Hospital Ownership and Financial Performance: An Integrative Research Review

1. Hospital Ownership and Financial Performance: An Integrative Research Review Academy Health Annual Research Meeting Boston, June 28, 2005 Yu-Chu Shen Naval Postgraduate School and NBER Karen Eggleston, Joseph Lau, Christopher Schmid Tufts University Funded by grant #050953 under the Robert Wood Johnson Foundation’s Changes in Health Care Financing and Organization (HCFO) Initiative

2. Research Objective • Does ownership affect hospital financial performance (cost, revenue, profit, efficiency)? • Competing theories with contrasting predictions • Hundreds of empirical studies to date with conflicting findings • policymakers have little clear evidence • economics of ownership and behavior imperfectly understood

3. Scope of the Integrative Review • Synthesize the main findings of the empirical literature between January 1990 and July 2004 on hospital ownership and performance (published or unpublished) • Examine multivariate empirical studies of US acute general short stay hospitals; • Examine studies that compare differences between for-profits and nonprofits, between nonprofits and government, or both.

4. Scope of the Integrative Review • We start with 1434 potentially relevant studies, and end up with 141 studies for the integrative review. • Focus on four broad categories of performance measures: • financial performance (cost, revenue, profit, and efficiency) • quality / patient outcomes • uncompensated care or community benefits • Staffing

5. Presentation Is Focused On Four Financial Measures

6. Integrative Review Research Questions • What is the magnitude of the difference between NFP and FP—what is the effect size? • How precise or reliable is this estimated effect size? • How do differences in analytic methods and other study features affect the estimates of effect size?

7. Categorizing Analytical Methods • Three types of methodology rigor • Type 3: if a study meets both of the following conditions: (a) uses panel estimation or explicitly accounts for potential selection problem (b) includes two of the following three sets of controls: patient level, hospital level, market level • Type 2: if meets EITHER (a) or (b) • Type 1: if meets NEITHER (a) nor (b)

8. Cost: Summary of N-F Effect Size By Method Types Method Type 1 Method Type 2 Method Type 3 FP is less costly FP is more costly

9. Revenue: Summary of N-F Effect Size By Method Type Method Type 1 Method Type 2 Method Type 3 FP generates less revenue FP generates more revenue

10. Revenue: Summary of N-F Effect Size By Covered Region Single state sample National sample FP generates less revenue FP generates more revenue

11. Profit Margin: Summary of N-F Effect Size By Method Type Method Type 1 Method Type 2 Method Type 3 FP earns lower profit FP earns higher profit

12. Profit Margin: Summary of N-F Effect Size By Covered Region Single state sample National sample FP earns lower profit FP earns higher profit

13. Efficiency: Summary of N-F Effect Size By Covered Region Single state sample National sample FP is less efficient FP is more efficient

14. What Do We Learn? (1) • Evidence is pretty conclusive regarding revenue and profit margins • Most studies find for-Profits earn more revenue (per admission) and have higher profit margins • There is little evidence of any difference in cost between FP and NFP hospitals • Evidence is mixed regarding efficiency. • Single state (Florida) analyses find FP more efficient, national analyses tend to find FP less efficient.

15. What Do We Learn? (2) • Functional forms and analytical methods matter • Weaker methods and functional forms tend to predict larger differences between not-for-profits and for-profits • National samples tend to produce more conservative estimates of effect size than single state analyses