Cost efficiency of US hospitals: a stochastic frontier approach.

This study examined the impact of managed care and other environmental factors on hospital inefficiency in 1631 US hospitals during the period 1990-1996. A panel, stochastic frontier regression model was used to estimate inefficiency parameters and inefficiency scores. The results suggest that mean estimated inefficiency decreased by about 28% during the study period. Inefficiency was negatively associated with health maintenance organization (HMO) penetration and industry concentration. It was positively related with Medicare share and for-profit ownership status.

Impact of HMO penetration and other environmental factors on hospital X-inefficiency.

This study examined the impact of health maintenance organization (HMO) market penetration and other internal and external environmental factors on hospital X-inefficiency in a national sample (N = 1,966) of urban U.S. hospitals in 1997. Stochastic frontier analysis, a frontier regression technique, was used to measure X-inefficiency and estimate parameters of the correlates of X-inefficiency. Log-likelihood restriction tests were used to test a variety of assumptions about the empirical model that guided its selection. Average estimated X-inefficiency in study hospitals was 12.96 percent. Increases in managed care penetration, dependence on Medicare and Medicaid, membership in a multihospital system, and location in areas where competitive pressures and the pool of uncompensated care are greater were associated with less X-inefficiency. Not-for-profit ownership was associated with increased X-inefficiency.

Factors associated with the provision of uncompensated care in Pennsylvania hospitals.

Data from 190 Pennsylvania hospitals in 1995 were used in regression analysis of the determinants of uncompensated care and profitability. Uncompensated care as a percentage of operating expenses was negatively related with hospital size and positively associated with obstetrical services emphasis, emergency visit mix, area unemployment rate, and sole community hospital status. Hospital profitability was not associated with uncompensated care; it was negatively associated with HMO penetration, Medicare and Medicaid share of admissions and religious ownership; and it was positively associated with medium size. Pennsylvania hospitals may have been shielded from the financial burdens of uncompensated care by the availability of funds from other sources that may not be available in the future. Consequently, unless new sources of funding are developed or insurance coverage expanded, financial pressures from providing uncompensated care may cause hospitals to face the dilemma of abandoning uninsured patients or risking financial insolvency.

Community orientation in hospitals: an institutional and resource dependence perspective.

OBJECTIVE: To conceptualize community orientation-defined as the generation, dissemination, and use of community health-need intelligence-as a strategic response to environmental pressures, and to test a theoretically justified model of the predictors of community orientation in hospitals. DATA SOURCES: The analysis used data for 4,578 hospitals obtained from the 1994 and 1995 American Hospital Association (AHA) Annual Survey and the 1994 Medicare Hospital Cost Report data sets. Market-level data came from the Area Resource File. STUDY DESIGN: Multiple regression analysis was used to examine the effects of hospital size, dependence on managed care, ownership, network, system and alliance memberships, and level of diffusion of community-orientation practices in the area on the degree of community orientation in hospitals. The model, based on Oliver's (1991) framework of organizational responsiveness to environmental pressures, controlled for the effects of industry concentration and lagged profitability. PRINCIPAL FINDINGS: Degree of community orientation is significantly related to hospital size; ownership; dependence on managed care; and membership in a network, system, or alliance. It is also significantly related to the diffusion of community-orientation practices among other area hospitals. CONCLUSIONS: Degree of community orientation is influenced by the nature of environmental pressures and by hospital interests. It is higher in hospitals that are large, nonprofit, or members of a network, system, or alliance; in hospitals that are more dependent on managed care; and in hospitals that operate in areas with higher diffusion of community-orientation activities.

Symptom experiences of lung transplant recipients: comparisons across gender, pretransplantation diagnosis, and type of transplantation.

PURPOSES: To investigate symptom experiences of patients who have single and bilateral-sequential lung transplantation and to determine whether differences exist according to gender, pretransplantation diagnosis, and type of transplantation procedure. DESIGN AND METHODS: In the context of a descriptive, comparative survey design, surviving recipients of single and bilateral-sequential lung transplants (n = 56) were mailed a symptom frequency and distress questionnaire. The response rate was 85.7% (n = 48). The average time since the recipients' lung transplantations was 1.5 +/- 0.7 years. RESULTS: Recipients of lung transplants reported that several symptoms (eg, muscle weakness, shortness of breath with activity, and changed appearance) were both frequently occurring and quite distressing. Other symptoms were identified as being distressing, but not frequently occurring, or vice versa. Significant (P <.05) differences were found for symptom experiences among pretransplant diagnostic groups and between genders and types of transplant procedures. CONCLUSIONS: These findings elucidate the symptom experiences of recipients of lung transplants and suggest that subgroup differences exist. The data provide a basis for strengthening patient and family education and for developing symptom management strategies. Further investigation of the symptom experiences of the recipients of lung transplants is needed, especially in relation to subgroups.

Estimating hospital inefficiency: does case mix matter?

A two-stage approach is used in a stochastic frontier analysis of the factors affecting hospital efficiency. In the first stage, a translog cost-function is used to estimate inefficiency scores. In the second stage, inefficiency scores are regressed against independent variables to test hypotheses that come from X-inefficiency Theory. The study was based on 1989 data for 195 Pennsylvania acute care hospitals. This data base was chosen because of the availability of patient-level severity of illness data, a measure of output that is not available from most data sources. The stochastic frontier analysis models estimated mean inefficiency scores that ranged from 0.075 to 0.180. The addition of the DRG case mix index (CMI) reduced estimated inefficiency by more than 50%. The incremental effect of a severity of illness variable to an equation with CMI was very small. The second-stage results suggest inefficiency and are inversely associated with regulatory pressures and industry concentration.

Severity of illness and profitability: a patient level analysis.

Crafting a payment mechanism for hospitals that provides for the legitimate operating needs of efficient institutions is an enduring health policy dilemma. The Prospective Payment System used by Medicare and some other payers in the US has been criticized for not adjusting for differences in severity of illness within diagnosis-related groups (DRGs). Previous studies have examined the relationship between profitability and severity of illness at the hospital level. This study examines the relationships between severity of illness and cost, revenue, and profit at the patient level. Two measures of severity (disease stage and number of unrelated diseases) were significant predictors of cost per case, and often had better predictive power than DRGs. In most instances, payers did not compensate adequately for severity so that higher values for the severity variables resulted in financial losses for the hospital.

Impact of internal and external environmental pressures on hospital inefficiency.

This study used stochastic frontier analysis to study variations in inefficiency in US hospitals. Cost-inefficiency (i.e., differences between best practice and actual expenses) is assumed to be affected by ownership status, competition, regulatory pressure, and market demand conditions. The level of analysis is the hospital (n = 3,262) and data for 1994 were used. The market was defined as the county in which the hospital was located. A two-stage approach was used in the analysis. In the first stage, translog cost-functions were estimated. Outputs used in the cost function analysis include inpatient discharges, post-admission days, outpatient visits, medical education, and case-mix index. Following Jondrow's technique, inefficiency scores (i.e., the difference between predicted least costs and actual costs) were estimated. Inefficiency estimates were not sensitive to changes in assumptions about the distribution of the error term. In the second stage, the estimated inefficiency scores were used as dependent variables to test hypotheses about the impact of internal and external environmental pressures on cost-inefficiency. Since the distribution of the estimated inefficiency scores was censored, Tobit equations were estimated. The second stage analysis found that measured inefficiency was negatively related with industry concentration (Herfindahl index), public payment policy, and unemployment rate and positively related with for-profit status.

A critical analysis of on-scene helicopter transport on survival in a statewide trauma system.

BACKGROUND: Recently, questions have been raised regarding the effectiveness of helicopters in trauma care. We conducted a retrospective study to evaluate the effect of on-scene helicopter transport on survival after trauma in a statewide trauma system. METHODS: Data were obtained from a statewide trauma registry of 162,730 patients treated at 28 accredited trauma centers. Patients transported from the scene by helicopter (15,938) were compared with those transported by ground with advanced life support (ALS) (6,473). Interhospital transfers and transports without ALS were excluded. Statistical analysis was performed using one-way analysis of variance and logistic regression. RESULTS: Patients transported by helicopter were significantly (p < 0.01) younger, were more seriously injured, and had lower blood pressure. They were also more likely to be male and to have systolic blood pressure < 90 mm Hg. Logistic regression analysis revealed that when adjusting for other risk factors, transportation by helicopter did not affect the estimated odds of survival. CONCLUSION: A reappraisal of the cost-effectiveness of helicopter triage and transport criteria, when access to ground ALS squads is available, may be warranted.

Organizational and environmental factors in hospital alliance membership and contract management: a resource-dependence perspective.

Using a resource-dependence perspective, we analyze the association between organizational and environmental characteristics and the likelihood that non-profit hospitals will enter into one of two forms of interorganizational relationship (IOR): hospital alliance membership or contract management (n = 1,661). The former is representative of high autonomy IORs, while the latter is representative of low autonomy IORs. Results of logistic regression analysis indicate that hospitals with greater resources and more favorable payer mix are more likely to join alliances, an IOR form which minimizes loss of autonomy. In addition, facilities operating in less favorable environments are more likely to be contract managed and less likely to be alliance members.

Adoption of a time-based competition paradigm into the health care industry.

Market and regulatory pressures are requiring health care organizations to find new ways to compete. This article introduces the concept of time-based competition, a strategy adopted by firms in the manufacturing sector to strengthen their competitive positions, as a new strategy for health care organizations. The Just-in-Time technique and set-up time reduction activities are used to demonstrate the adoption of this paradigm by health care organizations. A case study comparing the movement of elderly patient through the health care delivery system under traditional and time-based competition practices is used to illustrate gains from adopting the new paradigm.

The effects of ownership, operating environment, and strategic choices on nursing home efficiency.

This article reports on a study of the labor efficiency of 461 nursing homes located in Pennsylvania. Data envelopment analysis was used to estimate efficiency scores. Tobit equations were estimated for the entire sample and for subsamples consisting of for-profit (FP) and not-for-profit (NFP) nursing homes. The authors found that the major factors explaining efficiency were managerial and environmental characteristics such as ownership, occupancy rate, size, payment source, wage rate, and per capita income, rather than quality characteristics of nursing homes. Analysis of the FP and NFP subsamples suggests that many NFP homes may respond to environmental pressures by increasing their efficiency, whereas FP homes tend to operate at a high level of efficiency irrespective of environmental and regulatory pressures.

Subacute care, Medicare benefits, and nursing home behavior.

Two policy changes in 1988, one administrative and one legislative, allowed greater Medicare coverage of subacute care in skilled nursing facilities (SNFs). The Medicare Catastrophic Coverage Act (MCCA) of 1988, in conjunction with an administrative directive, or transmittal, from the Health Care Financing Administration (HCFA), changed the Medicare SNF benefit structure substantially. In this study, we specified a simultaneous equation system to explain the effects of the benefit changes on Medicare use. The results suggest that the two policy changes increased Medicare use in Pennsylvania SNFs substantially; however, the increase was associated with facility and case mix characteristics, which suggest that the increase was largely attributable to reclassification of current patients from other payer categories, Medicaid and self-pay, rather than new admissions. The effects of the MCCA and the HCFA transmittal on increased Medicare use were unanticipated and have important implications for the way in which subacute care is defined and financed in future benefit discussions.

Structure, environment and strategic outcome: a study of Pennsylvania nursing homes.

This study applies Porter's model of competitive advantage to the nursing home industry. Discriminant analysis is used to identify organizational and environmental characteristics associated with nursing homes which have demonstrated valued strategic outcomes, and to distinguish the more successful nursing homes from their rivals. The results of the discriminant analysis suggest that nursing homes with superior payer mix outcomes are distinguishable from their less successful rivals in areas associated with a focused generic strategy. The study suggests that nursing homes which are better staffed, of smaller size and lower price are more likely to achieve high levels of self-pay utilization. Independent living units, continuing care retirement communities in particular, are likely to act synergistically with nursing home organizational characteristics to enhance competitive advantage by linking the value chain of the nursing home to that of retirement housing. Nursing homes with higher proportions of Medicare were found to provide a unique product when compared to their rivals. Profit status does not discriminate better self-pay strategic utilization, but for-profit facilities are more likely to pursue a Medicare strategy. Concern was raised that, as nursing homes become more strategically oriented, Medicaid access may become more problematic.

Do for-profit and not-for-profit nursing homes behave differently?

The purpose of this study was to examine behavioral differences between for-profit (FP) and not-for-profit (NFP) nursing homes. Previous studies have failed to establish consistent behavioral differences. This study uses a simultaneous equation model to control for potential endogeneity among system variables, with model parameters estimated using 3SLS. The study provides evidence that NFPs provide significantly higher quality of care to Medicaid beneficiaries and to self-pay residents than do FPs, as evidenced by better staffing and better outcomes among nursing homes with residents at higher risk for adverse outcomes.

Strategic groups, performance, and strategic response in the nursing home industry.

OBJECTIVE: This study examines the effect of strategic group membership on nursing home performance and strategic behavior. DATA SOURCES AND STUDY SETTING: Data from the 1987 Medicare and Medicaid Automated Certification Survey were combined with data from the 1987 and 1989 Pennsylvania Long Term Care Facility Questionnaire. The sample consisted of 383 Pennsylvania nursing homes. STUDY DESIGN: Cluster analysis was used to place the 383 nursing homes into strategic groups on the basis of variables measuring scope and resource deployment. Performance was measured by indicators of the quality of nursing home care (rates of pressure ulcers, catheterization, and restraint usage) and efficiency in services provision. Changes in Medicare participation after passage of the 1988 Medicare Catastrophic Coverage Act (MCCA) measured strategic behavior. MANOVA and Turkey HSD post hoc means tests determined if significant differences were associated with strategic group membership. FINDINGS: Cluster analysis produced an optimal seven-group solution. Differences in group means were significant for the clustering, performance, and conduct variables (p < .0001). Strategic groups characterized by facilities providing a continuum of care services had the best patient care outcomes. The most efficient groups were characterized by facilities with high Medicare census. While all strategic groups increased Medicare census following passage of the MCCA, those dominated by for-profits had the greatest increases. CONCLUSIONS: Our analysis demonstrates that strategic orientation influences nursing home response to regulatory initiatives, a factor that should be recognized in policy formation directed at nursing home reform.

Hospital markups: responses to environmental pressures in Pennsylvania.

The practice of cost shifting has stirred interest in hospital pricing policy. This study examined the determinants of the markup ratio, a summary measure of the hospital's pricing policy, in Pennsylvania acute care hospitals. The results indicate that severity of illness and the proportion of revenue earned from Medicare and Medicaid were the most important factors influencing markups. Other significant factors included extensive teaching activities and county per capita income.

The impact of intra-DRG severity of illness on hospital profitability: implications for payment reform.

We examined the relationship between variations in intra-DRG severity of illness classifications and hospital profitability. Unlike in previous studies, we created a direct hospital-level measure of severity, formed from MedisGroup severity scores. We estimated separate regression equations for total margin, operating margin, net revenue per admission, and expense per admission. We examined data for 201 Pennsylvania hospitals and found that hospital profits were inversely related to the severity of illness index. Expense per admission was positively related to severity; however the relationship between severity and net revenue per admission was not significant. The results suggest that hospitals with a more severe case mix may not recover the full costs of providing services. Thus payment reform should include adjustments for severity of illness.

The success and repeal of the Medicare Catastrophic Coverage Act: a paradoxical lesson for health care reform.

Congress intended the Medicare Catastrophic Coverage Act (MCCA) of 1988 to reduce the risk for illness-related catastrophic financial losses in the elderly. The act was short-lived, facing repeal just one year after passage. Many elderly persons were convinced that the costs of the program outweighed the benefits. However nursing home payment provisions of the MCCA may have affected out-of-pocket expenses paid by the elderly for long-term care more than consumers realized at the time of repeal. A transmittal memorandum, issued by the Health Care Financing Administration independent of Congressional action, enhanced consumers' ability to qualify for Medicare nursing home benefits. We investigated the effects of the Medicare policy change on nursing home payer mix and out-of-pocket expenses in 489 Pennsylvania nursing homes. We found that substantial shifts in payer mix from self-pay to Medicare payment sources occurred, reducing out-of-pocket expenses. Unfortunately the debate over the MCCA's repeal did not include discussion of the improved nursing home benefit structure. These findings, and the fate of the MCCA legislation, reinforce the importance of comprehensive information and clear communication in promoting health care reform.

Variations in the outcomes of care provided in Pennsylvania nursing homes. Facility and environmental correlates.

This research study utilizes indicators from federal and state surveys to evaluate variation in outcomes in 438 Medicare certified skilled nursing care facilities in Pennsylvania. First, a standardization function adjusting for patient characteristics known to influence outcomes was developed and estimated. The relationships between organizational and environmental characteristics and the chosen outcome indicators (i.e., differences between the actual and expected rate of mortality, pressure ulcers, urethral catheterization and physical restraints) were then analyzed by weighted least squares regression. Results suggest considerable interfacility variation in rates for these outcome indicators. A portion of this variation is significantly attributable to resident characteristics (P < or = 0.05). However, variation in outcomes in Pennsylvania facilities is also associated with facility characteristics (e.g., size and for-profit status), and environmental characteristics (e.g., per capita income and bed supply). Implications for nursing home management and policy are considered.