Understanding Hospital

                                                   


Understanding Hospital and Health System Consolidation

The hearing today by the Subcommittee on Oversight and Investigations on the impact of health care consolidation presented a one-sided perspective on the benefits of hospital mergers. The group presenting was untethered from the realities of managing a high-quality hospital system responsive to the needs of real communities and a rapidly evolving health care landscape. Their views provide a faulty basis on which to base any public policy consideration.

Any casual observer has seen rapid and potentially fundamental changes in the health care landscape: A drug store chain (CVS) attempting to acquire a major commercial insurer (Aetna), the preeminent cloud computing and electronic commerce company (Amazon) aligning with Berkshire Hathaway and JPMorgan in a bid to disrupt health care as we know it, and a major health insurer (United) embarking on physician practice acquisitions. In this environment, is it even surprising that hospitals would be seeking ways to realign to deliver better, faster and less expensive care?

Two studies recently explored this issue to better understand the impetus and impact of hospital mergers -- but did so by reviewing contemporary data and measuring the goals hospitals themselves articulated for mergers against the actual results. Again, no surprise that the goals and results lined up.

The first -a study by economists at Charles River Associates used these methods to confirm that hospital mergers result in efficiencies, savings, innovation and quality improvements essential to transforming health care delivery. Hospitals were actually able to reduce annual operating expenses by 2.5 percent, expand services to the community and improve quality all with no telltale increase in revenues that would signal prices increases.

A second, -a study by the Deloitte Center for Health Solutions found that mergers enabled hospital systems to make “investments in technology, quality improvement, ancillary services, or shared services…” by spreading them across a broader base: the same motive driving other groundbreaking ventures.

There’s- no mystery behind the hospital field’s realignment. It is a direct response to the changing needs of communities for more convenient care, continuous financial pressures to reduce its costs and the ever present drive to improve its quality. Understanding that provides the most accurate and true basis for evaluating public policy.

                                        

Understanding Hospital Profitability:

On May 2, Health Affairs published our study, “A More Detailed Understanding Of Factors Associated With Hospital Profitability.” We found that the 10 most profitable hospitals, seven of which were nonprofit, each earned more than $163 million in total profits from patient care services. Hospitals with for-profit status, higher markups, system affiliation, or regional power, as well as those located in states with price regulation, tended to be more profitable than other hospitals. Hospitals that treated a higher proportion of Medicare patients, had higher expenditures per adjusted discharge, were located in counties with a high proportion of uninsured patients, or were located in states with a dominant insurer or greater health maintenance organization (HMO) penetration had lower profitability.

Since its publication, our study has received extensive coverage by national and local news media and generated discussions on a wide range of health care issues. The study has also generated comments by some of the hospitals identified. In the following, we clarify several points to help readers interpret our work.

The Unit Of Analysis-

Our study looks at factors associated with the profitability of hospitals, not hospital systems. To our knowledge, there is no database that contains financial statements for all hospital systems in the nation. In addition, patients go to specific hospitals to receive medical care. We believe, therefore, that the hospital is the appropriate unit to analyze.

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