# Presentation: 162339

## The Big Picture: A Look at Hospitals in a Volatile Healthcare Environment

**Gloria J. Bazzoli, Ph.D.**
- Professor of Health Administration
- Virginia Commonwealth University

## Hospital Closures and Mergers

| Time Period | Closed
  #              % |  | Merged
   #          % |  |
| --- | --- | --- | --- | --- |
| 1986 – 88 | 253 | 3.6% | 153 | 2.2% |
| 1989 – 91 | 224 | 3.3% | 138 | 2.0% |
| 1992 – 94 | 247 | 3.7% | 179 | 2.7% |
| 1995 – 97 | 192 | 3.0% | 368 | 5.8% |
| 1998 – 00 | 197 | 3.2% | 135 | 2.2% |

- Data on all US registered hospitals
- Source: AHA Annual Survey, Public Use File documentation

## Industry Financial Performance & Closure/Merger Trends

- Source: AHA Annual Survey, Public Use File documentation &
- MedPAC reports to Congress, 1999 & 2002.

## Organizational Change: Distressed and Non-Distressed Community Hospitals

|  | 1985-90
Distressed  Not Distressed |  | 1994-98
Distressed       Not Distressed |  |
| --- | --- | --- | --- | --- |
| 
Closed | 
  6.0% | 
  5.6% | 
  3.8% | 
  1.2% |
| Acquired through
Merger | 
  1.7% | 
  3.2% | 
  6.0% | 
  6.7% |
| 
Survived | 
92.3% | 
91.2% | 
90.2% | 
92.1% |

- Source: Bazzoli and Andes, H&HSA, 1995; analysis replicated for 1994-98 period

## Financial Pressures and Hospital Operations

- When confronted with financial pressures, hospitals:
- reduce staffing levels
- reduce intensity of service (especially for patients whose payers reduce reimbursement)
- provide less charity care & limit public health/specialty services
- seek new revenue sources
- face higher costs of capital

## Changes in Hospital Credit Ratings: Last Decade

## Hospital Mergers and Financial Performance

- Large increase in number of mergers in the mid-1990s
- response to growing market pressures
- desire to develop regional health delivery systems
- Research suggests merger cost savings exist *but:*
- small in $ amount
- result of one-time administrative streamlining
- more common in small hospitals
- promise of savings from clinical consolidation went unfulfilled

## Hospital Mergers and Financial Performance

- Research suggests mergers increase hospital prices/profits:
- especially for high market share services
- especially in markets with low managed care penetration & limited hospital competition
- Research suggests hospitals gaining leverage vis-à-vis health plans:
- managed care backlash has reduced payer power
- increased evidence of provider-insurer “show-downs”

## Special Pressures on Hospital Safety Net

- Safety net hospitals faced same pressures as other hospitals in 1990s and 2000s *plus*:
- large and growing number of uninsured
- confusion about Medicaid eligibility under Welfare Reform
- reductions or limited growth in indigent care subsidies
- Medicaid managed care
- Total margins of DSH hospitals have declined

## Trends in Total Margins of DSH and Non-DSH Hospitals

- Source: MedPAC Report to Congress, March 2002

## The Balance Sheet: UC Costs and Subsidies (billions of $)

- 1997 UC costs of
-  public/private hospitals:  . . . . . . . . . . . . . . . . . . . . . . . . $18.5
- 1997 UC subsidies to
-  public/private hospitals:
- 	Medicare DSH . . . . . . . . . . . . . . . . . . $ 4.2
-      Medicare IME . . . . . . . . . . . . . . . . . . . $ 4.4
-      Medicaid DSH:
- 		gross: . . . . . . . . . .$15.9
-  		net: . . . . . . . . . .  ~$ 8.3
- 		net to hospitals: . .  ~60% . . . . . .$ 5.0
-       TOTAL UC subsidies:  . . . . . . . . . . . . . . . . . . . . . .   $13.6
- 				**DIFFERENCE . . . . . . . . . . .  $ 4.9**

- Sources: Melnick et al., 2000 and Coughlin et al., 1999

## Evidence of Declining Voluntary Charity Care

- Financial pressures of urban hospitals leading to reduction in their charity care provision
- Physician involvement in charity care also appears to be on the decline
- Increasingly, indigent care is concentrated in a small group of hospitals and physicians
- Whether these trends will accelerate or diminish in the future is unclear

## Needed Research:Financial Pressures and Hospital Operations

- We need to know:
- effects of financial performance on hospital investments in technology and infrastructure
- effects of financial performance on quality of patient care and health outcomes
- hospital turnaround strategies and their effectiveness
- how communities managed and coped with hospital closures

## Needed Research:Hospital Safety Net and Financial Pressures

- How have core safety net providers been affected in terms of:
- their indigent patient volumes?
- their ability to maintain physical plant, high cost technology, services and staffing?
- ultimately, the care received by the indigent?
- How will State budget crises affect:
- State Medicaid/SCHIP benefits and eligibility?
- provider payments and ultimately, provider willingness to participate in State programs?

## Data to Assess Hospital Trends: National Sources

- AHA Annual Survey
- CMS Medicare cost reports
- AHRQ National Inpatient Sample (NIS)
- Financial data and reports of investment banking firms
- National Hospital Indicator Survey (commissioned by CMS and MedPAC, conducted by AHA)

## Data to Assess Hospital Trends: State Sources

- AHRQ HCUP initiative:
- State Inpatient Discharge (SID) databases
- State Ambulatory Surgery Database (SASD)
- Hospital financial reports filed due to disclosure requirements
- Hospital community benefit reports filed due to disclosure requirements