Download presentation
Presentation is loading. Please wait.
1
The Transformation of the American Hospital James G. Anderson, Ph.D. Purdue University
2
From Community Institution to Business Organization Institutions are infused with values reflecting community sentiments and goals. They also perform a variety of social functions that are viewed as important for the community. Organizations represent rational instruments designed to achieve definite goals judged on technical criteria that can be modified or discarded.
3
Late 19 th Century Hospitals Late 19 th Century Hospitals Founded as institutions Concern for the poor Mutual assistance Volunteerism Community sponsorship Community service versus investor return
4
20 th Century Hospitals Shift from donation of services to marketing services Financing expansion Profit-making activities Competition for paying patients Community orientation diminished Ascendance of organizational model Hospital mergers/closures
5
Institutions of Care (1750-1870) MDs donated their time Benefactors provided capital Hospital provided care vs. cure Rudimentary treatment available
6
Institutions of Care (1870-1919) Shift in demand and supply Industrialization Immigration Urbanization Family fragmentation Technology developments Antisepsis and anesthesia Risk of deaths in hospitals declined Middle class began paying for care
7
Institutions of Care (1870-1919) Number of hospitals increased from 138 to 4,359 Number of hospital beds increased from 35,604 to 421,005. % white collar patients increased from 13% to 24%. % paying patients increased from 14% to 38%.
8
Institutions of Care (1870-1919) Mission changed from caring to curing. Patients became viewed as a source of income. Hospitals remained nonprofit and tax-exempt. Hospitals began to serve the broader community. Hospitals were founded by religious and ethnic groups. Shift in control of the hospital from lay trustees to medical staff. Majority of care shifted to private paying patients.
9
Threats to the Institution (1930-1965) Major changes: The development of private health insurance. Growing government involvement in financing and regulation. Alteration in the institutional character of hospitals.
10
Private Insurance The depression resulted in the founding of Blue Cross/Shield. They acted as third-party between patients and providers. Insurance plans were nonprofit. They did not interfere with clinical decisions. Free choice of hospitals by patients. Providers were reimbursed for charges on a fee- for-service basis. Community-based rating was used to set insurance premiums.
11
Private Insurance WWII wage/price controls encouraged employers to offer health insurance benefits. The supreme court ruled that the health insurance was negotiable in collective bargaining. The development of competition from commercial insurance forced BlueCross/Blue Shield to abandon community rating. Insurance spurred higher utilization and cost.
12
Government Involvement Medicare/Medicaid 1965: Increase the federal government’s role to fill gaps in private insurance. Government provided capital for health services. Reimbursed physicians on a fee-for-service basis. Reimbursed hospitals on a retrospective cost- reimbursement basis. Provided higher payments for inpatient care. Provided incentives to expand facilities and services.
13
Effects of Government Involvement Health care inflation. Dependence on public funds. Reduction in philanthropy. Providers reduce charity care. Regulation increased. Hospitals expanded their managerial responsibilities and staff. Reemergence of for-profit hospitals.
14
Institutional Crises 1965-1990 Stagflation in the 1970s created a budget crisis. Spending on Medicare/Medicaid increased rapidly. Legal, budgetary, market remedies were proposed.
15
Proposed Remedies Legal: Goldfarb vs. Virginia State Bar ruled antitrust laws apply to health care. Budgetary: DRGs changed the way hospitals are reimbursed. Market: HMO Act 1973 provided capital for new HMOs. Managed care strategies by employers, Medicare, Medicaid.
16
Organizational Responses Hospital closures. Emphasis on commercial objectives. Abandonment of costly services, charity care. Early discharge of patients. Focus on profitable services. Corporate rationalization. Increased competition.
17
Decline in Institutional Character Decline in community control. Decline in community legitimacy. Loss of philanthropic support. Decline in volunteerism. Increase in unions Providers lost initiative for assuring quality, disciplining members. Responsibility shifted to courts and payers.
18
The Future of Hospitals As an institution hospitals served several constituencies: (1) Local community (2) Sick poor. (3) Sponsors who donated time and money. (4) Work force drawn mainly from community. Hospitals now focus on serving those who pay for health care. They have become organizations
19
The Future of Hospitals As the hospital has pursued strategies to improve the operating margin/bottom line, it has lost its traditional legitimacy. Revenue-generating strategies will not ensure the hospital’s survival in the future. Various physician specialty groups have become less dependent upon hospitals as a site of practice. This has drawn patients away. Hospitals have become large ICUs.
20
Number and Types of Hospitals in the U.S. Total Number of All U.S. Registered* Hospitals 5,764 Registered Number of U.S. Community** Hospitals 4,895 Community Number of Nongovernment Not-for-Profit Community Hospitals 2,984 Community Number of Investor-Owned (For-Profit) Community Hospitals 790 Community Number of State and Local Government Community Hospitals 1,121 Community
21
The Changing Environment of US Hospitals Hospital industry of 1980s: – largely autonomous – worried about government regulation and rate setting Hospital industry of 1990s: – losing power to managed care – facing public and private payment constraints Hospital industry of 2000s: – largely consolidated but bifurcated; some doing exceedingly well and others not
22
Looking Back to 1980s – What We Thought Would Happen Paul Starr in The Social Transformation of American Medicine (1982) described the future of the hospital industry.
23
Looking Back to 1980s – What We Thought Would Happen Paul Starr in The Social Transformation of American Medicine (1982) described the future of the hospital industry.
24
Pathways to Regional/ National Health Care Conglomerates Changes in hospital ownership to for-profit Horizontal integration through the development of multi-hospital systems Diversification and corporate restructuring into “poly-corporate” enterprises Vertical integration into HMOs Increased industry concentration of ownership and control Source
25
Key Questions What came to pass and what did not in Starr predictions for hospital industry? What does this mean for the hospital industry and markets today? How has this affected hospital financial circumstances?
26
Horizontal Integration of Hospitals Hospitals are increasingly part of multihospital arrangements: – 30.8% were in systems in 1979 – 53.6% were in systems in 2001 with an additional 12.7% in looser health networks However, systems are still predominantly non-profit and are local in focus
27
Number and Types of Hospitals in the U.S. Number of Federal Government Hospitals 239 Number of Nonfederal Psychiatric Hospitals 477 Number of Nonfederal Long Term Care Hospitals 130 Number of Hospital Units of Institutions (Prison Hospitals, College Infirmaries, Etc.) 23 Number of Hospital Units of Institutions (Prison Hospitals, College Infirmaries, Etc.) 23
28
Number and Types of Hospitals in the U.S. Number of Rural Community** Hospitals 2,166 Community Number of Urban Community** Hospitals 2,729 Number of Urban Community** Hospitals 2,729 Community Number of Community Hospitals in a System*** 2,626 System Number of Community Hospitals in a Network****1,393 Network
29
Hospital Beds, Admissions and Expenses Total Staffed Beds in All U.S. Registered* Hospitals 965,256 Registered Staffed Beds in Community** Hospitals 813,307 Community Total Admissions in All U.S. Registered* Hospitals 36,610,535 Registered Admissions in Community** Hospitals 34,782,742 Community Total Expenses for All U.S. Registered* Hospitals $498,103,754,000 Registered Expenses for Community** Hospitals $450,124,257,000 Expenses for Community** Hospitals $450,124,257,000 Community
30
Trends in Ownership of Hospitals in the U.S.
31
Hospital Diversification: Prediction Many predicted hospitals would get involved with several different health and non-health related ventures: – outpatient services such as dialysis – nursing homes, retirement centers – retail pharmacies – durable medical equipment distributors – hearing aid and eyeglass stores – managing & leasing medical office space – management consulting services – real estate management
32
Hospital Diversification: Reality Hospitals experimented but increasingly focused on services closely tied to traditional inpatient/outpatient care Hospitals added and dropped services largely depending on reimbursement opportunities Hospital strategy currently focuses on being a technology leader in a market not being a diversified corporation Vertical
34
Concentration of Ownership and Control Prediction: Multi-hospital systems would centralize not only ownership but control – Starr believed that shift in locus of control would occur as national/regional systems formed Reality: Research indicates: – most systems are local not regional or national – about 70% of systems delegate certain authorities to affiliated hospitals – substantial variability exists in mixture of centralized/decentralized control
35
Why Were So Many Predictions Wrong? Assumed pressures on hospitals would be unrelenting and uni-directional Did not consider increased ability of hospitals to fend off pressures as they consolidated Did not recognize extent of organizational inertia Did not recognize the importance of local connections Did not realize the resilience of non-profit form even in face of financial distress
36
So What Does Hospital Industry Look Like Now? Many hospitals are consolidated in local health systems or networks Systems and networks vary markedly in degree of centralized control: – at one extreme, parent organization establishes all policy and makes all key decisions – at other extreme, system/network is basically a “shell”, perhaps centralized administrative functions and centralized capital financing A large minority of hospitals not involved, either by choice or because undesirable
37
Concentration of Ownership and Control Prediction: Multi-hospital systems would centralize not only ownership but control – Starr believed that shift in locus of control would occur as national/regional systems formed Reality: Research indicates: – most systems are local not regional or national – about 70% of systems delegate certain authorities to affiliated hospitals – substantial variability exists in mixture of centralized/decentralized control
39
Reference L.R. Burns, “The Transformation of the American Hospital: From Community Institution toward Business Enterprise”, in Comparative Social Research, C. Calhoun (ed.), JAI Press, Inc., Vol. 12 (1990), pp. 77-112.
Similar presentations
© 2025 SlidePlayer.com. Inc.
All rights reserved.