America's Hospitals: In Danger or Bouncing Back?

Slide Presentation by Gloria Bazzoli, Ph.D.

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On November 19, 2002, Gloria Bazzoli, Ph.D., made a presentation in a Web-assisted teleconference at Event 1, which was entitled "The Big Picture: Hospitals in a Volatile Healthcare Environment."

This is the text version of Dr. Bazzoli's slide presentation. Select to access the PowerPoint® slides (142 KB).

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The Big Picture: Hospitals in a Volatile Healthcare Environment

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

Slide 1

Hospital Closures and Mergers

This slide contains a chart that provides information on the percentages of all hospitals and respective numbers of individual hospitals that have closed or merged during the period between 1986-2000. In 1986-88, 3.6 % (253) of hospitals closed and 2.2% (153) merged. In 1989-1991, 3.3% (224) of all hospitals closed, and 2.0% (138) merged. In 1992-1994, 3.7% (247) closed and 2.7% (179) merged. Between 1995-1997, 3.0% (192) closed and 5.8 (368) merged. Between 1998-2000, 3.2% (197) closed and 2.2% (135) merged.

Source: AHA Annual Survey, Public Use File documentation.

Slide 2

Industry Financial Performance & Closure/Merger Trends

On three separate lines, this graph shows the numbers of hospitals that were closed, that had merged, and that had negative margins during the period 1986-2000. The graph shows that the number of hospitals with negative margins has remained rather stable during this period. It shows that the number of closures fluctuated between 225-250 until 1992 when that rate dropped to and has remained slightly under 200 closures per year. The number of mergers grew steadily until about 1990 when the number spiked to nearly double the 1992 rate in 1995. That rate has since come back down to just below 150 per year.

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

Slide 3

Organizational Change: Distressed and Non-Distressed Community Hospitals

This chart gives percentages of two types of hospitals-"distressed" or "non-distressed"- that were closed, acquired through a merger, or survived during two time periods. The first period was 1985-1990. During this time, 6.0% of distressed hospitals closed and 5.6% of "non-distressed" hospitals closed. In this same period, 1.7% of distressed hospitals were acquired through mergers and 3.2% of "non-distressed" hospitals were acquired. 92.3% of distressed hospitals survived this 5 year period and 91.2% of "non-distressed" hospitals survived. For the period between 1994-1998, 3.8% of "distressed" hospitals closed and 1.2% of "non-distressed" hospitals closed. 6.0% of distressed facilities were acquired through a merger and 6.7% of "non-distressed" facilities were acquired in a merger. 90.2% of distressed hospitals survived and 92.1% of "non-distressed" hospitals survived.

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

Slide 4

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 and limit public health/specialty services.
• Seek new revenue sources.
• Face higher costs of capital.

Slide 5

Changes in Hospital Credit Ratings: Last Decade

This graph provides information on the change in the distribution of hospitals' credit ratings in the last decade. It shows that the distribution has narrowed, with a greater number of hospitals rated "A", fewer at the extremes (at triple A or below triple B).

Source: Moody's Investors Services.

Slide 6

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.

Slide 7

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 and 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."

Slide 8

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.

Slide 9

Trends in Total Margins of DSH and Non-DSH Hospitals

This graph consists of three lines that represent three different types of hospitals: Non-DSH, DSH Rural, and DSH- Large Urban. The margins since 1990 and up to 1999 are charted. In 1990, different types of hospitals experienced different types of trends in margins. However, margins for all three types of hospitals reached a peak in the latter part of this period but have all since experienced significant decreases in margins starting around 1997.

Source: MedPAC Report to Congress, March 2002.

Slide 10

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

Uncompensated care costs of public/private hospitals in 1997 totaled $18.5 billion. In 1996-1998, offsetting subsidies for uncompensated care to public/private hospitals were as follows: $4.2 billion from Medicare DSH; %4.4 billion from Medicare IME; a gross subsidy of $18.2 billion from Medicaid DSH, which works out to $9.9 billion dollar net subsidy with about $5.9 billion net amount to hospitals. The total UC subsidies amounted to $14.5 billion, leaving hospitals with $4 billion of unsubsidized UC costs.

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

Slide 11

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.

Slide 12

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.

Slide 13

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?

Slide 14

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)

Slide 15

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.

Current as of June 2003

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Internet Citation:

The Big Picture: Hospitals in a Volatile Healthcare Environment. Slide Presentation by Gloria Bazzoli, at Web-Assisted Teleconference, "America's Hospitals: In Danger or Bouncing Back?" Agency for Healthcare Research and Quality, Rockville, MD. https://www.ahrq.gov/news/ulp/hospital/bazzolitxt.htm

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