Integration and Task Allocation: Evidence from Patient Care

Using the universe of patient transitions from inpatient hospital care to skilled nursing facilities and home health care in 2005, we show how integration eliminates task misallocation problems between organizations. We find that vertical integration allows hospitals to shift patient recovery tasks downstream to lower‐cost organizations by discharging patients earlier (and in poorer health) and increasing post‐hospitalization service intensity. Although integration facilitates a shift in the allocation of tasks and resources, health outcomes either improved or were unaffected by integration on average. The evidence suggests that integration solves coordination problems that arise in market exchange through improvements in the allocation of tasks across care settings.     

Managed Care Incentives and Inpatient Complications

Managed care organizations control costs through restrictions on patient access to specialized services, oversight of treatment protocols, and financial incentives for providers. We investigate possible effects of such practices on the care patients receive by studying frequencies of in-hospital complications. We find significant differences in complication rates between managed care and fee-for-service patients. We investigate the sources of this variation by comparing probabilities of complications among patients with different types of managed care coverage and patients treated in different hospitals. For several patient categories, the differences in outcomes we find appear to arise not from differential treatment of patients within hospitals or from heterogeneity in patients, but from variations in care across hospitals that tend to treat patients with different insurance types.     

The Effects of Competition on Variation in the Quality and Cost of Medical Care

We estimate the effects of hospital competition on the level of and the variation in quality of care and hospital expenditures for elderly Medicare beneficiaries with heart attack. We compare competition's effects on more-severely ill patients, whom we assume value quality more highly, to the effects on less-severely ill, low-valuation patients. We find that low-valuation patients in competitive markets receive less intensive treatment than in uncompetitive markets, but have statistically similar health outcomes. In contrast, high-valuation patients in competitive markets receive more intensive treatment than in uncompetitive markets, and have significantly better health outcomes. Because this competition-induced increase in variation in expenditures is, on net, expenditure-decreasing and outcome-beneficial, we conclude that it is welfare-enhancing. These findings are inconsistent with conventional models of vertical differentiation, although they can be accommodated by more recent models.     

Evaluation of efficiency in Colombian hospitals: An analysis for the post-reform period

In this study we analyze the performance of 602 level 1 Colombian hospitals for the period 2009–2013. The analysis is carried out from both static and temporal perspectives in order to evaluate the evolution of total factor productivity (change in hospital performance) and its components throughout the period. The study also explores a question relevant not only to the Colombian health system, but to many others around the world, of whether primary care centers excessively refer patients to high-level hospitals, thereby negatively affecting the quality, efficiency, and effectiveness of all healthcare service provision. The results demonstrated that adjusted production (service provision) and levels of quality and referrals to higher-level hospitals could be improved, on average, by 44%. This increase in health service provision levels and their quality can be achieved by reducing personnel expenditure (by an average of 22%), expenditure on medicines (by 20%), and purchasing expenses (by 11%). The temporal analysis shows that total factor productivity (hospital performance change) worsened by 1% during the period, mainly due to the technological backlash experienced despite a slightly positive evolution in efficiency.     

Online channel introduction under contract negotiation: Reselling versus agency selling

This study investigates manufacturers' online channel introduction strategies by considering two typical retailing formats, namely, reselling and agency selling. Online spillover effect and contract negotiation are considered to make the model more consistent with practice. We find that with a strong bargaining power, the manufacturer will always be profitable when it introduces online channels, whether it is reselling or agency selling. Meanwhile, agency selling is always profitable for the manufacturer than reselling. Interestingly, we find that an incentive alignment exists when two online channels are introduced, where agency selling is profitable for both the manufacturer and the e-commerce platforms (EPs).     

A new approach to optimal selection of services in health care organizations.

A new reimbursement policy adopted by Medicare in 1983 caused financial difficulties for many hospitals and health care organizations. Several organizations responded to these difficulties by developing systems to carefully measure their costs of providing services. The purpose of such systems was to provide relevant information about the profitability of hospital services. This paper presents a new method of making hospital service selection decisions: it is based on an optimization model that avoids arbitrary cost allocations as a basis for computing the costs of offering a given service. The new method provides more reliable information about which services are profitable or unprofitable, and it provides an accurate measure of the degree to which a service is profitable or unprofitable. The new method also provides useful information about the sensitivity of the optimal decision to changes in costs and revenues. Specialized algorithms for the optimization model lead to very efficient implementation of the method, even for the largest health care organizations.     

Electronic medical record use and efficiency: A DEA and windows analysis of hospitals

We use data envelopment analysis (DEA) to examine the relationship between hospital electronic medical record (EMR) use and efficiency in a national sample of acute care hospitals. Data sources include the American Hospital Association (AHA), Health Information Management Systems Society (HIMSS), and Case Mix Index. Using two research approaches including a retrospective, cross-sectional design and a first differencing repeated measures design, we find limited evidence that EMRs can improve hospital efficiency. Small hospitals may benefit in the area of efficiency through EMR use, but medium and large hospitals generally do not demonstrate such a difference. Likewise, there does not appear to be a significant increase in efficiency over time associated with EMRs when compared to the efficiency of hospitals without such documentation.     

Strategic Cost Management and Institutional Changes in Hospitals

Accounting research raises the concern that firms in the health care and defence contracting industries, when facing a dual payment system with both cost-based and fixed-rate payments, have an incentive to reallocate overhead costs through increasing inputs used in cost-based operations. However, prior literature reports contradictory empirical evidence regarding such real activity manipulation. Drawing on the institutional perspective, we hypothesise that firms' market power and interorganisational dependence affect their cost-management strategies and choice of overhead allocation in response to dual payment systems. Analysing the data of California hospitals from 1980 to 1991, we find that when facing a dual payment system, dominant (strong market position) hospitals adopt a cost-revenue-enhancing strategy, increasing direct costs for cost-based services without containing costs in fixed-rate services. In contrast, nondominant hospitals choose a cost-reduction strategy and improve operation efficiency on fixed-rate services. We also find that nondominant hospitals shift more overhead costs away from fixed-rate services to cost-based services by reclassifying the allocation bases across services; combining this cost shifting with the cost-reduction strategy, nondominant hospitals demonstrate the compliance with the regulation expectation of cost containment.     

Internal vs External Financing of Acquisitions: Do Managers Squander Retained Profits?

It is often argued that managers who have control over investment finance are more likely to pursue their own goals while those who have to raise funds externally are effectively monitored by the financial markets. One implication is that externally finances investment should be more profitable than internally financed investment. We focus on investment in acquisitions and show that its negative net impact on profitability (as seen in previous studies) derives from externally, rather than internally, financed acquisitions. Our results therefore do not support the hypothesis that managers squander internal funds on poor investment projects. Indeed, the evidence suggests that capital markets and financial institutions do not appear to generate the anticipated beneficial effects.     

Vertical Integration and Exclusive Behavior of Insurers and Hospitals

We examine vertical integration and exclusive behavior in health care markets in which insurers and hospitals bilaterally bargain over contracts. We employ a bargaining model of two hospitals and two health insurers competing on premiums. We show that asymmetric equilibria exist in which one insurer contracts one hospital whereas the other insurer contracts both hospitals, even if all players are equally efficient in their production. Asymmetric equilibria arise if hospitals are sufficiently differentiated. In these cases, total industry profits increase and consumer welfare decreases in comparison to the case in which both insurers have contracts with both hospitals. Vertical integration makes these equilibria possible for a wider range of parameters.     

Free-standing surgery centers; the wave of the future

To summarize, it should be realized that acceptance of surgicenters has happened. Surgery centers expect heightened awareness of their services as patients, in conjunction with their own physicians, make decisions based on cost, service, and convenience of the care provided. As copayments and deductibles increase, consumers have become better educated, taking a more active role in selecting their health care providers. This activity has given rise to joint ventures between physicians and hospitals offering new ambulatory care packages previously based in hospitals alone. The net effect will divide the health care industry into two markets, one that will manage high-intensity surgical procedures and one that will promote outpatient surgical procedures.     

The effect of non-rural hospital mergers and acquisitions: An examination of cost and price outcomes

This paper examines the direct impact of urban horizontal hospital consolidations on hospital efficiency and prices. Specifically, we measure the extent of cost savings resulting from these consolidations and the extent to which these gains are passed on to consumers. A fixed effects model is tested with data consisting of 4160 unique hospitals, 125 of which were involved in mergers and 1040 in system acquisitions, for over a 10-year time period. We find that hospital consolidation may generate efficiency in some circumstances and some of these gains may be passed on to consumers, but the results are very sensitive to hospital ownership and governance and the structure of the market following the consolidation.     

The scale of hospital production in different settings: one size does not fit all

This paper analyses the productive efficiency of 141 public hospitals from 1998 to 2004 in two Canadian provinces; one a small province with a few small cities and a generally more rural population and the other a large province that is more urban in nature, with a population who mainly live in large cities. The relative efficiencies of the hospitals, the changes in productivity during this time period, and the relationship between efficiency and the size or scale of the hospitals are investigated using data envelopment analysis. The models for the production of health care use case mix adjusted hospital discharges as the output, and nursing hours as inputs. We find clear differences between the two provinces. Making use of ‘own’ and ‘meta’ technical efficiency frontiers, we demonstrate that efficient units in the larger and more urban province are larger than non-efficient units in that province. However, efficient hospitals in the smaller and more rural province are smaller than non-efficient hospitals in that province. Overall, efficient hospitals in the larger more urban province are larger than efficient hospitals in the smaller more rural province. This has interesting policy implications—different hospitals may have different optimal sizes, or different efficient modes of operation, depending on location, the population they serve, and the policies their respective provincial governments wish to implement. In addition, there are lessons to be learned by comparing the hospitals across the two provinces, since the inefficient hospitals in the small rural province predominantly use hospitals from the large urban province as benchmarks, such that substantially larger improvement potential can be identified by inter-provincial rather than intra-provincial benchmarking analysis.     

Institutional monitoring,coordination and corporate acquisitions in China

Within the context of corporate acquisition decisions of China’s Publicly Listed Corporations (PLCs), this paper investigates the monitoring and coordination behaviour of institutional shareholders. Institutional shareholders are divided into four groups: large outsider, large insider, small outsider and small insider. The outsider and insider categorization, respectively, represents the absence of significant business links with relevant PLCs. In China, institutional shareholders tend to either monitor the acquisitions decisions of PLCs or coordinate their response with the controlling shareholders (coordination in the present context amounts to cooperation). Using micro data from China’s stock market over the 2003–2008 period, we find that (through ex-ante coordination with the controlling shareholders) the insider institutional investment tends to increase the likelihood of PLC acquisitions. However, through ex-ante monitoring of the PLC acquisition offers, the outsider institutional investment tends to decrease the acquisition likelihood. We find that, through ex-post monitoring of PLC acquisitions, institutional investors with large shareholdings can help improve the post-acquisition performance of Chinese PLCs. On the other hand, institutional investors with small shareholdings tend to coordinate their actions with the controlling shareholders. Accordingly, small institutional shareholders cannot affect the post-acquisition performance of China’s PLCs. Finally, we find that the so-called ‘cherry-picking effect’ exists only in the case of large outsider institutional investors.     

Understanding information exchange in healthcare operations: Evidence from hospitals and patients

Coordination – or the information exchange among physicians and hospital staff – is necessary for desirable patient outcomes in healthcare delivery. However, coordination is difficult because healthcare delivery processes are information intensive, complex and require interactions of hospitals with autonomous physicians working in multiple operational systems (i.e. multiple hospitals). We examine how three important variables distinctive of the healthcare operations context – use of IT for dissemination of test results (ITDR) (i.e. electronic health records systems) by physicians and hospital staff, social interaction ties among them, and physician employment – influence information exchange and patient perceptions of their care. Drawing from the literature on process inter-dependencies and coordination, vertical integration and social exchange, we develop and test research hypotheses linking ITDR, social interaction ties and physician employment to information exchange relationship, and information exchange relationship to provider–patient communication. Using a paired sample of primary survey data and secondary archival data from CMS HCAHPS for 173 hospitals in the USA, we find that increased information exchange relationship drives provider–patient communication, and increased social interaction ties drives information exchange relationship. Social interaction ties fully mediates the relationship between ITDR and information exchange relationship. Physician employment amplifies the link between ITDR and social interaction ties, but does not have an effect on the link between ITDR and information exchange. We do not find a direct relationship between ITDR, and information exchange relationship or provider–patient communication.     

On the profitability of collusion in location games

In this note we take a first step towards the analysis of collusion in markets with spatial competition, focusing on the case of pure location choices. We find that collusion can only be profitable if a coalition contains more than half of all players. This result holds for location games played in k-dimensional Euclidean space as long as consumers are distributed via atomless density functions. For competition on the unit interval, unit circle, and unit square we also derive sufficient conditions for collusion to be profitable. The results have immediate implications for mergers in spatial markets.     

Effects of healthcare quality and reimbursement rate in a hospital association

Tackling the mismatch between the supply of and demand for care service is an especially important issue among many healthcare providers and regulators. To entice patient demand distribution to become more equilibrated among different regions, some countries' governments have proposed to establish a hospital association with different levels of hospitals to implement patient mobility. However, the sustainable operation and management of the hospital association have not been formally analyzed. In this paper, we develop a Salop model to analyze the strategic behavior of patient welfare and hospital utility maximizations in a hospital association comprised of three hospitals in different income regions. For the former objective, we find that the higher quality provisions may harm patient welfare, and especially there are unique quality thresholds of the hospitals such that the higher quality provisions lead to higher patient welfare only when the quality provisions exceed the thresholds. For the latter objective, we capture the optimal equilibrium quality provisions of the overall hospital association. We consider both the case when the taxation rates are regulated (TRR) and exogenous to the hospitals and the case when taxation rates are adjusted (TRA) and constrained by hospital reimbursement rates. Under the TRA case, we find that a higher reimbursement rate of the local hospital causes a higher and lower quality threshold of the hospital in the local and neighboring regions, respectively; and we also show that with the utility maximization objective, the reimbursement rate's impact depends on regulator's altruism towards patient welfare. For a relatively low altruistic behavior, a TRA could improve the quality provision but lower the number of outflowing patients in the case of a high (and low) hospital's reimbursement rate in the local (and neighboring) region. When the regulator cares more about patient welfare, the findings in the quality provision and patient mobility are just contrary. Our analytical results lead to some important policy implications for facilitating the further deployment of hospital association delivery in the hospitals' quality provision associated with patient mobility.     

Hospital performance standards and medical pricing: The impact of information disclosure in cardiac care

A policy concern is that the initiation of Hospital Compare (HC) reporting in Medicare provided leverage to insurers in price negotiations for lowering private sector prices without regard to hospital performance. Using the sequential Nash bargaining framework we provide economic intuition to the contrary: while average hospital prices decline under quality disclosures, hospitals with above‐average quality are able to exert a stronger bargaining position, consequently capturing prices above the market rate. To explore this issue empirically we estimate variants of difference‐in‐difference models, examining the effects of the three main scores (heart attack, heart failure, and combined mortalities) on transaction prices of related hospital procedures. States which had similar mandated reporting systems in place before the initiation of HC form the control group. Analyzing claims data of privately insured patients, we find that HC exerted downward pressure on prices. However, hospitals rated “above‐average” captured higher prices, thereby offsetting the overall policy effect fully or partially. Leads and lags analysis lends further support for our difference‐in‐difference approach. We find that highly ranked hospitals received a quality premium of 8–14%, comparable to price effects found in other health care markets. We conclude that HC was effective at constraining prices without penalizing high performers.     

International takeover laws and corporate cash holdings

We examine the impact on corporate cash holdings of international merger and acquisition (M&A) laws, which facilitate corporate takeovers. We use the staggered enactment of M&A laws from 1992 to 2005 and a sample spanning 34 jurisdictions, and find that levels of corporate cash holdings increase after passage of M&A laws. We also find that firms with better operating performance, higher earnings volatility, higher P/E ratio, and in jurisdictions with high M&A intensity hoard more cash after the enactment of M&A laws. These firms decrease dividends and capital expenditure and increase cash-based acquisitions in the post-M&A law period. Additional analysis shows that the effect is manifested in the subsample of firms in jurisdictions with better institutional environments. Lastly, we find that investor valuations of cash holdings decrease after the enactment of M&A laws. Collectively, our results suggest that managers hoard cash to finance M&A activities after the enactment of M&A laws, driven by the motive of empire-building, and that cash hoarding behaviors are viewed by investors as value-decreasing.     

The blind power: Power-led CEO overconfidence and M&A decision making

The behavioral finance literature attributes failed M&As to CEO overconfidence. We investigate the source of CEO overconfidence that leads to failed M&As. Among various determinants of CEO overconfidence, we propose that power-led CEO overconfidence delivers undesirable consequences in corporate investments. Using CEO-level data, we find that CEO power increases the probability of a CEO being overconfident. We also show that power-led overconfident CEOs tend to complete more deals regardless of economic circumstances, do stock acquisitions, and make diversifying acquisitions, relative to non-overconfident CEOs. The results suggest that the findings of previous studies on M&As by overconfident CEOs could be driven by power-led overconfident CEOs.