Hospital Ownership and Financial Performance: An Integrative Research Review Academy Health Annual Research Meeting Boston, June 28, 2005 Yu-Chu Shen Naval Postgraduate School and NBER Karen Eggleston, Joseph Lau, Christopher Schmid Tufts University Funded by grant # under the Robert Wood Johnson Foundation’s Changes in Health Care Financing and Organization (HCFO) Initiative

Research Objective Does ownership affect hospital financial performance (cost, revenue, profit, efficiency)? Competing theories with contrasting predictions Hundreds of empirical studies to date with conflicting findings policymakers have little clear evidence economics of ownership and behavior imperfectly understood

Scope of the Integrative Review  Synthesize the main findings of the empirical literature between January 1990 and July 2004 on hospital ownership and performance (published or unpublished)  Examine multivariate empirical studies of US acute general short stay hospitals;  Examine studies that compare differences between for-profits and nonprofits, between nonprofits and government, or both.

 We start with 1434 potentially relevant studies, and end up with 141 studies for the integrative review.  Focus on four broad categories of performance measures: financial performance (cost, revenue, profit, and efficiency) quality / patient outcomes uncompensated care or community benefits Staffing Scope of the Integrative Review

Presentation Is Focused On Four Financial Measures Number of studies analyzed the outcome Number of articles with usable information Outcomes Reviewed Operating cost 2219 Patient revenue and returns on assets 1411 Profit margin 1714 Cost and technical efficiency 1915

Integrative Review Research Questions 1.What is the magnitude of the difference between NFP and FP— what is the effect size? 2.How precise or reliable is this estimated effect size? 3.How do differences in analytic methods and other study features affect the estimates of effect size?

Categorizing Analytical Methods  Three types of methodology rigor  Type 3: if a study meets both of the following conditions: (a) uses panel estimation or explicitly accounts for potential selection problem (b) includes two of the following three sets of controls: patient level, hospital level, market level  Type 2: if meets EITHER (a) or (b)  Type 1: if meets NEITHER (a) nor (b)

Cost: Summary of N-F Effect Size By Method Types Method Type 1 Method Type 2 Method Type 3 FP is more costlyFP is less costly

Cost: Summary of N-F Effect Size By Covered Region Single state sample National sample FP is more costlyFP is less costly

Revenue: Summary of N-F Effect Size By Method Type Method Type 1 Method Type 2 Method Type 3 FP generates more revenue FP generates less revenue

Revenue: Summary of N-F Effect Size By Covered Region Single state sample National sample FP generates more revenue FP generates less revenue

Profit Margin: Summary of N-F Effect Size By Method Type Method Type 1 Method Type 2 Method Type 3 FP earns higher profitFP earns lower profit

Profit Margin: Summary of N-F Effect Size By Covered Region Single state sample National sample FP earns higher profitFP earns lower profit

Efficiency: Summary of N-F Effect Size By Covered Region Single state sample National sample FP is more efficientFP is less efficient

What Do We Learn? (1)  Evidence is pretty conclusive regarding revenue and profit margins Most studies find for-Profits earn more revenue (per admission) and have higher profit margins  There is little evidence of any difference in cost between FP and NFP hospitals  Evidence is mixed regarding efficiency. Single state (Florida) analyses find FP more efficient, national analyses tend to find FP less efficient.

What Do We Learn? (2)  Functional forms and analytical methods matter Weaker methods and functional forms tend to predict larger differences between not-for-profits and for-profits  National samples tend to produce more conservative estimates of effect size than single state analyses