Models and Performance of MultiHospital Networks in the US

1
Models and Performance of Multi-Hospital
Networks in the US

• Gloria J. Bazzoli, Ph.D.
• Bon Secours Professor of Health Administration
• Virginia Commonwealth University

2
Overview of Presentation

• Provide background on the development of
  multi-hospital organizations in the US
• Discuss objectives of US health networks and
  systems
• which were achieved
• which were not
• Describe different structural models developed by
  US health networks and systems
• Present research findings on accomplishments of
  different models costs, quality, and financial
  performance

3

• Background on Development of Multi-Hospital
  Systems and Networks in US

4
Health Networks and Systems in the US

• US hospitals and other health providers have
  increasingly consolidated into health networks
  and systems
• health networks are strategic alliances or
  contractual affiliations of hospitals and other
  health organizations providing a diverse range of
  health services
• health systems also involve multiple
  organizations but have centralized ownership of
  key health organizations, especially hospitals
• the primary difference is the presence of
  diversified ownership for health networks versus
  unified ownership for health systems

5
Primary Similarity Between Health Networks and
Systems
Regionalized Health Network or System
6
American Hospital Association Data Health
Networks and Systems
approximately 20 of network hospitals are also
in systems
7

• Objectives of Health Networks and Systems

8
Objectives of Health Networks and Systems

• Environmental pressures of late 1990s stimulated
  development of health networks and systems
• Payment arrangements increasingly involved
  transfer of financial risk
• Belief was that managed competition among
  accountable health organizations would result
• Strategic objectives of health networks and
  systems were to
• Reduce costs and gain efficiencies by
• Consolidating duplicative activities
• Capitalizing on potential scale and scope
  economies
• Provide a greater range of health services and
  products through vertical integration

9
Which Objectives Were Achieved?

• Reduced some costs and gained some efficiency
• Eliminated redundant administrative functions
  (e.g., accounting, billing, purchasing, human
  resources departments)
• Negotiated lower prices with vendors for supplies
• Consolidated support functions and departments
  (e.g., laundry, housekeeping, pharmacy)

10
Which Objectives Were Not Achieved?

• For many organizations, substantial service
  repositioning did not occur
• Most consolidated and centralized a subset of
  services (i.e., cardiac care, oncology,
  pediatrics, psychiatric care)
• Some hospitals experienced no service changes
• Overall, much structural diversity resulted
• Why was this the case?
• Internal factors resistance to give up certain
  services among hospital executives and physicians
• External factors concerns about access to
  certain services
• Public and private pressures to change health
  system dissipated

11

• Different Types of Multi-Hospital Organizational
  Structures Present in US

12
Multi-Hospital Models Present in the US

• Centralized Health System/Network (CHS/CHN)
• Repositioning of several health services in a few
  designated facilities
• Network/system physician employment and insurance
  product development
• Moderately Centralized Health System/Network
  (MCHS/MCHN)
• Repositioning of small set of selected services
  in designated facilities
• Physician employment mostly at hospital not
  system/network level
• Decentralized Health System/Network (DCHS/DCHN)
• Little/no repositioning of services among
  affiliated facilities
• Physician employment at hospital level
• Independent Hospital System/Network (IHS/IHN)
• No repositioning of services among affiliated
  facilities
• No physician employment or insurance product
  development

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Centralized Health System/Network
H
H
H
H
H
H
H
H
H
H
H
H
H
H
H
H
H
H
Moderately Centralized Health System/Network
KEY represent a specific centralized
service, H represents a hospital
represents a flow of patient referrals
14
Decentralized Health System/Network
H
H
H
H
H
H
H
H
H
H
H
H
Independent Hospital Health System/Network
KEY represent a specific centralized
service, H represents a hospital
represents a flow of patient referrals
15
Distinguishing Characteristics of Different
Health Networks and Systems

• Centralized Health System/Network (CHS/CHN)
• Large, central hospitals with several nearby
  small hospital affiliates
• Moderately Centralized Health System/Network
  (MCHS/MCHN)
• Hospitals of varying sizes, generally near to
  each other
• Decentralized Health System/Network (DCHS/DCHN)
• Several large hospitals typically far from each
  other
• System/network of teaching hospitals
• Independent Hospital System/Network (IHS/IHN)
• Small hospitals typically in rural areas

16
Distribution of Health Systems Across Models
2005 Data
17

• Accomplishments of Different Models
• Costs, Quality, and Financial Performance

18
Existing Research FindingsEfficiency and
Hospital Costs

• Productive efficiency
• Health systems with selective centralization are
  more efficient than other types (Carey et al.
  2003, Rosko et al. 2007)
• Decentralized systems have greater efficiency
  than highly centralized health systems (Rosko et
  al. 2007)
• Overall institutional costs
• Moderately centralized health systems have lower
  costs than other system types (Bazzoli et al.
  2003, Proenca et al. 2005)
• Centralized health networks have lower costs than
  other network types (Bazzoli et al. 2003)

19
Existing Research FindingsPatient Quality of
Care

• Chukmaitov et al. (forthcoming) analyzed
  inpatient hospital mortality, controlling for
• patient characteristics (e.g., age, gender,
  severity of illness)
• hospital characteristics (teaching status, size,
  financial condition)
• They found that hospitals in centralized health
  systems had lower in-patient mortality for
  patients with primary diagnosis of
• Acute Myocardial Infarction
• Pneumonia
• Congestive heart failure

20
Existing Research FindingsFinancial Performance

• In US, hospitals are primarily interested in
  profitability, namely difference between revenues
  collected and expenses.
• Bazzoli et al. (2003) found
• Hospitals in centralized health networks had
  strongest financial performance versus those in
  other network types
• Moderately centralized health systems had
  strongest performance relative to other system
  types
• Relative to highly centralized systems,
  moderately centralized organizations had
• Lower costs as noted earlier
• Higher volume given greater availability of
  services across their multiple hospital affiliates

21
Graphical Depiction of Research Findings for
Health Systems
Quality
Increasing Values
Revenues
Costs
Increasing Centralization
22
Future of US Health Networks and Systems

• We expect that US hospitals will face growing
  financial pressures
• Federal budget situation will likely lead to slow
  growth in Medicare and Medicaid provider payments
• Hospitals have a great deal of outstanding debt
  due to recent increases in facility expansion and
  renovation
• Growth in high deductible health plans among
  patients may result in more patient bad debt for
  hospitals
• Hospitals face growing competition with each
  other and physician groups over profitable health
  services

23
Future of US Health Networks and Systems
Public sector pressures
Health market pressures
Private sector pressures
24
Future of US Health Networks and Systems

• Many believe that these pressures will force
  change
• Service consolidation and centralization are
  viewed as inevitable
• to reduce costs through economies of scale and
  scope
• to improve quality of care through the
  concentration of volume
• to brand certain facilities as centers of
  excellence and thereby increase or maintain
  volume of services provided

25
Suggested Readings
Bazzoli, GJ Chan, B Shortell, SM and D'Aunno,
T. "The Financial Performance of Hospitals
Belonging to Health Networks and Systems,"
Inquiry 37(Fall 2000) 234-252. Bazzoli, GJ
Shortell, SM Dubbs, N Chan C and Kralovec, P
"A Taxonomy of Healthcare Networks and Systems
Bringing Order Out of Chaos," Health Services
Research 33(February 1999) 1683-1717. Carey,
K, Hospital Cost Efficiency and System
Membership, Inquiry 40(1) 25-38. Chukmaitov,
A, Bazzoli, GJ, Harless, DW, Hurley, RE, Devers,
KJ, Zhao, M, Variations in Inpatient Mortality
Among Hospitals in Different System Types, 1995 -
2000, Medical Care forthcoming.
26
Suggested Readings (continued)
Proenca, EJ, Rosko, MD, and Dismuke, CE, Service
Collaboration and Hospital Cost Performance
Direct and Moderating Effects, Medical Care
43(December 2005) 1250-8. Rosko, MD, Proenca,
J, Zinn, JS, and Bazzoli, GJ, The Impact of
Membership in Different Types of Systems on
Hospital Cost Inefficiency Inquiry 44(Fall
2007) 335-350. Shortell, SM Bazzoli, GJ
Dubbs, N and Kralovec, P Classifying Health
Networks and Systems Managerial and Policy
Implications , Health Care Management Review
25(Fall 2000) 9-17.