How intermediate sanctions change the dynamics of healthcare transactions

The Taxpayer Bill of Rights 2 contains significant reforms relating to tax-exempt organizations, most notably the establishment of intermediate tax sanctions. These changes, which clarify tax rules applicable to tax-exempt HMOs, hospitals, and integrated delivery systems, are of particular interest to entities that are or will be involved in joint ventures or other business alliances with physicians and other for-profit partners, the officers and directors of such entities, and the physicians and for-profit partners in the ventures. For the first time, the legislation imposes monetary penalties on those engaging in transactions with tax-exempt healthcare providers if impermissible private inurement is involved.

The effect of chain membership on hospital costs

OBJECTIVE

To compare the cost structures of hospitals in multihospital systems and independently owned hospitals.

DATA SOURCES

The American Hospital Association's Annual Survey from 1990 for data on hospital costs and attributes. Area characteristics came from the Area Resource File, and the Medicare case-mix index came from the Health Care Financing Administration. Data on wages are from the Bureau of the Census' State and Metropolitan Area Data Book. The Guide to Hospital Performance from HCIA, Inc. provided data on quality of care.

STUDY DESIGN

Separate cost functions were estimated for chain and independent hospitals. Hybrid translog cost functions included measures of outputs, input prices, and hospital and area characteristics. The estimation method accounted for the simultaneous determination of costs and chain membership, and for any nonrandom selection of hospitals into chains. Several economic cost measures were calculated to compare the cost structures of the two types of hospitals.

DATA EXTRACTION METHODS

Data from all sources were merged at the hospital level to form the study sample.

PRINCIPAL FINDINGS

Hospitals in multihospital systems were less costly than independently owned hospitals. Among independent hospitals, for-profits had the highest costs. There were no statistically significant differences in costs by ownership among chain members. Economies of scale were enjoyed in both types of hospitals only at high volumes of output, while economies of scope occurred at all volumes for chain hospitals, but only at low and medium volumes for independent hospitals.

CONCLUSIONS

This study provides support for the idea that growth of the multihospital system sector can provide a market solution to the problem of constraining costs. It does not, however, support the property rights theory that proprietary hospitals are more efficient than nonprofit hospitals.

The paperless business office

Many providers are launching a variety of initiatives with the intent of eliminating paper in the business offices, thus streamlining operations and cutting costs. While there are some encouraging signs of progress, plenty of roadblocks still exist that will make such a transition difficult. Key technologies involved include EDI, the Internet, document imaging, COLD technology and automated dialers.

System growth a close race. 1997 multi-unit providers survey finds not-for-profits ahead by a nose

For the first time in five years, the biggest dealmakers in 1996 were not-for-profit systems, not their giant for-profit brethren. But it was a close race, according to this year's Multi-unit Providers Survey. Based on total hospitals, not-for-profits grew 12% vs 11.3% at for-profits. In the psychiatric sector, the number of facilities rose 17%, but the number of deals tumbled 26%. And in the post-acute sector, outpatient and rehab services led the way.

Changing course. Columbia the buyer becomes Columbia the builder as the company seeks to overcome market impediments

In an attempt to overcome market roadblocks, Columbia/HCA Healthcare Corp is revising its strategy from buying existing hospitals to constructing new ones. In this issue we take a look at the investor-owned giant's changing tactics as well as its sometimes rocky relations with the media. We also examine Columbia's performance in its former headquarters city, Louisville, Ky.

Trends toward a national health care marketplace

In recent years, the health care industry has experienced considerable growth in organizations that are national in focus-organizations that operate in multiple markets not all clustered in one geographic region. This study summarizes information on trends in ownership of various types of health care organizations (i.e., HMOs, PPOs, hospitals, physician practices) for purposes of assessing the growth rate of national companies and the overall significance of this phenomenon. This is followed by a synthesis of factors that encourage or impede the growth of national managed care companies, the sector that has exhibited the most pronounced growth of national companies. We discuss likely future directions and the degree to which national companies may enjoy long-term competitive advantages.