The transition from excess capacity to strained capacity in U.S. hospitals.

After many years of concern about excess hospital capacity, a growing perception exists that the capacity of some hospitals now seems constrained. This article explores the reasons behind this changing perception, looking at the longitudinal data and in-depth interviews for hospitals in four study sites monitored by the Community Tracking Study of the Center for Studying Health System Change. Notwithstanding the differences for individual hospitals, we observed that adjustments to the supply of hospital services tend to be slow and out of sync with changes in the demand for hospital services. Those hospitals reporting capacity problems are often teaching hospitals, located near previously closed facilities or in population growth areas. These findings suggest therefore that approaches to dealing with capacity problems might best focus on better matching individual hospitals' supply and demand adjustments.

Emergency department diversions: hospital and community strategies alleviate the crisis.

A nationwide surge in emergency department ambulance diversions in 2000-01 raised concerns about access and quality of care for critically ill patients, but the diversion problem has improved markedly over the past two years, according to findings from the Center for Studying Health System Change's (HSC) 2002-03 site visits to 12 nationally representative communities. Hospital efforts to improve bed management and patient flow, as well as community initiatives to monitor and control diversions, have played key roles in easing the problem. The success in bringing the diversion crisis under control offers an important lesson for policy makers--much can be done to better manage existing hospital capacity before potentially costly expansions are made.

Does U.S. hospital capacity need to be expanded?

Some industry experts believe that U.S. hospital capacity--especially emergency and inpatient services--is being stretched to its limits. Using data from the Community Tracking Study, this paper examines constrained hospital services, contributing factors, and hospitals' responses. Most hospitals studied had emergency capacity problems, but problems in other service areas were limited to only a few hospitals. Hospitals have added or converted capacity, improved capacity management, dealt with nursing shortages, and worked with public officials to reduce emergency department diversions. Although additional capacity might be needed in some markets, better management of existing resources could be a more effective solution.

Focused factories? Physician-owned specialty facilities.

Using data from Round Four of the Community Tracking Study site visits, this paper describes the recent rapid increase in physician-owned specialty hospitals and ambulatory surgery centers, reasons for this increase, possible impacts, and potential policy options. These facilities could lead to excess capacity, provision of unnecessary services, and lower quality because of decreased volume at some facilities. They also could reduce community hospitals' net revenue and thus their ability to subsidize socially necessary but unprofitable services. But regulatory intervention should be cautious, because data on impact are inconclusive, and these facilities could have the potential to function as "focused factories" that improve quality and reduce costs.

Specialty hospitals: focused factories or cream skimmers?

Hospitals specializing in cardiovascular and orthopedic procedures are developing rapidly throughout the country, raising challenging questions for communities and policy makers. Proponents argue that specialty hospitals could improve quality and reduce costs, yet skeptics note that specialty hospitals might reduce quality, increase costs and decrease access to basic services. The Center for Studying Health System Change (HSC) site visit findings suggest that the relatively high profit margins of these select procedures and specialists' desire to increase control over the care environment and increase their income are among the key reasons for this specialty hospital building boom. Policy makers are exploring a range of responses with the goal of allowing specialty hospitals to compete and innovate while minimizing the potential for quality, cost and access problems.

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.

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.