Patient Admission Patterns and Acquisitions of "Feeder" Hospitals

Large, urban tertiary care hospitals often acquire outlying community hospitals. One possible motivation is to increase referrals. Sophisticated acquirers may even attempt to concentrate additional referrals among more profitable patients. We explore these issues by studying 26 vertical acquisitions in Florida and New York that occurred in the late 1990s, a peak period for such transactions. We compare changes in referrals of patients from target market areas to changes in a matched set of control markets. We find that roughly 30 percent of the vertical acquisitions resulted in a significant increase in referrals to the acquirer. Very few acquisitions were followed by decreases in referrals. When acquisitions did lead to increased referrals, the effect was usually largest for patients with more remunerative insurance and patients undergoing more profitable procedures. However, we find no evidence that hospitals selectively avoided referrals of patients with severe conditions for which costs might exceed reimbursements.Hospitals, Mergers and Acquisitions, Referrals, Patient Selection

A Competitive Process for Procuring Health Services: A review of Principles with an Application to Cataract Services

Government agencies employ a variety of mechanisms for securing goods and services from the private sector. These include posting prices, reimbursing for costs, and soliciting competitive bids.  Procurement of healthcare services offers several unique challenges. The supplier can influence the quantity of services provided. It is often difficult to even specify in advance exactly what services are to be purchased. Lastly, quality is difficult to measure.  Healthcare purchasers have deployed a variety of payment mechanisms to cope with these challenges.  We apply the theory of procurement to the case of cataract surgery. We recommend implementing a system that combines a gatekeeper with competitive bidding among operating physicians who must perform all necessary services, including treatment for complications, within a global fee.  We conclude by discussing the strengths and limitations of this proposal

Antitrust Treatment of Nonprofits: Should Hospitals Receive Special Care?

Nonprofit hospitals receive favorable tax treatment in exchange for providing socially beneficial activities. Extending this rationale would suggest that, insofar as suppression of competition would allow nonprofits to cross-subsidize care for needy populations, nonprofit hospital mergers should be evaluated differently than mergers of for-profit hospitals. However, this rationale rests upon the premise that nonprofit hospitals with greater market power provide more care to the needy. In this paper, we develop a theoretical model showing that the welfare implications of an antitrust policy that favors nonprofit hospitals depends on the link between market power and charity care provision. To test the link, we use three measures of charity care—two dollar-denominated and one based on service volume—to study charity care provision by for-profit and non-profit hospitals under different competition conditions. Using detailed California data from 2001 to 2011, we find no evidence that nonprofit hospitals are more likely than for-profit hospitals to provide more charity care, or to offer more unprofitable services, when competition falls. Overall, while some courts have given deference to defendants’ nonprofit status, our study finds no empirical evidence that such hospitals provide greater charity care as they have greater market power

Patient Admission Patterns and Acquisitions of “Feeder” Hospitals

Acquiring outlying community hospitals is one approach commonly used by large tertiary care hospitals to increase referrals. Sophisticated acquirers may also seek to selectively increase referrals of more profitable patients. To explore these issues, we study vertical hospital acquisitions. Using a treatment and control framework, we find that roughly 30% of vertical acquisitions lead to a significant increase in referrals. Very few result in decreases. We find that increases are concentrated among patients undergoing more profitable procedures and with more generous insurance. However, we find no evidence that hospitals shun patients with higher expected costs of care

Antitrust treatment of nonprofits: Should hospitals receive special care? unpublished manuscript

ABSTRACT Nonprofit hospitals receive favorable tax treatment in exchange for providing socially beneficial activities. Extending this rationale suggests that nonprofit hospital mergers should be evaluated differently than mergers of for-profit hospitals because suppression of competition may also allow nonprofits to cross-subsidize care for the poor. Using detailed California data, we find no evidence that nonprofit hospitals are more likely than for-profit hospitals to provide more charity care or offer unprofitable services in response to an increase in market power. Therefore, we find no empirical justification for different antitrust standards for nonprofit hospitals, as some courts have suggested

Hospital closure and economic efficiency

We present a new framework for assessing the effects of hospital closures on social welfare and the local economy. While patient welfare necessarily declines when patients lose access to a hospital, closures also tend to reduce costs. We study five hospital closures in two states and find that urban hospital bailouts reduce aggregate social welfare: on balance, the cost savings from closures more than offset the reduction in patient welfare. However, because some of the cost savings are shared nationally, total surplus in the local community may decline following a hospital closure.Healthcare Health Care Health Insurance Hospitals Policy Making