Economies of scale and scope in the Danish hospital sector prior to radical restructuring plans

High-volume Arthroplasty Centers Are Associated With Lower Hospital Costs When Performing Primary THA and TKA: A Database Study of 288,909 Medicare Claims for Procedures Performed in 2019

BACKGROUND

With bundled payments and alternative reimbursement models expanding in scope and scale, reimbursements to hospitals are declining in value. As a result, cost reduction at the hospital level is paramount for the sustainability of profitable inpatient arthroplasty practices. Although multiple prior studies have investigated cost variation in arthroplasty surgery, it is unknown whether contemporary inpatient arthroplasty practices benefit from economies of scale after accounting for hospital characteristics and patient selection factors. Quantifying the independent effects of volume-based cost variation may be important for guiding future value-based health reform.

QUESTIONS/PURPOSES

We performed this study to (1) determine whether the cost incurred by hospitals for performing primary inpatient THA and TKA is independently associated with hospital volume and (2) establish whether length of stay and discharge to home are associated with hospital volume.

METHODS

The primary data source for this study was the Medicare Provider Analysis and Review Limited Data Set, which includes claims data for 100% of inpatient Medicare hospitalizations. We included patients undergoing primary elective inpatient THA and TKA in 2019. Exclusion criteria included non-Inpatient Prospective Payment System hospitalizations, nonelective admissions, bilateral procedures, and patients with cancer of the pelvis or lower extremities. A total of 500,658 arthroplasties were performed across 2762 hospitals for 492,262 Medicare beneficiaries during the study period; 59% (288,909 of 492,262) of procedures were analyzed after the exclusion criteria were applied. Most exclusions (37% [182,733 of 492,262]) were because of non-Inpatient Prospective Payment System hospitalizations. Among the study group, 87% (251,996 of 288,909) of procedures were in patients who were 65 to 84 years old, 88% (255,415 of 288,909) were performed in patients who were White, and 63% (180,688 of 288,909) were in patients who were women. Elixhauser comorbidities and van Walraven indices were calculated as measures of patient health status. Hospital costs were estimated by multiplying cost-to-charge ratios obtained from the 2019 Impact File by total hospital charges. This methodology enabled us to use the large Medicare Provider Analysis and Review database, which helped decrease the influence of random cost variation through the law of large numbers. Hospital volumes were calculated by stratifying claims by national provider identification number and counting the number of claims per national provider identification number. The data were then grouped into bins of increasing hospital volume to more easily compare larger-volume and smaller-volume centers. The relationship between hospital costs and volume was analyzed using univariable and multivariable generalized linear models. Results are reported as exponential coefficients, which can be interpreted as relative differences in cost. The impact of surgical volume on length of stay and discharge to home was assessed using binary logistic regression, considering the nested structure of the data, and results are reported as odds ratios (OR).

RESULTS

Hospital cost and mean length of stay decreased, while rates of discharge to home increased with increasing hospital volume. After controlling for potential confounding variables such as patient demographics, health status, and geographic location, we found that inpatient arthroplasty costs at hospitals with 10 or fewer, 11 to 100, and 101 to 200 procedures annually were 1.32 (95% confidence interval [CI] 1.30 to 1.34; p < 0.001), 1.17 (95% CI 1.17 to 1.17; p < 0.001), and 1.10 (95% CI 1.10 to 1.10; p < 0.001) times greater than those of hospitals with 201 or more inpatient procedures annually. In addition, patients treated at smaller-volume hospitals had increased odds of experiencing a length of stay longer than 2 days (OR 1.25 to 3.44 [95% CI 1.10 to 4.03]; p < 0.001) and decreased odds of being discharged to home (OR 0.34 to 0.78 [95% CI 0.29 to 0.86]; p < 0.001).

CONCLUSION

Higher-volume hospitals incur lower costs, shorter lengths of stay, and higher rates of discharge to home than lower-volume hospitals when performing inpatient THA and TKA. These findings suggest that small and medium-sized regional hospitals are disproportionately impacted by declining reimbursement and may necessitate special treatment to remain viable as bundled payment models continue to erode hospital payments. Further research is also warranted to identify the key drivers of this volume-based cost variation, which may facilitate quality improvement initiatives at the hospital and policy levels.

Scale Effects and Expected Savings from Consolidation Policies of Italian Local Healthcare Authorities

BACKGROUND

Consolidation is often considered by policymakers as a means to reduce service delivery costs and enhance accountability.

OBJECTIVE

The aim of this study was to estimate the potential cost savings that may be derived from consolidation of local health authorities (LHAs) with specific reference to the Italian setting.

METHODS

For our empirical analysis, we use data relating to the costs of the LHAs as reported in the 2012 LHAs' Income Statements published within the New Health Information System (NSIS) by the Ministry of Health. With respect to the previous literature on the consolidation of local health departments (LHDs), which is based on ex-post-assessments on what has been the impact of the consolidation of LHDs on health spending, we use an ex-ante-evaluation design and simulate the potential cost savings that may arise from the consolidation of LHAs.

RESULTS

Our results show the existence of economies of scale with reference to a particular subset of the production costs of LHAs, i.e. administrative costs together with the purchasing costs of goods (such as drugs and medical devices) as well as non-healthcare-related services.

CONCLUSIONS

The research findings of our paper provide practical insight into the concerns and challenges of LHA consolidations and may have important implications for NHS organisation and for the containment of public healthcare expenditure.

The effect of specialization on operational performance

Purpose

The purpose of this paper is to analyze how specialization in hospitals affects operational performance, measured by the length of stay and readmission rate. The authors assess a public policy change in the Danish healthcare sector from 2011 which required that some hospital services had to be centralized leading to specialization within the merged departments.

Design/methodology/approach

Taking an institutional theory perspective, the authors conduct a natural experiment. The data include 24,694 observations of urological patient treatments from 2010 to 2012.

Findings

The econometric difference-in-difference analysis finds that the readmission rate decreases by approximately four percentage points in the departments affected by the policy change. Contrary to expectations, the length of stay increases by 0.38 days. The authors complement the natural experiment with a mixed-methods approach that includes proprietary data from the management control system of the hospital, public documentation on the policy change, as well as interviews with key informants. These data suggest that operational deficiency is related to the fact that specialization was externally enforced through the public policy change. The authors illustrate how the hospital staff struggle for legitimacy after this policy change, and how cost savings obstructed the specialized department in achieving its goals.

Originality/value

The authors conclude that the usual economies-of-scales-based logic of (higher)volume-(better)outcome studies cannot easily be transferred to specialization in hospitals, unless one accounts for the institutional reason of the specialization.

Healthcare managers’ perception of economies of scale

Purpose

The purpose of this paper is to explore how healthcare managers perceive economies of scale and the underlying mechanisms for how scale/size affects performance.

Design/methodology/approach

Data were collected in 20 in-depth interviews with healthcare professionals from 13 healthcare delivery organizations and from a public authority that finances and contracts healthcare services. Data were coded and analysed using content analysis.

Findings

The study concludes that the impact of scale on performance is perceived by healthcare professionals to be different for different types of healthcare services: For surgery, significant scale effects related to spreading of fixed cost, the experience curve, and potential for process improvement. For inpatient care, moderate scale effects related to spreading of fixed costs and costs of doctors on on-call duty. For outpatient care, small or no scale effects.

Research limitations/implications

The small sample of interviewees from a single geographical region and healthcare system limits the applicability of the findings.

Originality/value

The paper provides insights into how healthcare managers experience scale effects and how they consider economies of scale when planning hospital configuration. Also, past studies of economies of scale in hospitals proffer mixed results and the findings in this paper indicate a possible explanation for this inconclusiveness, i.e. differences in service mix between different hospitals.

Efficiency and optimal size of hospitals: Results of a systematic search

Background

National Health Systems managers have been subject in recent years to considerable pressure to increase concentration and allow mergers. This pressure has been justified by a belief that larger hospitals lead to lower average costs and better clinical outcomes through the exploitation of economies of scale. In this context, the opportunity to measure scale efficiency is crucial to address the question of optimal productive size and to manage a fair allocation of resources.

Methods and findings

This paper analyses the stance of existing research on scale efficiency and optimal size of the hospital sector. We performed a systematic search of 45 past years (1969–2014) of research published in peer-reviewed scientific journals recorded by the Social Sciences Citation Index concerning this topic. We classified articles by the journal’s category, research topic, hospital setting, method and primary data analysis technique. Results showed that most of the studies were focussed on the analysis of technical and scale efficiency or on input / output ratio using Data Envelopment Analysis. We also find increasing interest concerning the effect of possible changes in hospital size on quality of care.

Conclusions

Studies analysed in this review showed that economies of scale are present for merging hospitals. Results supported the current policy of expanding larger hospitals and restructuring/closing smaller hospitals. In terms of beds, studies reported consistent evidence of economies of scale for hospitals with 200–300 beds. Diseconomies of scale can be expected to occur below 200 beds and above 600 beds.

A strategic document as a tool for implementing change. Lessons from the merger creating the South-East Health region in Norway

In 2007, the Norwegian Parliament decided to merge the two largest health regions in the country: the South and East Health Regions became the South-East Health Region (SEHR). In its resolution, the Parliament formulated strong expectations for the merger: these included more effective hospital services in the Oslo metropolitan area, freeing personnel to work in other parts of the country, and making treatment of patients more coherent. The Parliamentary resolution provided no specific instructions regarding how this should be achieved. In order to fulfil these expectations, the new health region decided to develop a strategy as its tool for change; a change "agent". SINTEF was engaged to evaluate the process and its results. We studied the strategy design, the tools that emerged from the process, and which changes were induced by the strategy. The evaluation adopted a multimethod approach that combined interviews, document analysis and (re)analysis of existing data. The latter included economic data, performance data, and work environment data collected by the South-East Health Region itself. SINTEF found almost no effects, whether positive or negative. This article describes how the strategy was developed and discusses why it failed to meet the expectations formulated in the Parliamentary resolution.

Motivational paradigms for the integration of a Belgian hospital network and merger presented in the printed press

Purpose

Legitimizing health-care networks over time is crucial to the survival of the networks, but studies providing insight into the motivational paradigms used to legitimize networks and mergers are missing. This study aims to contribute by analyzing which motivational paradigms, namely, transaction costs economics, resource dependency, stakeholder theory, organizational learning and institutional theory, are used over time to motivate the formation, integration and eventually merger of a health-care network.

Design/methodology/approach

The theoretical paradigms from the literature are matched with the motivational arguments that were found in the communication around the formation and evolution of a specific health-care network. Secondary data in the printed press were analyzed in three ways to obtain triangulation in method.

Findings

Five theoretical paradigms matched the communication during significant parts of the time-scope of the study, but not always equally strong. It, therefore, confirms the usefulness of an integrated and evolutionary perspective on the paradigms, not only during the formation but also during the life-span of the organization.

Originality/value

Insight into the motivational paradigms that dominate in the press during an integration and merger process allows for health-care managers and policy makers to manage the process of legitimizing. This might prevent network failure because of lack of legitimacy, misperceptions of the motivations, overemphasizing one motivation or inability to move to a next layer of motivation when the integration process evolves.

Larger is not necessarily better! Impact of HIV care unit characteristics on virological success: results from the French national representative ANRS-VESPA2 study

OBJECTIVES

To determine the impact of hospital caseload size on HIV virological success when taking into account individual patient characteristics.

METHODS

Data from the ANRS-VESPA2 survey representative of people living with HIV in France was used. Analyses were carried out on the 2612 (86.4% out of 3022) individuals receiving antiretroviral (ARV) treatment for at least one year. Outcomes correspond to two definitions of virological success (VS1 and VS2 respectively) and were analyzed under a multi-level modeling framework with a special focus on the effect of the caseload size on VS.

RESULTS

Structures with caseloads <1700 patients were more likely to have increased the proportion of patients achieving virological success (59% and 81% for VS1 and VS2, respectively) than structures whose caseloads numbered ≥1700 patients. Our results highlight that patients in the 11 largest care units in the sample were exposed to a context where their VS was potentially compromised by care unit characteristics, independently of both their individual characteristics and their own HIV treatment adherence behavior.

CONCLUSIONS

Our results suggest that - at least in the case of HIV care - in France large care units are not necessarily better. This result serves as an evidence-based warning to public authorities to ensure that health outcomes are guaranteed in an era when the French hospital sector is being substantially restructured.

Reconfiguration of acute care hospitals in post-socialist Serbia: spatial distribution of hospital beds

In the context of healthcare reforms in post-socialist Serbia, this research analyses the reconfiguration of acute care hospitals from the aspect of the spatial distribution of hospital beds among and within state-owned hospitals. The research builds a relationship between the macro or national level and the micro or hospital level of the spatial distribution of hospital beds. The aim of the study is to point out that a high level of efficiency in hospital functionality is difficult to achieve within the current hospital network and architectural-urban patterns of hospitals, and to draw attention to the necessity of a strategically planned hospital spatial reconfiguration, conducted simultaneously with other segments of the healthcare system reform. The research analyses published and unpublished data presented in tables and diagrams. The theoretical platform of the research covers earlier discussions of the Yugoslav healthcare system, its post-socialist reforms and the experiences of developed countries. The results show that the hospital bed distribution has not undergone significant changes, while the hospital spatial reconfiguration has either not been carried out at all or, if it has, only on a small scale. All this has contributed to overall inadequate, inflexible, inefficient, defragmented and unequal bed distribution. Copyright © 2016 John Wiley & Sons, Ltd.

European hospital reforms in times of crisis: aligning cost containment needs with plans for structural redesign?

Hospitals have become a focal point for health care reform strategies in many European countries during the current financial crisis. It has been called for both, short-term reforms to reduce costs and long-term changes to improve the performance in the long run. On the basis of a literature and document analysis this study analyses how EU member states align short-term and long-term pressures for hospital reforms in times of the financial crisis and assesses the EU's influence on the national reform agenda. The results reveal that there has been an emphasis on cost containment measures rather than embarking on structural redesign of the hospital sector and its position within the broader health care system. The EU influences hospital reform efforts through its enhanced economic framework governance which determines key aspects of the financial context for hospitals in some countries. In addition, the EU health policy agenda which increasingly addresses health system questions stimulates the process of structural hospital reforms by knowledge generation, policy advice and financial incentives. We conclude that successful reforms in such a period would arguably need to address both the organisational and financing sides to hospital care. Moreover, critical to structural reform is a widely held acknowledgement of shortfalls in the current system and belief that new models of hospital care can deliver solutions to overcome these deficits. Advancing the structural redesign of the hospital sector while pressured to contain cost in the short-term is not an easy task and only slowly emerging in Europe.