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Many community hospitals keep operating despite economic
The decline in inpatient hospital use during the 1980s led to a
substantial decline in hospital profit margins from an industry
average of 7.3 percent in 1983 to 3.8 percent in 1989. Yet many
hospitals continued to operate, including several that were
experiencing major difficulties in meeting short- and long-term
obligations. A recent study showed that 91 percent of financially
distressed hospitals continued to operate without major
structural change between 1985 and 1990.
This may be good news to local community officials concerned
about maintaining financially weakened hospitals. On the other
hand, these weakened institutions may not be providing the best
services to their communities because their survival may depend
on the absence of viable competitors to which patients can turn.
The study showed, for example, that merging and surviving
hospitals were in counties where the number of rivals was
reduced, while hospitals that closed were in counties with a
greater number of rival hospitals.
The long-term financial distress of these weakened but surviving
hospitals could lead to the failure of some integrated provider
networks if their financial problems are not fully understood,
caution Chicago researchers Gloria Bazzoli, Ph.D., and Steven
Andes, Ph.D. Their study, which was supported in part by the
Agency for Health Care Policy and Research (HS06250), was based
on analysis of the American Hospital Association's Annual Survey
of Hospitals from 1983 through 1990 and the Area Resource File of
the U.S. Bureau of Health Professions.
Details are in "Consequences of hospital financial distress," by
Drs. Bazzoli and Andes, in the Winter 1995 issue of Hospital
& Health Services Administration 40(4), pp. 472-495.
Some financially distressed rural community hospitals
discontinue acute care
Faced with financial problems and the possibility of closure,
some rural community hospitals are converting from general acute
inpatient care to other services such as short-term emergency
care, primary care, long-term care, and other specialized
community health services. According to a recent study, rural
hospitals that convert to these services are more likely than
nonconverters to have demonstrated poor performance and have
fewer beds; to be located very near to or very far from similar
hospitals; operate in larger communities where a market exists
for these alternative services; already devote more of their care
to areas other than acute inpatient care; and to be members of
Converting hospitals also are less likely to be government owned,
according to the study, which was supported by the Agency for
Health Care Policy and Research (HS07047). The benefit of these
conversions is that access to health care in rural communities is
maintained and hospital closure avoided, explains Jeffrey A.
Alexander, Ph.D., of the University of Michigan.
Dr. Alexander and his colleagues used data from the American
Hospital Association's annual survey files from 1983 to 1991 and
other sources to identify rural hospital conversions that
occurred nationally from 1984 to 1991. Their analysis revealed
that a total of 148 rural community hospitals converted to
another form of health care delivery. Of these, 38 percent became
long-term care facilities, 50 percent outpatient care providers,
and 11 percent substance abuse centers; 4 percent shifted to
other specialized inpatient services.
Details are in "Determinants of rural hospital conversion: A
model of profound organizational change," by Dr. Alexander,
Thomas A. D'Aunno, Ph.D., and Melissa J. Succi, M.A., in the
January 1996 issue of Medical Care 34(1), pp. 29-43.
Employment-related health insurance effectively pools
medical risk among employees
More than 88 percent of the privately insured, nonelderly U.S.
population obtains its health insurance through employment. By
pooling people with diverse health risks, employment-related
health insurance effectively transfers income from households in
good health to those with greater medical needs, according to a
study by the Agency for Health Care Policy and Research. A key
factor in the distribution of health benefits to policyholders is
the current tax subsidy, which results from the exclusion of
employer health insurance contributions from employees' taxable
Eliminating this tax subsidy should be considered with caution,
advise study authors, Alan C. Monheit, Ph.D., and Thomas M.
Selden, Ph.D., of AHCPR, and Len M. Nichols, Ph.D., of the Urban
Institute. They point out that the tax subsidy narrows employee
monetary loss from the purchase of health insurance from -$711 to
-$197 (in 1987 dollars) and thereby may encourage continued
participation of young and healthy households in the
employment-related insurance market. Their study was based on
analysis of data from the 1987 National Medical Expenditure
Survey to examine how the tax subsidy alters the distribution of
net health insurance benefits (reimbursed medical care
expenditures plus tax subsidies from employer contributions to
health insurance less premiums) across households according to
age, sex, income, health status, and number of policyholders.
The researchers studied the distribution of net health insurance
benefits across health insurance units (HIUs), defined as all
policyholders of employment-related coverage in a household, ages
20 to 64, and their nonelderly covered dependents. Controlling
for HIU characteristics, the researchers found that HIUs which
included a member with a chronic health problem had net benefits
some $700 above HIUs whose members lacked such problems. There
were no significant differences in net benefits between white and
black policyholders or in net benefits by policyholder age or
firm size. However, HIUs with female policyholders, large HIUs,
and those with high wage earners obtained large net health
More details are in "How are net health insurance benefits
distributed in the employment-related insurance market?" by Drs.
Monheit, Nichols, and Selden, which appears in the Winter 1995/96
issue of Inquiry 32, pp. 379-391.
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