Nonprofit to for-profit conversions by hospitals, health insurers, and health plans.
Conversion of hospitals, health insurers, and health plans from nonprofit to for-profit ownership has become a focus of national debate. The author examines why nonprofit ownership has been dominant in the US health system and assesses the strength of the argument that nonprofits provide community benefits that would be threatened by for-profit conversion. The author concludes that many of the specific community benefits offered by nonprofits, such as care for the poor, could be maintained or replaced by adequate funding of public programs and that quality and fairness in treatment can be better assured through clear standards of care and adequate monitoring systems. As health care becomes increasingly commercialized, the most difficult parts of nonprofits' historic mission to preserve are the community orientation, leadership role, and innovation that nonprofit hospitals and health plans have provided out of their commitment to a community beyond those to whom they sell services. (+info)
Financial and organizational determinants of hospital diversification into subacute care.
OBJECTIVE: To examine the financial, market, and organizational determinants of hospital diversification into subacute inpatient care by acute care hospitals in order to guide hospital managers in undertaking such diversification efforts. STUDY SETTING: All nongovernment, general, acute care, community hospitals that were operating during the years 1985 through 1991 (3,986 hospitals in total). DATA SOURCES: Cross-sectional, time-series data were drawn from the American Hospital Association's (AHA) Annual Survey of Hospitals, the Health Care Financing Administration's (HCFA) Medicare Cost Reports, a latitude and longitude listing for all community hospital addresses, and the Area Resource File (ARF) published in 1992, which provides county level environmental variables. STUDY DESIGN: The study is longitudinal, enabling the specification of temporal patterns in conversion, causal inferences, and the treatment of right-censoring problems. The unit of analysis is the individual hospital. KEY FINDINGS: Significant differences were found in the average level of subacute care offered by investor-owned versus tax-exempt hospitals. After controlling for selection bias, financial performance, risk, size, occupancy, and other variables, IO hospitals offered 31.3 percent less subacute care than did NFP hospitals. Financial performance and risk are predictors of IO hospitals' diversification into subacute care, but not of NFP hospitals' activities in this market. Resource availability appears to expedite expansion into subacute care for both types of hospitals. CONCLUSIONS: Investment criteria and strategy differ between investor-owned and tax-exempt hospitals. (+info)
Analysis of the rationale for, and consequences of, nonprofit and for-profit ownership conversions.
OBJECTIVES: To examine percursors to private hospitals conversion, both from nonprofit status to for-profit status and from for-profit to nonprofit status, as well as the effect of hospital conversions on hospital profitability, efficiency, staffing, and the probability of closure. DATA SOURCES: The Health Care Financing Administration's Medicare Cost Reports and the American Hospital Association's Annual Survey of Hospitals. STUDY DESIGN: Bivariate and multivariate analyses comparing conversion hospitals to nonconversion hospitals over time were conducted. DATA EXTRACTION METHODS: The study sample consisted of all private acute care hospital conversions that occurred from 1989 through 1992. PRINCIPAL FINDINGS: Hospitals that converted had significantly lower profit margins prior to converting than did nonconversion hospitals. This was particularly true for nonprofit to for-profit conversions. After converting, both nonprofit and for-profit hospitals significantly improved their profitability. Nonprofit to for-profit hospital conversions were associated with a decrease in the ratio of staff to patients. No association was found between for-profit to nonprofit conversion and staff-to-patient ratios. The difference seems partially attributed to the fact that nonprofit hospitals that converted had higher staff ratios than the industry average. For-profit to nonprofit hospital conversions were associated with an increase in the ratio of registered nurses to patients and administrators to patients, despite the fact that nonprofit and for-profit hospitals did not differ in these ratios. CONCLUSIONS: The improvement in financial performance following hospital conversions may be a benefit to the community that policymakers want to consider when regulating hospital conversions. (+info)
Evaluating the sale of a nonprofit health system to a for-profit hospital management company: the Legacy Experience.
OBJECTIVE: To introduce and develop a decision model that can be used by the leadership of nonprofit healthcare organizations to assist them in evaluating whether selling to a for-profit organization is in their community's best interest. STUDY SETTING/DATA SOURCES: A case study of the planning process and decision model that Legacy Health System used to evaluate whether to sell to a for-profit hospital management company and use the proceeds of the sale to establish a community health foundation. Data sources included financial statements of benchmark organizations, internal company records, and numerous existing studies. STUDY DESIGN: The development of the multivariate model was based on insight gathered through a review of the current literature regarding the conversion of nonprofit healthcare organizations. DATA COLLECTION/EXTRACTION METHODS: The effect that conversion from nonprofit to for-profit status would have on each variable was estimated based on assumptions drawn from the current literature and on an analysis of Legacy and for-profit hospital company data. PRINCIPAL FINDINGS: The results of the decision model calculations indicate that the sale of Legacy to a for-profit firm and the subsequent creation of a community foundation would have a negative effect on the local community. CONCLUSIONS: The use of the decision model enabled senior management and trustees to systematically address the conversion question and to conclude that continuing to operate as a nonprofit organization would provide the most benefit to the local community. The model will prove useful to organizations that decide to sell to a for-profit organization as well as those that choose to continue nonprofit operations. For those that decide to sell, the model will assist in minimizing any potential negative effect that conversion may have on the community. The model will help those who choose not to sell to develop a better understanding of the organization's value to the community. (+info)
Market power and hospital pricing: are nonprofits different?
Dramatic changes in hospitals' operating environments are leading to major restructuring of hospital organizations. Hospital mergers and acquisitions are increasing each year, and conversions by hospitals to different forms of ownership also are continuing apace. Such changes require policymakers and regulators to develop and implement policies to ensure that consumers' interests are protected. An important consideration in this process is the impact on the price of hospital care following such transactions. This paper reviews empirical evidence that mergers that reduce competition will lead to price increases at both merging hospitals and their competitors, regardless of ownership status. We show that nonprofit and government hospitals have steadily become more willing to raise prices to exploit market power and discuss the implications for antitrust regulators and agencies that must approve nonprofit conversions. (+info)
The association between for-profit hospital ownership and increased Medicare spending.
BACKGROUND AND METHODS: The rate of conversion to for-profit ownership of hospitals has recently increased in the United States, with uncertain implications for health care costs. We compared total per capita Medicare spending in areas served by for-profit and not-for-profit hospitals. We used American Hospital Association data to categorize U.S. hospital service areas as for-profit (meaning that all beds in the area were in for-profit hospitals), not-for-profit (all beds were in not-for-profit hospitals), or mixed in 1989, 1992, and 1995. We then used data from the Continuous Medicare History Sample to calculate the 1989, 1992, and 1995 spending rates in each area, adjusting for other characteristics known to influence spending: age, sex, race, region of the United States, percentage of population living in urban areas, Medicare mortality rate, number of hospitals, number of physicians per capita, percentage of beds in hospitals affiliated with medical schools, percentage of beds in hospitals belonging to hospital chains, and percentage of Medicare beneficiaries enrolled in health maintenance organizations. RESULTS: Adjusted total per capita Medicare spending in the 208 areas where all hospitals remained under for-profit ownership during the study years was greater than in the 2860 areas where all hospitals remained under not-for-profit ownership ($4,006 vs. $3,554 in 1989, $4,243 vs. $3,841 in 1992, and $5,172 vs. $4,440 in 1995; P<0.001 for each comparison). Mixed areas had intermediate spending rates. Spending in for-profit areas was greater than in not-for-profit areas in each category of service examined: hospital services, physicians' services, home health care, and services at other facilities. The greatest increases in per capita spending between 1989 and 1995 were for hospital services (a mean increase of $395 in for-profit areas and $283 in not-for-profit areas, P=0.03 for the comparison between for-profit and not-for-profit areas) and home health care (an increase of $457 in for-profit areas and $324 in not-for-profit areas, P<0.001). Between 1989 and 1995, spending in the 33 areas where all hospitals converted from not-for-profit to for-profit ownership grew more rapidly than in the 2860 areas where all hospitals remained under not-for-profit ownership ($1,295 vs. $866, P=0.03). CONCLUSIONS: Both the rates of per capita Medicare spending and the increases in spending rates were greater in areas served by for-profit hospitals than in areas served by not-for-profit hospitals. (+info)
The fall of the house of AHERF: the Allegheny bankruptcy.
The $1.3 billion bankruptcy of the Allegheny Health, Education, and Research Foundation (AHERF) in July 1998 was the nation's largest nonprofit health care failure. Many actors and factors were responsible for AHERF's demise. The system embarked on an ambitious strategy of horizontal and vertical integration just as reimbursement from major payers dramatically contracted, leaving AHERF overly exposed. Hospital and physician acquisitions increased the system's debt and competed for capital, which sapped the stronger institutions and led to massive internal cash transfers. Management failed to exercise due diligence in many of these acquisitions. Several external oversight mechanisms, ranging from AHERF's board to its accountants and auditors to the bond market, also failed to protect these community assets. (+info)
Capital finance and ownership conversions in health care.
This paper analyzes the for-profit transformation of health care, with emphasis on Internet start-ups, physician practice management firms, insurance plans, and hospitals at various stages in the industry life cycle. Venture capital, conglomerate diversification, publicly traded equity, convertible bonds, retained earnings, and taxable corporate debt come with forms of financial accountability that are distinct from those inherent in the capital sources available to nonprofit organizations. The pattern of for-profit conversions varies across health sectors, parallel with the relative advantages and disadvantages of for-profit and nonprofit capital sources in those sectors. (+info)