Changing patterns of hospitalization for children requiring surgery.

Increasing health care costs have directed public attention to changing rates of hospital care. We examined changes in hospitalization and surgical rates for children during the decade from 1972 to 1981. Total hospitalizations for children younger than 15 years of age increased by only 4% during the decade. For teenagers and young adults (ages 15 to 24 years), hospitalizations declined by 19%. Admissions for surgery declined more for the younger group than for the older one. For children younger than 15 years of age, inpatient tonsillectomies and adenoidectomies (T and A) decreased 43%, representing 58% of the total decline in surgical procedures for this age group. Teaching hospitals continued to provide a sizable proportion of all childhood surgeries and increased their share of both high- and low-technology procedures during the decade. Payment sources varied among procedures. Self-pay varied from a low of 1.6% for T and A to 13.5% for spina bifida. Private insurance or Blue Cross payment varied from 59% for congenital heart disease surgery to 84% for T and A. These data on payments suggest that some children may lack access to some surgical care. Furthermore, insofar as the bulk of payment is from nonfederal sources, changes in hospitalization for surgical procedures will likely come mainly from changing incentives in the private sector.

In-hospital mortality of surgical patients: is there an empiric basis for standard setting?

Several public and private groups have set minimum procedure-specific volume standards. Such standards reflect concerns about hospital quality and cost. In-hospital mortality rates are often taken as one measure of quality. To learn about variations in in-hospital mortality rates, we analyzed data on patients who underwent any of seven surgical procedures from a national cohort of 521 hospitals observed continuously between 1972 and 1981. On the average, mortality rates fell as the number of procedures performed annually at the hospital rose. Volumes at which mortality rates reached minimum levels were far higher than actual volumes achieved by the vast majority of hospitals. However, knowledge of hospital volumes left the major part of variation among hospitals' procedure-specific mortality rates unexplained. Many hospitals with low volumes of certain procedures had no associated deaths. Hospitals experienced appreciable year-to-year variation in mortality even though mortality rates fell with the number of years the procedure was performed at the hospital. Correlations among mortality rates for the procedures were low, suggesting that variation in rates is procedure rather than hospital specific. State rate-setting programs had no effect on mortality rates associated with the procedures analyzed. For several reasons, we conclude that an adequate statistical basis for setting minimum volume standards does not presently exist.

Cost of capital to the hospital sector.

This paper provides estimates of the cost of equity and debt capital to for-profit and non-profit hospitals in the U.S. for the years 1972-83. The cost of equity is estimated using, alternatively, the Capital Asset Pricing Model and Arbitrage Pricing Theory. We find that the cost of equity capital, using either model, substantially exceeded anticipated inflation. The cost of debt capital was much lower. Accounting for the corporate tax shield on debt and capital paybacks by cost-based insurers lowered the net cost of capital to hospitals.

Diffusion of surgical technology. An exploratory study.

The study presents an empirical analysis of the diffusion patterns of five surgical procedures. Roles of payer mix, regulatory policies, physician diffusion, competition among hospitals, and various hospital characteristics such as size and the spread of technologies are examined. The principal data base is a time series cross-section of 521 hospitals based on discharge abstracts sent to the Commission on Professional and Hospital Activities. Results on the whole are consistent with a framework used to study innovations in other contexts in which the decisions of whether to innovate and timing depend on anticipated streams of returns and cost. Innovation tends to be more likely to occur in markets in which the more generous payers predominate. But the marginal effects of payer mix are small compared to effects of location and hospital characteristics, such as size and teaching status. Hospital rate-setting sometimes retarded diffusion. Certificate of need programs did not.

Hospital profitability and capital structure: a comparative analysis.

This article compares the financial performance of hospitals by ownership type and of five publicly traded hospital companies with other industries, using such indicators as profit margins, return on equity (ROE) and total capitalization, and debt-to-equity ratios. We also examine stock returns to investors for the five hospital companies versus other industries, as well as the relative roles of debt and equity in new financing. Investor-owned hospitals had substantially greater margins and ROE than did other hospital types. In 1982, investor-owned chain hospitals had a ROE of 26 percent, 18 points above the average for all hospitals. Stock returns on the five selected hospital companies were more than twice as large as returns on other industries between 1972 and 1983. However, after 1983, returns for these companies fell dramatically in absolute terms and relative to other industries. We also found investor-owned hospitals to be much more highly levered than their government and voluntary counterparts, and more highly levered than other industries as well.

Why has hospital length of stay declined? An evaluation of alternative theories.

This study evaluates the importance of several potential determinants of observed decreases in hospital stays for patients undergoing each of 11 surgical procedures using a panel of 521 hospitals covering 1971-1981. Observed decreases in stays for these patients were substantial. If anything, the complexity of cases treated rose and, for this reason, stays should have risen. Neither state prospective payment nor Professional Standards Review Organization programs reduced stays and may have increased them. Competitive influences had no effect. Changes in payer mix and hospital ownership were too small to have had an impact. Evidently the decreases were mainly due to improvements in surgical technique and other changes in medical practice. Several implications for Medicare's new payment system are discussed.

Prospective payment for hospital capital by Medicare: issues and options.

After this year, Medicare will no longer reimburse capital-related expenses. Instead, a new approach may be implemented. Should the new capital payment scheme be prospective? Should Medicare continue to recognize return on equity? What will be the relationship between Medicare payment and health care planning? These and other questions should be asked since the answers will directly affect the health care setting.

Medicare prospective payment and the use of medical technologies in hospitals.

Medicare's Prospective Payment System (PPS) created incentives to reduce the application of technology to hospitalized Medicare beneficiaries. Using data from 501 hospitals from 1980 and 1983-85, this study assesses changes in use of intensive care units and use of nonsurgical procedures before versus after implementation of PPS. The percent of hospitalized patients, both Medicare and non-Medicare, admitted to intensive care units increased post-PPS. Also, stays within such units remained constant. However, the percent of inpatients to whom several nonsurgical procedures were administered was lower post-PPS. For some (e.g., CAT scanning), the percentage of inpatients having the procedure continued to increase after PPS but at a much slower rate. For others, the percent of inpatients with the procedure declined at a faster rate (e.g., intravenous pyelogram). Still others showed utilization increases during 1980-83 followed by declines thereafter (e.g., occupational and physical therapy). Before 1983, there was almost no change in the number of routine tests per inpatient (e.g., serology and blood chemistry). Afterwards, there were major decreases. PPS has influenced the inhospital use of many nonsurgical procedures by both Medicare and non-Medicare patients.

Effects of the Medicare prospective payment system on hospital cost containment: an early appraisal.

In 1983 federal efforts to contain hospital costs were coalesced under the Medicare prospective payment system (PPS)--a "self-interest" approach to administered prices. Diagnosis-related groups (DRGs) and the tougher peer review organizations (PROs) serve to define "products"; PPS sets the price on each. The effects of PPS go beyond Medicare; they have been system-wide. Differential impacts on hospital utilization, substitution of capital for labor, and quality are examined through a variety of data sources and descriptive as well as regression analyses. The greatest cost savings are attributed to a reduction in hospital admissions per capita.

Case shifting and the Medicare Prospective Payment System.

We assessed impacts of the Medicare Prospective Payment System (PPS) during its first two years of operation (1984-85) on 467 hospitals using data from the Commission on Professional and Hospital Activities and from the American Hospital Association. Medicare discharges as a per cent of total discharges remained constant between 1983 and 1985, but the per cent of uninsured patients increased, especially at large public hospitals. The number of Medicare and total discharges per hospital declined. The number of complex diagnosis related groups (DRGs) increased, both for Medicare and non-Medicare. This trend began before the implementation of PPS and affected all types of hospitals. There was also an appreciable increase in case mix types of hospitals. There was also an appreciable increase in case mix severity within specific DRGs during 1980-85. The proportion of total patients received from or transferred to other hospitals rose after 1983, but these increases were very small. The per cent of Medicare patients admitted through the emergency room increased, especially after 1983. By contrast, the share of total non-Medicare admissions through the emergency room (ER) remained stable. Although the growth of the number of uninsured and Medicare patients admitted through the ER predate PPS, they may be influenced by it and warrant further monitoring.

Hospital care for the "self-pay" patient.

The number of hospitalized patients lacking an identifiable source of third-party payment has risen substantially in recent years. This study examines trends in the hospitalization of "self-pay" patients and investigates causal influences on the propensity of hospitals to accept such patients for treatment. Our analysis pays particular attention to the relationship between Medicare's prospective payment system (PPS) and hospitals' self-pay patient share. Our results show an overall increase in both the number and proportion of self-pay patients treated by hospitals between 1980 and 1985. Substantial differences existed among the types of hospitals that accepted such patients, with major teaching hospitals treating an increasingly disproportionate share. The mix of self-pay patients in terms of age, sex, and reason for hospitalization remained stable during the period under study. Our conclusion is that the regression analysis shows no evidence that PPS reduced hospitals' willingness to treat uninsured patients.

Medicare prospective payment and posthospital transfers to subacute care.

This study analyzed the early effects of the Medicare Prospective Payment System (PPS) on the likelihood of hospital's discharging Medicare beneficiaries to skilled nursing facilities (SNFs), intermediate care facilities (ICFs), and home health agencies. It also examined length of stay before transfer. Discharge abstract data on patients in five DRG groups were studied. Data were obtained from 501 hospitals for the third quarters of 1980, 1983, 1984, and 1985. Multinomial logit and ordinary least squares regression techniques were employed. After controlling for hospital and patient characteristics, including severity of illness, it was found that the probability of transfer increased substantially in virtually all DRGs and discharge destinations studied. This was particularly true for patients with stroke, pneumonia, and major joint and hip procedure. The analysis reveals that PPS increased the rate of discharges to subacute facilities. This effect was stronger for transfer to SNFs than to ICFs and home health agencies. Further, the impact of PPS on transfers was greater in 1985 than in 1984. Lengths of stay before transfer tended to decline in almost all DRGs and destinations examined. However, the effects of PPS on lengths of stay of transferred patients were not statistically significant at conventional levels. The results suggest that payment experiments with broader forms of bundled services are in order, as are experiments with hospital acute-subacute swing beds.

The teaching hospital's growing surgical caseload.

A competitive marketplace potentially creates new pressures for teaching hospitals. To assess possible trends in teaching hospitals' caseload, we studied surgical utilization in 1972 and 1981 using two national data sets. The percentage of total patients hospitalized for surgery increased in teaching hospitals between 1972 and 1981. Nonteaching hospitals adopted several new procedures, such as hip arthroplasty. However, increased volume attributable to the spread of procedures to additional hospitals was small when compared with volume increases experienced by hospitals that performed these procedures in 1972. Teaching hospitals' caseloads grew for well-established surgical procedures such as cholecystectomy, delivery, and mastectomy and for newer, high-technology procedures such as hip arthroplasty and coronary artery surgery. Overall surgical case complexity was relatively high in teaching hospitals in 1972, and the disparity with nonteaching hospitals increased during the decade. Distribution of surgical patients by payment source varied appreciably among surgical procedures, but not among hospitals by teaching status. Teaching hospitals were successful in attracting patients from 1972 to 1981; however, several new pressures are emerging that should be watched.