospital payments for hospital-wide patient care and trauma patients specifically. CONCLUSION: Proposed Medicaid and Medicare payment cuts are likely to eliminate the delicate financial balance that many urban hospitals have achieved in providing trauma care. The erosion in funding from public programs may portend a new wave of trauma center closures as hospitals seek to deal with reduced reimbursement by eliminating unprofitable services.

Trauma systems and the costs of trauma care.

OBJECTIVE: This study examines the cost of providing trauma services in trauma centers organized by publicly administered trauma systems, compared to hospitals not part of a formal trauma system. DATA SOURCES AND STUDY SETTING: Secondary administrative discharge abstracts for a national sample of severely injured trauma patients in 44 trauma centers and 60 matched control hospitals for the year 1987 were used. STUDY DESIGN: Retrospective univariate and multivariate analyses were conducted to examine the impact of formal trauma systems and trauma center designation on the costs of treating trauma patients. Key dependent variables included length of stay, charge per day per patient, and charge per hospital stay. Key impact variables were type of trauma system and level of trauma designation. Control variables included patient, hospital, and community characteristics. DATA COLLECTION/EXTRACTION METHODS: Data were selected for hospitals based on (1) a large national hospital discharge database, the Hospital Cost and Utilization Project, 1980-1987 (HCUP-2) and (2) a special survey of trauma systems and trauma designation undertaken by the Hospital Research and Educational Trust of the American Hospital Association. PRINCIPAL FINDINGS: The results show that publicly designated Level I trauma centers, which are the focal point of most trauma systems, have the highest charge per case, the highest average charge per day, and similar or longer average lengths of stay than other hospitals. These findings persist after controlling for patient injury and health status, and for demographic characteristics and hospital and community characteristics. CONCLUSIONS: Prior research shows that severely injured trauma patients have greater chances of survival when treated in specialized trauma centers. However, findings here should be of concern to the many states developing trauma systems since the high costs of Level I centers support limiting the number of centers designated at this level and/or reconsidering the requirements placed on these centers.