How to Regulate Heterogeneous Hospitals?

In many areas of health care financing, there is controversy over the sources of cost variability and about the respective roles of inefficiency versus legitimate heterogeneity. This paper proposes a payment system that creates incentives to increase hospital efficiency when hospitals are heterogeneous, without reducing the quality of care. We consider an extension of Shleifer's yardstick competition model and apply an econometric approach to identify and evaluate observable and unobservable sources of cost heterogeneity. Moral hazard can be seen as the result of two components: long‐term moral hazard (hospital management can be permanently inefficient) and transitory moral hazard. The latter is linked to the manager's transitory cost‐reducing effort. For instance, he or she can be more or less rigorous each year when bargaining prices for supplies delivered to the hospital by outside firms. The use of a three‐dimensional nested database makes it possible to identify transitory moral hazard and to estimate its effect on hospital cost variability. Econometric estimates are performed on a sample of 7,314 stays for acute myocardial infarction observed in 36 French public hospitals over the period 1994–1997. We obtain two alternative payment systems. The first takes all unobservable hospital heterogeneity into account, provided that it is time invariant, whereas the second ignores unobservable heterogeneity. Simulations show that substantial budget savings—at least 20%—can be expected from the implementation of such payment rules. The first method of payment has the great advantage of reimbursing high‐quality care. It leads to substantial potential savings because it provides incentives to reduce costs linked to transitory moral hazard, whose influence on cost variability is far from negligible. This payment rule could be extended to other areas of health care financing, such as Adjusted Average Per Capita Cost to calculate Medicare Managed Care reimbursements in the United States.     

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.     

The Impact of Risk Management Standards on Patient Safety: The Determinants of MRSA Infections in Acute NHS Hospitals, 2001–08*

We study a key part of National Health Service (NHS) policy to ensure high‐quality health care: failure to supply such care cost the NHS £787m in clinical negligence payouts during 2009–10. The NHS uses risk management standards to incentivize care, and we examine their effects on methicillin resistant Staphylococcus aureus (MRSA) infections. Using a specially assembled data set, our GMM results suggest that improvements in the risk management standards attained by some hospitals are correlated with reductions in their MRSA infection rates. Moreover, the exogeneity of this relationship cannot be rejected for higher risk management levels, suggesting attainment of higher standards was instrumental in reducing infection rates.     

Physician and hospital funding options in a public system with decreasing resources

Methods of physician and hospital reimbursement have been the subject of many debates over the years. Structuring a method of payment for physicians under a publicly funded system is particularly difficult when considered in relation to methods of hospital funding. In this paper, we present a mathematical model that simulates physician and hospital behaviour in a publicly funded health care system under a variety of funding scenarios. The model assumes both doctors and hospitals are constrained profit satisficers. Given this assumption, and a reduction in funding to the institution, the model searches for a resource allocation that will achieve target incomes for both decision-making groups through changes to case mix and/or reductions in the fixed or variable costs of production.Results indicate that when physicians are funded on a fee-for-service basis, the hospital funding method in place may have little impact on resource allocation following a budget reduction. When physicians are funded via salary, conflict between the two groups is reduced, but under supply is more likely to occur. These results raise important questions regarding the type of hospital funding model that should be in place.Unlike earlier approaches, our model jointly simulates the behaviour of both hospitals and health care providers. By including both actors, it provides a mechanism for investigating the interaction between physicians and hospitals under a variety of funding scenarios. Given that hospital-physician systems respond to funding reductions by reducing the fixed costs of production or by decreasing the variable costs of production, the model can be used to identify a range of alternative case mix, case cost, and cost-sharing scenarios.     

Mergers and Exclusionary Practices in Health Care Markets

We evaluate the relationship between insurers (payers) and providers of health care (hospitals) when they each have a nonnegligible share of the market. We focus in particular on their incentives to merge and the existence of equilibria where payers offer preferential treatment to a subset of hospitals. We demonstrate that hospitals are more likely to merge without consolidating their capacities the less competitive they are vis-à-vis the payer's market. Payers are more likely to merge without consolidating their capacities the less competitive either the hospitals' or the payers' market is. A given payer follows an exclusionary strategy when its starting bargaining position vis-à-vis hospitals is weak. At such exclusionary equilibria, payers tend to distinguish themselves from neighboring payers by contracting with a different subset of hospitals.     

Health Care Payment Systems: Cost and Quality Incentives

This paper compares the cost and quality incentive effects of cost reimbursement and prospective payment systems in the health industry. When a provider cannot refuse patients who require high treatment costs or discriminate patients by qualities, optimally designed prospective payments can implement the efficient quality and cost reduction efforts, but cost reimbursement cannot induce any cost incentive. When the provider can refuse expensive patients, implementation of the first best requires a piecewise linear reimbursement rule that can be interpreted as a mixture of pure prospective payment and pure cost reimbursement, Under appropriate conditions, prospective payment can implement the first best even when the provider can use qualities to discriminate patients.     

Just-in-time and stockless programs for hospitals: fad or trend?

The JIT and stockless approach to provider-supplier relationships has proven to be a win-win proposition for the partners that have implemented it in many manufacturing industries and health care organizations as well. This strategy will fundamentally impact the entire cost structure within the hospital supply distribution chain. rewards have proven attainable and more comprehensive than had been hoped in the health care applications. The sweeping changes the health care industry experienced during the 1980s are leading creative materiel managers to seize the initiative to improve the current operating costs of their hospitals. They do not want to be left behind "holding the inventory."     

Efficiency analysis of emergency departments in metropolitan areas

The demand in the healthcare industry is increasing exponentially due to aging population of the world and this is leading to a rapid increase in the cost of healthcare. The emergency departments of the hospitals are the frontline of health care systems and play an additional critical role in providing an efficient and high-quality response for patients. The overcrowding at the emergency departments due to growing demand results in a situation where the demand for ED services exceeds the ability to provide care in a reasonable amount of time. This has led countries to reconsider their health policies in a way to increase their efficiency in their healthcare systems in general and in emergency departments, in particular. As in many countries, there has been a steady and significant increase in the number of patients that seek health services at the emergency departments of state hospitals of Turkey, due to the significant structural reforms in health services since 2003. While meeting this increasing demand, it is ever more important to provide these critical health services efficiently. Therefore, the efficiency of the emergency departments of seven general hospitals run by Istanbul's Beyoglu State Hospitals Association have been analyzed using categorical Data Envelopment Analysis (DEA) models. The analysis of DEA results is supported by a set of statistical methods to make it easier for the hospital administrators to interpret the analysis and draw conclusions. The analysis shows that less-equipped EDs are supported by better equipped, larger EDs, resulting in a hub-and-spoke type of structure among the EDs where “satellite” EDs serve an important referral function and thus evaluating their efficiency without taking the interoperability among these units into account would not be an accurate assessment of their performance.     

Health care: a leader or a follower? Reducing disposable waste

We clearly have the means to examine and reduce the amounts and types of disposable medical waste that health care institutions are creating. Although there may be special circumstances that prevent specific hospitals, or specific departments within a hospital, from converting to alternative products, much improvement can still be made. There are several strong examples of hospitals across the United States with programs that have drastically cut the amount of waste they are generating. They have eliminated disposable cups and eating utensils from the cafeterias, shifted to reusable underpads and surgical linens, and established recycling programs for paper and cardboard. These few cases are not enough. We cannot be lulled into believing that these exceptional efforts on the part of a few institutions are all that is needed. We should remember that if Mother Nature had intended for us to pat ourselves on the back, our hinges would be different. What is needed is a clear statement from the health care industry of its responsibility to society with regard to managing its waste. Leadership begins with action. If the health care industry does not take steps to regulate its disposable waste, the government undoubtedly will. We do not need to wait for our supervisors or administrators to fashion credos for us. All staff members know there are numerous ways that they can affect the amount of waste produced at their hospitals. They can also begin to affect the attitudes of those working around them. The consequences of inaction are simply too great. As fictional as half-empty grocery stores may have sounded at the beginning of this article, the problems that we face with waste disposal are certainly as grim. If we wait for our state and federal governments to solve the problems, it may be too late; and if it is too late, the solutions that they develop will certainly be extreme. We have the technology and the ability to cut dramatically the amount of disposable waste that health care generates. In practically every case, the lower-waste options also save the institution money. It is time that we honestly challenged our need for today's convenience at the expense of tomorrow's quality of life.     

Getting to go in managed care

The challenge for leadership and the required changes are great. Our personal limitations include a limited view of the world and the threat of an overwhelming risk if one gets too far out on the limb. "Getting to go" will open up new and strange territories that will provide opportunity and failure for leaders. Capable leaders will pursue the opportunity. Threatened leaders will resist the change. For those leaders who feel that the managed care existing today provides the most cost-effective, quality outcome for the individual, his or her sponsor in the community, they will go no further. Unfortunately for many of us, managed care means a third party trying to micromanage patients (deductions, authorizations, and so on), employers (claims, incentives, and so forth), and providers (approvals, forums, payment, tricks, and the like). Providers need to go ahead and master efficient care. We owe that to the community and the third party nightmare of administrative overkill must be laid to rest. For those healthcare leaders who believe that managed care as a system focused on improving the health status of our communities is superior to our existing system, their individual goals and leadership focus must be changed accordingly. We cannot sit by idly and wait for the system to change us. Instead our obligation is to lead our organizations toward a new era in health care.     

成本、费用、支出概念及其关系研究

成本、费用、支出的概念及其关系问题,长期以来是理论界争论较多,实践中运用较乱,规范体系中也缺乏总体一致性的一个基础理论问题。根据国内外对此问题的研究现状,文章采取中西方对比分析的方法并结合会计实践对成本、费用、支出的概念及其关系问题进行了探讨,试图通过对比分析来揭示成本、费用、支出概念的本质特征,规范它们之间的关系,使企业提供的成本、费用信息既符合国际惯例的要求,又能满足信息使用者的决策需要。     

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.     

Location and service mix decisions for a managed health care network

For managers of managed health care organizations, the problem of designing a competitive multiple facility network cannot be solved by existing mathematical models. This paper thus presents a nonlinear integer model for determining a facilities design strategy that embodies the economic tradeoffs encompassed in a competitive strategy: minimizing cost and maximizing market share. The integrated location and service mix model determines the number, location and service offerings of facilities that maximize profitability in a two-level hierarchical referral delivery network where an organization's market share is represented by a multiplicative competitive interaction model. To demonstrate the usefulness of the proposed integrated model, a series of problems is solved by an interchange heuristic and compared to the solutions derived by a simpler approach that ignores market competition.     

The effect of care quality on medical malpractice litigation

This paper analyzes the effect on medical malpractice litigation of the quality of the medical care provided by the defendant. Our data set includes measures of the quality of the defendant’s medical care. We explore the extent to which information about care quality or negligence is incorporated in three evaluations of the plaintiff’s claim, each based on a different amount of information: (1) the initial reserve, chosen by the risk manager when he first learns of the existence of the claim; (2) the mediation award, made after a hearing, and after pretrial discovery is under way or completed; and (3) the settlement payment, made after the parties have acquired all the information they think it is worthwhile to acquire. We develop a simple model of the correlation between estimates (1) and (2) and the settlement payment.We find that the initial reserve provides no information about care quality. Several alternative measures indicate that the mediation award includes substantial information about the quality of care, but less than that reflected in the settlement payment. Given the recent growth in the use of methods of alternative dispute resolution such as mediation, it is important to learn how well these methods determine whether the care at issue meets the legal standard. Thus our finding that the mediation award includes substantial information about care quality may be our most interesting result.     

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.     

Planning horizons for master production scheduling

Production and operations planning in organizations quite often is a multi-level sequential process, involving aggregate planning, master production scheduling, and detailed operations planning and scheduling. To obtain good planning results, it is desirable to have a proper planning horizon for each level of planning. There have been a considerable number of studies dealing with planning horizons for aggregate planning or production smoothing problems. There are also many planning horizon studies for single-item lot sizing problems. No study has addressed the issues associated with the planning horizons for master production schedules (which is a multi-item lot sizing problem in nature), particularly with respect to the relationship to the aggregate plan.This study addresses the issue of planning horizons for companies employing a make-to-stock competitive strategy facing a seasonal demand for their products. We formulate the aggregate planning problem and the master scheduling problem as two separate mathematical programs to approximate the two-stage process that typically takes place in practice. Rolling planning horizons are used to approximate the periodic updates of the plans commonly done in practice. The models also incorporate resource requirements planning concepts to estimate loads on the critical work centers.The planning process is simulated as a single pass procedure where the results of aggregate planning are passed to the master production scheduling model once per month and the results of the master scheduling model (i.e., the portion of the master schedule actually implemented) are passed back to the aggregate planning model for the next planning session.The experimental results show that when the planner faces extreme cost structures such as high smoothing costs/high setup costs or low smoothing costs/low setup costs, the planning horizon effects are reduced to a minimum. Master schedule planning horizons need not be as long as aggregate planning horizons. Alternatively, non-extreme cost structures such as high smoothing costs/low setup costs and low smoothing costs/high setup costs should be handled with equal planning horizons for both aggregate planning and master scheduling.It is also found that the firm's cost structure has an impact on the appropriate planning horizon for both aggregate planning and master scheduling. Some cost conditions allow for smaller master schedule horizons. The best horizon choice seems to be equal planning horizons for both aggregate planning and master scheduling, even though the cost savings is slight in some cases.Finally, the proper length of the planning horizon for master scheduling is affected by the planning horizon of the aggregate plans.     

Developing economic measures of hospital productivity

This study presents a methodology for measuring hospital output and estimating hospital productivity. A productivity index is developed for a sample of hospitals in New York City for which information was far more detailed than in systematic national sources, and sources of differences among hospitals in productivity are investigated. Internal consistencies in the productivity relationships are examined, and the findings are compared with cost relationships derived from the same data base. The analysis suggests that much better measures for a number of service areas and improved methods for dealing with variations in quality of care will be needed before reasonably accurate hospital-wide measures of output and productivity can be attained.     

Shifting from Undersupply to Oversupply: Does NHS Workforce Planning Need a Paradigm Shift?

The National Health Service in England is currently halfway through the most austere decade in its history. Finding ways to improve health care efficiency is crucial to ensure the sustainability of the health system. While evidence of supply‐induced demand (SID) has often been used as an economic argument to restrict labour supply, in the UK the risks of SID may be much less than in health care systems with more deregulated entry into the market post‐qualification and with fee‐for‐service payment systems. This article focuses on the problem of staff shortages in nursing. We argue that, although an oversupply of some types of labour can add to cost pressures by increasing demand for health care services and that the cost of training staff is high, undersupply and poor labour planning lead to unintended consequences such as poor labour productivity. As a result there is a case for public policy to target an oversupply of nurses in the future. If government reforms to nurse funding help, they are to be welcomed.     

A labor relations research agenda for health care settings

Inadequate attention has been given to labor-management relations in health care organizations. Bacause of the labor-intensive nature of health care and the great dependence on human resources, health services researchers should place greater emphasis on labor-management issues. This article develops a framework and suggests methodologies for examining labor relations in health care organizations. Specifically, six cirtical issues are suggested for attention by researchers: (1) the quality of the union-management relationship; (2) union organizing drives; (3) collective bargaining and contract negotiations; (4) impasse resolution; (5) contract administration and grievance handling; and (6) labor-management cooperation. These areas of research have been dominated by industrial relations researchers who have focused primarily on the manufacturing sector. Given cost containment and competitive pressures, it is timely to bridge the gap between the health services research community and the accumulating body of knowledge in industrial relations.     

Capacity,competiton and efficiency in hospitals: A nonparametric approach

The purpose of this paper is to provide a new,multiple output measure of plant capacity which we use to analyze the performance of hospitals in different competitive environments. To evaluate each hospital's plant capacity, we employ a nonparametric (linear programming) framework. The resulting measure of capacity can be determined from observed inputs and outputs and is based on the best practice performance of all hospitals in the sample. This methodology is closely related to Farrell-type measures of efficiency and, as a by-product, yields information on efficiency of individual hospitals. This technique imposes no prespecified functional form and allows for multiple outpus (to account for differences in case-mix). We apply this methodological approach to a sample of hospitals in Michigan. Our results are used to compare capacity utilization and efficiency of hospitals across different competitive environments.The refereeing process of this paper was handled by R. Kopp.