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HospitalsHospitals
Components of the Care Care Components of the Care Care Premium PaymentPremium Payment
HIAA Issue Brief: “Why Do Health Insurance Premiums Rise?” Sept 2002
Physicians and Physicians and Other Health Other Health
ProvidersProviders
41%41%HospitalsHospitals
30%30%
Drugs and Drugs and Medical SuppliesMedical Supplies
14%14%
Nursing and Nursing and Home Health Home Health
CareCare
3%3%
Claims and Claims and Consumer Consumer ServicesServices
12%12%
Estimated Medicare Benefit Payments, by Estimated Medicare Benefit Payments, by Type of Service, 2002Type of Service, 2002
Hospital Inpatient,
40%
Skilled nursing
facilitites, 6%
Hospice, 2%
M+Choice, 13%
Home Health, 5%
Physicians, 17%
Hospital Outpt, 9%
Other part B benefits, 8%
Source: CBO, March 2002 Baseline: Medicare.
Total = $247 Billion
1980 2001
National Expenditures for Health Servicesand Supplies(1) by Category
1980 and 2001
Source: Centers for Medicare & Medicaid Services, Office of the Actuary
(1) Excludes medical research and medical facilities construction(2) “Other” includes net cost of insurance and administration, government public health activities, and other personal health care(3) “Other professional” includes dental and other non-physician professional services
Prescription Drugs - 5.2%
Trends in the Overall Health Care Market
Physician Services - 20.2%
Hospital Care - 43.5%
Nursing Home Care - 7.6%
Other(2) - 9.5%
Other Medical Durablesand Non-durables - 5.9%
Home Health Care - 1.0%
Other Professional(3) - 7.3%
$233.5 B $1372.6 B
Other Medical Durables andNon-durables – 3.7%
Prescription Drugs – 10.2%
Home Health Care - 2.4%
Other Professional(3) - 7.9%
Physician Services - 22.9%
Hospital Care - 32.9%
Other(2) - 12.9%
Nursing Home Care - 7.2%
10
Percent Change in National Expenditures forSelected Health Services and Supplies
1992 - 2001
-5%
0%
5%
10%
15%
20%
25%
92 93 94 95 96 97 98 99 00 01
Rx Drugs
Premiums
Hospital
Nursing home Home health
Source: The Lewin Group analysis of American Hospital Association Annual Survey data, 1980 – 2001, for community hospitals
Evolution of HospitalsEvolution of Hospitals
• Institutions of social welfareInstitutions of social welfare
• Built specifically to care for the sickBuilt specifically to care for the sick
• Institutions of medical practiceInstitutions of medical practice– growthgrowth
• Institutions of medical trainingInstitutions of medical training
• Institutions of health service consolidationInstitutions of health service consolidation
Types of HospitalsTypes of Hospitals
• Community / General Medical (Surgical)Community / General Medical (Surgical)– Acute CareAcute Care
• Specialty HospitalSpecialty Hospital
• Mental Illness / PsychiatricMental Illness / Psychiatric
• RehabilitationRehabilitation– Chronic diseaseChronic disease
Types of HospitalsTypes of Hospitals
Community HospitalCommunity Hospital
• Nonfederal, short stayNonfederal, short stay– < 30 days, acute< 30 days, acute
• Services available to the general publicServices available to the general public
– Examples of non-community hospitals?Examples of non-community hospitals?
Types of HospitalsTypes of Hospitals
Specialty HospitalSpecialty Hospital• Admits only certain types of patientsAdmits only certain types of patients
– WomenWomen– ChildrenChildren– Cardiac careCardiac care– RehabilitationRehabilitation– TuberculosisTuberculosis– EtcEtc
Hospitals can be distinguished by:Hospitals can be distinguished by:
OwnershipOwnership• Public (government owned)Public (government owned)
– FederalFederal• Military, VAMilitary, VA
– StateState• Mental, TBMental, TB
– LocalLocal• Community hospitalsCommunity hospitals• Serve urban areas, indigentServe urban areas, indigent• May be teaching hospitalMay be teaching hospital
Hospitals can be distinguished by:Hospitals can be distinguished by:
OwnershipOwnership• Private Private
– VoluntaryVoluntary• Non-profit (tax-exempt)Non-profit (tax-exempt)
– Make profit, but cannot be distributed to individualsMake profit, but cannot be distributed to individuals
• Assets belong to communityAssets belong to community• Among all private hospitals, ~80% are nonprofitsAmong all private hospitals, ~80% are nonprofits
– Proprietary (investor-owned)Proprietary (investor-owned)• Owned by individuals, partners, or corporationsOwned by individuals, partners, or corporations• Operated for the financial benefit of stockholdersOperated for the financial benefit of stockholders
Major Distinguishing Features of Major Distinguishing Features of Non-profit HospitalsNon-profit Hospitals
• Exist primarily for some public goodExist primarily for some public good
• Profits are not distributed to any Profits are not distributed to any individualsindividuals– No shareholdersNo shareholders
• Exempt from income tax, sales tax, and Exempt from income tax, sales tax, and property taxproperty tax
They deliver benefits that exceed the subsidy?They deliver benefits that exceed the subsidy?
Hospitals can be distinguished by:Hospitals can be distinguished by:
AffiliationAffiliation
• IndependentIndependent
• Multi-unit chains (hospital systems)Multi-unit chains (hospital systems)– AdvantagesAdvantages
• Reduced administrative overheadReduced administrative overhead• Provide broad scope of servicesProvide broad scope of services• Reach variety of marketsReach variety of markets• Access to capitalAccess to capital• Access to management resources, expertiseAccess to management resources, expertise
Hospitals in RIHospitals in RILifespan• Rhode Island Hospital• Bradley Hospital• Hasbro Children’s Hospital• The Miriam Hospital• Newport Hospital
Care New England• Women & Infants • Butler Hospital• Kent County Hospital
Unaffiliated• Roger Williams Medical Center• South County Hospital• Westerly Hospital
Partners Healthcare System• Memorial Hospital of RI
Department of Mental HealthRetardation and Hospitals• Eleanor Slater Hospital
St. Joseph Health Services• Our Lady of Fatima Hospital• St. Joseph Hospital for
Specialty Care
Landmark• Landmark Medical Center• Rehabilitation Hospital of
Rhode Island
Types of HospitalsTypes of Hospitals
• Teaching or Non-TeachingTeaching or Non-Teaching– AMA approved residency programs for MDsAMA approved residency programs for MDs– Affiliation with medical school or other health Affiliation with medical school or other health
disciplinediscipline– 24 hr Access to MD care24 hr Access to MD care– TechnologyTechnology– Residents, internsResidents, interns– Major or minorMajor or minor
• Member of Council of Teaching HospitalsMember of Council of Teaching Hospitals
• Osteopathic hospitalsOsteopathic hospitals
Hospital GovernanceHospital Governance
• Board of Trustees (governing body)Board of Trustees (governing body)• Define the missionDefine the mission• Set long-term directionSet long-term direction• Relationship with communityRelationship with community• Operational policiesOperational policies• Appoint and evaluate the CEOAppoint and evaluate the CEO• Approve MD appointmentApprove MD appointment
• Chief Operating Officer (CEO) Chief Operating Officer (CEO) • Responsible for day-to-day activitiesResponsible for day-to-day activities
• Medical Director (chief of staff)Medical Director (chief of staff)• Clinical oversightClinical oversight• Medical staffMedical staff
– Chiefs of serviceChiefs of service
• Medical staff CommitteesMedical staff Committees
Licensure, Certification, AccreditationLicensure, Certification, Accreditation
• Licensure Licensure (State function; Mandatory)(State function; Mandatory)
ConditionCondition::• Compliance with state laws, building codes, fire safety, Compliance with state laws, building codes, fire safety,
sanitation standardssanitation standards
• Certification Certification (Federal function; non-mandatory per se)(Federal function; non-mandatory per se)
ConditionCondition::• Satisfy conditions of participationSatisfy conditions of participation• Compliance with standardsCompliance with standards
• AccreditationAccreditation (Private function, voluntary)(Private function, voluntary)
ConditionCondition::• Joint Commission for Accreditation of Healthcare Joint Commission for Accreditation of Healthcare
Organizations (JCAHO)Organizations (JCAHO)
RegulationRegulation• StateState
– License from Department of Public HealthLicense from Department of Public Health– May restrict to Not-For ProfitMay restrict to Not-For Profit– Mix of ServicesMix of Services
• Medicine, pathology, radiology, pharmacy, ED, etc.Medicine, pathology, radiology, pharmacy, ED, etc.
– Minimum StandardsMinimum Standards• Physical plantPhysical plant• StaffingStaffing• Infectious disease controlsInfectious disease controls• Quality assuranceQuality assurance
Key Law:Key Law:A. The Hill-Burton Free Care ProgramA. The Hill-Burton Free Care Program
• 1946 - Modernize after Depression, WWII1946 - Modernize after Depression, WWII– In return for funds, hospitals must provide In return for funds, hospitals must provide
free care (not bad debt)free care (not bad debt)
• 1975 Title XVI Public Health Service Act1975 Title XVI Public Health Service Act– must provide uncompensated services in perpetuitymust provide uncompensated services in perpetuity– Govt. can recover funds after institution soldGovt. can recover funds after institution sold
B. Emergency Medical Treatment and Active Labor Act B. Emergency Medical Treatment and Active Labor Act (EMTALA)(EMTALA)
• 1986 - Forbids Medicare participating 1986 - Forbids Medicare participating hospitals from dumping patients out of EDshospitals from dumping patients out of EDs– patients may be transferred after screened and patients may be transferred after screened and
stabilized only if at no riskstabilized only if at no risk– must attempt to communicate with non-English must attempt to communicate with non-English
speaking patientsspeaking patients• Non-compliance = $50,000 penalty/pt + lawsuitNon-compliance = $50,000 penalty/pt + lawsuit• Most states have legislation requiring some Most states have legislation requiring some
degree of ED caredegree of ED care
C. Sherman Antitrust ActC. Sherman Antitrust Act
• Section I. Every contract… in restraint of Section I. Every contract… in restraint of trade or commerce among the several trade or commerce among the several states…is declared to be illegal states…is declared to be illegal – If ‘market power’ possessedIf ‘market power’ possessed
• Section II. Every person who shall Section II. Every person who shall monopolize or ATTEMPTS to monopolize monopolize or ATTEMPTS to monopolize …any part of trade or commerce shall be …any part of trade or commerce shall be deemed guilty of a felonydeemed guilty of a felony
D. Patient RightsD. Patient Rights
• Informed ConsentInformed Consent
• Advance DirectivesAdvance Directives– Do not resuscitate ordersDo not resuscitate orders– Living willLiving will– Durable owner of attorneyDurable owner of attorney
• Hill-Burton noticeHill-Burton notice
• Is the hospital industry growing or Is the hospital industry growing or retrenching?retrenching?
Number of Beds and Number of Beds per 1,000 Persons 1980 - 2001
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 010.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Source: The Lewin Group analysis of American Hospital Association Annual Survey data, 1980 – 2001, for community hospitals
Hospital ExpansionHospital Expansion1960-19801960-1980
Factors:Factors:
• Advances in medical science/serviceAdvances in medical science/service
• Development of specialized technologyDevelopment of specialized technology
• Advances in medical educationAdvances in medical education
• Development of professional nursingDevelopment of professional nursing
• Growth of health insuranceGrowth of health insurance
• Role of governmentRole of government
Hospital ExpansionHospital Expansion
Role of government:Role of government:• Hill-Burton Act (1946) provided federal Hill-Burton Act (1946) provided federal
construction and repair grants to statesconstruction and repair grants to states• Medicare and MedicaidMedicare and Medicaid
– Cost-plus reimbursementCost-plus reimbursement
• Between 1965-1980 hospital beds increased by Between 1965-1980 hospital beds increased by ~33%~33%
Hospital DownsizingHospital Downsizing1980s 1980s
Factors:Factors:• ReimbursementReimbursement
– DRG (1983)DRG (1983)
• Economic constraintsEconomic constraints– Small rural Small rural
• TechnologyTechnology– Move to outpatient servicesMove to outpatient services
• Utilization controlsUtilization controls• Social factorsSocial factors
Shift to Outpatient ServicesShift to Outpatient Services
• Technology Technology – reduces inpatient daysreduces inpatient days– reduces need for inpatient servicesreduces need for inpatient services
• Homecare, outpatient services, and Homecare, outpatient services, and neighborhood clinics neighborhood clinics
• Influence of prospective paymentInfluence of prospective payment– MCO’s and Govt. reduced length of stayMCO’s and Govt. reduced length of stay
Total Hospital Outpatient Visitsin Community Hospitals 1980 - 2001
0
100
200
300
400
500
600
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01
Mill
ion
s
Source: The Lewin Group analysis of American Hospital Association Annual Survey data, 1980 – 2001, for community hospitals
Number of Freestanding Ambulatory CareSurgery Centers1996, 1998, 2000, and 2002
2,425
2,754 2,864
3,570
0
500
1000
1500
2000
2500
3000
3500
4000
1996 1998 2000 2002
Source: SMG Marketing Group
Percentage Share of Inpatient vs. Outpatient Surgeries 1980 - 2001
0%
20%
40%
60%
80%
100%
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01
InpatientSurgeries
OutpatientSurgeries
Source: The Lewin Group analysis of American Hospital Association Annual Survey data, 1980 – 2001, for community hospitals
IntegrationIntegration
• VerticalVertical• expand rage of servicesexpand rage of services
• HorizontalHorizontal• mergers and affiliationsmergers and affiliations
Current Economic PressuresCurrent Economic Pressures
• Increasing demandIncreasing demand• Rising input costsRising input costs
– LaborLabor– DrugsDrugs– Medical devicesMedical devices
• Medical liability insurance crisisMedical liability insurance crisis• New requirements for disaster readiness New requirements for disaster readiness
and HIPAAand HIPAA• RecessionRecession
Inpatient Admissions in Community Hospitals 1980 - 2001
27
28
29
30
31
32
33
34
35
36
37
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01
Source: The Lewin Group analysis of American Hospital Association Annual Survey data, 1980 – 2001, for community hospitals.
Mill
ions
Total Inpatient Days in Community Hospitals 1980 - 2001
100
120
140
160
180
200
220
240
260
280
300
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01
Mill
ions
Source: The Lewin Group analysis of American Hospital Association Annual Survey data, 1980 – 2001, for community hospitals
Average Length of Stay in Community Hospitals 1980 - 2001
7.6
7.6
7.6
7.6
7.3
7.1
7.1
7.2
7.2
7.2
7.2
7.2
7.1
7.0
6.7
6.5
6.2
6.1
6.0
5.9
5.8
5.7
0
1
2
3
4
5
6
7
8
9
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01
Source: The Lewin Group analysis of American Hospital Association Annual Survey data, 1980 – 2001, for community hospitals
DA
YS
Share of Growth in Spending on Hospital Care 1997 to 2001 (~84B)
Costs of goods and services44.6%
Volume of
Services55.4%
Source: PricewaterhouseCoopers calculations, February 2003.
Population Growth 21%
Utilization Rate
34.4%
Share of Growth in Spending on Hospital Care 1997 to 2001 (~84B)
Volume of Services55.4%
Costs of goods
and services
44.6%
Wages 32%
Benefits 7%
Drugs 3.5%
Supplies and Services 21%
Other: -18.3% efficiencies
Aggregate Hospital Payment-to-Cost Ratiosfor Private Payers, Medicare and Medicaid
1980 - 2001
70%
80%
90%
100%
110%
120%
130%
140%
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01
Source: The Lewin Group analysis of American Hospital Association Annual Survey data, 1980 – 2001, for community hospitals
(1) Includes Medicaid Disproportionate Share payments
Private Payer
Medicare
Medicaid(1)
Local Economic InfluenceLocal Economic Influence
• Hospital as PurchaserHospital as Purchaser
• Hospital as EmployerHospital as Employer
• Provider of Discounted and Provider of Discounted and Uncompensated CareUncompensated Care
• Provides Health Education and Promotion Provides Health Education and Promotion ProgramsPrograms
For-Profit versus Not-for-ProfitFor-Profit versus Not-for-Profit
• ...As you can see, Dr. Rawlings and the Terrace Heights Hospital are not prejudiced. Anyone can get in, regardless of race, color, or creed - they just have to be able to pay! Their admission does not depend upon the degree of the their illness, but on the right insurance card.
• That's a far cry from the sign in front of Albert Schwitzer's Jungle Hospital, which reads, 'Here, at whatever hour you come, you will find light and help and human kindness.' What a rotten business man Schweitzer must have been, but what a magnificent doctor and humanitarian he was. When the only consideration of the hospital is concern for the profit margin, humanity goes out the window. And without humanity, you cannot have good medicine. "
“There's nothing wrong with running a health-care enterprise for profit. After all, doctors, nurses and drug companies work for profit.” Uwe Reinhardt, professor of health economics - Princeton
``If we don't have a sound bottom line, we can't keep the quality there, we can't provide the technology, we can't pay the best people.'’ Columbia HCA's chief executive officer, Thomas Frist Jr
``There's never been a study showing that for-profit hospitals do any better or worse job taking care of patients than nonprofits,'’ Judy Feder, health care researcher Georgetown University.
``It has no place in the health care system. For-profit hospitals will self destruct because they'll get too greedy. Rep. Pete Stark (D., Calif.).
For-Profit vs Not-for-ProfitFor-Profit vs Not-for-Profit
• Administrative costs: Higher Administrative costs: Higher administrative costs as a percentage of administrative costs as a percentage of all costs at for-profit hospitalsall costs at for-profit hospitals– Woolhandler and Himmelstein (NEJM, 3/13/97) Woolhandler and Himmelstein (NEJM, 3/13/97)
• Technology: Possible incentive for Technology: Possible incentive for teaching public hospitals to invest in teaching public hospitals to invest in newer technologies (= quality?)newer technologies (= quality?)
For-Profit HospitalsFor-Profit Hospitals
• For-Profit hospitals 3-11% more expensive For-Profit hospitals 3-11% more expensive than NFPsthan NFPs– Shorten staysShorten stays– Up-coding of DRGsUp-coding of DRGs
• For-Profit spend less on personnelFor-Profit spend less on personnel• Avoid charity care?Avoid charity care?
• Seek areas where little competitionSeek areas where little competition
For-Profit HospitalsFor-Profit Hospitals
• Spend more on ancillary services and Spend more on ancillary services and administrationadministration– Highly paid executivesHighly paid executives
– Ensure profitabilityEnsure profitability
• Investors expect returns of 10- 15% or moreInvestors expect returns of 10- 15% or more
• FPs must pay taxes on their profitsFPs must pay taxes on their profits
Concerns about For-Profit HospitalsConcerns about For-Profit Hospitals
• Loss of local control of a valued community resource and employer, often one of the biggest in town
• Allegations that they buy troubled nonprofit hospitals at bargain prices and don't adequately reimburse states and cities for years of the hospitals’ tax-free status
• Concern that hospital chains are building local health care empires that wield too much clout against competitors.
• Unease about the quality and amount of free care to poor and uninsured patients.
• Change in ownership quick and clandestineChange in ownership quick and clandestine
• Extent to which charitable assets are repaid Extent to which charitable assets are repaid
• Golden parachute for former hospital CEOGolden parachute for former hospital CEO
• Reduction in unprofitable segmentsReduction in unprofitable segments
• IntangiblesIntangibles– transportation, teen pregnancy prevention transportation, teen pregnancy prevention
program, school health clinicprogram, school health clinic
Concerns about For-Profit Hospitals Concerns about For-Profit Hospitals (cont.)(cont.)
LARGEST FOR-PROFIT, PUBLICLY TRADED LARGEST FOR-PROFIT, PUBLICLY TRADED HOSPITAL COMPANIESHOSPITAL COMPANIES
(ranked by number of licensed beds)(ranked by number of licensed beds)
1. 1. HCA INC. (based in Nashville)HCA INC. (based in Nashville)175 hospitals175 hospitals40,056 licensed beds40,056 licensed beds
2. 2. TENET HEALTHCARE CORPTENET HEALTHCARE CORP. . (Santa Barbara, CA)(Santa Barbara, CA)113 hospitals113 hospitals27,748 licensed beds27,748 licensed beds
3. TRIAD HOSPITALS INC. 3. TRIAD HOSPITALS INC. (Dallas)(Dallas)45 hospitals45 hospitals7,816 licensed beds7,816 licensed beds
4. COMMUNITY HEALTH 4. COMMUNITY HEALTH SYSTEMS INC. (Brentwood, SYSTEMS INC. (Brentwood, TN)TN)70 hospitals70 hospitals7,020 licensed beds7,020 licensed beds
5. UNIVERSAL HEALTH SERVICES 5. UNIVERSAL HEALTH SERVICES INC. (King of Prussia, PA)INC. (King of Prussia, PA)25 hospitals25 hospitals5,846 licensed beds5,846 licensed beds
6. HEALTH MANAGEMENT 6. HEALTH MANAGEMENT ASSOCIATES INC. (Naples, FL)ASSOCIATES INC. (Naples, FL)41 hospitals41 hospitals5, 769 licensed beds5, 769 licensed beds
7. PROVINCE HEALTHCARE 7. PROVINCE HEALTHCARE COMPANY (Brentwood, TN)COMPANY (Brentwood, TN)20 hospitals20 hospitals2,315 licensed beds2,315 licensed beds
8. LIFEPOINT HOSPITALS INC. 8. LIFEPOINT HOSPITALS INC. (Brentwood, TN)(Brentwood, TN)23 hospitals23 hospitals2,196 licensed beds2,196 licensed beds
http://www.corp-research.org/jan03.htm
The short term outlookThe short term outlook• Inpatient Inpatient Outpatient Outpatient• IntegrationIntegration
– Vertical (expand rage of services)Vertical (expand rage of services)– Horizontal (mergers and affiliations)Horizontal (mergers and affiliations)
• Payment: Power balancePayment: Power balance• RegulationRegulation• SafetySafety• Labor shortagesLabor shortages• Information technology / HIPAAInformation technology / HIPAA• ConsumerismConsumerism