The Healthcare Marketplace

Hospital Market OverviewFebruary 19, 2014

Physicians

Congress Pharma/Biotech

Courts

Public PayersConsumers

Private Payers Long-Term Care

Employers

Hospitals

The Social Transformation of American Medicine (Paul Starr) The Reconstitution of

the Hospital (Chapter 4) The “Really” Early Years Early 20th Century Mid 20th Century Great Society Managed Care Era

“Really” Early Years (1750s-1890s) Transformation of the hospital

institution Populations served Purpose

“a place to die” vs. “a place to get well” Architecture Social structure

Communal relations Associative relations

Critical role of philanthropy

“Really” Early Years (1750s-1890s) Modern Hospital

Role of physicians Role of nurses Cost pressures

Construction and operating costs Advances in clinical knowledge

“Antiseptic conscience” (Lister) Diagnostic tools (e.g., X-rays)

Effects of The Depression (1930s) Private hospitals faced serious under-

utilization AMA waged war on hospital-based group

practice and other organized systems perceived as “socialized medicine”

Hospitals were big beneficiaries of New Deal legislation Works Progress Administration (WPA) and

Public Works Administration ($77 million)

Rapid Expansion (1940s-1960s) Advances in technology

Sulfa drugs, penicillin, chemotherapy Income increases

Economy growing rapidly post-WW2 Proliferation of private health insurance

Collective bargaining during wage freezes Revenue Act of 1954 made it advantageous to

employers to offer health insurance as compensation Hill-Burton Act of 1946

Federal aid to states for surveying hospitals and public health centers; planning construction of additional facilities; authorizing grants to assist in such construction

Great Society(1960s) Medicare and Medicaid (1965)

Income maintenance for the elderly and poor Hospitals were given a “license to spend”

Fee-for-service, cost-based reimbursement Capital expansions and quality competition “Medical Arms Race” Little evidence of the value of additional

services Patient-Driven competition

Patients and doctors were responsible for shopping for care; government picked up most of the bill

The Need to Plan (1970s) Recognition of spiraling costs

Certificate of Need State-level regulations requiring that

hospitals seek approval before pursuing major capital investments

Hospital rate setting by states State and local health planning agencies

and boards

Paradigm Shift Medicare Prospective Payment System

Hospitals placed at financial risk for cost of inpatient services for the Medicare population.

Payment was based on Diagnosis Related Group (DRG) classification

The 1990s Payer-driven competition rather than patient-

driven competition Effects of selective contracting by managed

care organizations Advances in technology

Move from inpatient setting to outpatient setting

Changes in market structure Economies of scale Economies of scope Strategic behavior

Hospital Characteristics Size Ownership Location Teaching status Scope of services Integration

Decision-making and Power in the Modern Hospital

AdministratorsTrustees

Physicians

Horizontal Integration Horizontal integration is the linking of

organizations at the same stage of the production process; the merger or affiliation of hospitals within and/or across communities.

Hospitals are increasingly part of multi-hospital arrangements: 30.8% were in systems in 1979 53.6% were in systems in 2001 with an

additional 12.7% in looser health networks

Vertical Integration Vertical integration involves linking

organizations at different stages of the production process to safeguard sources of supply and markets for services. Hospitals need a “supply” of patients to generate revenues.

Initial horizontal integration of hospitals thought to be a platform for vertical integration

Issues Hospitals Face Today Quality and Patient Safety

Information technology Capacity issues

Emergency Departments Inpatient setting

Financing Medicare payment for outpatient services Uncompensated care

Competition Specialty hospitals Consumer-driven health care