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Health Care Costs and Financing

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Financial pressures on hospitals in the 1990s led to less investment in care resources and poorer quality of care

Financial pressures mounted for many U.S. hospitals during the late 1990s, given public and private sector efforts to constrain reimbursement growth. Some hospitals were forced to make tough choices between hiring staff, replacing antiquated equipment, and investing in new technology. These financial pressures led to cutbacks in investments in plant and equipment and less compliance with quality of care standards, according to a new study. Poor patient outcomes observed during the late 1990s may partly result from these reductions in supporting hospital infrastructure and organizational processes, concludes Gloria J. Bazzoli, Ph.D., of Virginia Commonwealth University.

Dr. Bazzoli and coinvestigators examined the relationship between financial pressures on a sample of community hospitals between 1995 and 2000 and investments in plant and equipment as well as performance on seven Joint Commission on Accreditation of Healthcare Organizations (JCAHO) performance areas. They measured hospital financial status based on changes in net patient revenues per adjusted patient day and the ratio of cash flow to total revenues.

Hospitals with weaker financial performance were more likely to reduce investments in plant and equipment and were less likely to comply with four of the JCAHO performance areas studied. Specifically, as hospital financial performance declined, hospitals had lower compliance with timely completion of comprehensive patient assessments within 24 hours of admission. As financial status declined, hospital performance also lagged in relation to JCAHO standards for conducting and documenting periodic reviews of staff competency, management of patient-specific information, and infection control.

Overall, compliance with the areas noted above may require additional staff and management infrastructure that financially strapped hospitals could not afford. The study found no effect of hospital financial performance on compliance with JCAHO standards related to hospital medication use, anesthesia, and operative procedures. Performance problems in these latter areas are likely to be more visible to patients, families, and physicians, and thus, hospitals may protect them from cutbacks, because deficiencies may lead to a loss of referrals and market share.

The study was supported by the Agency for Healthcare Research and Quality (HS13094).

See "Hospital financial condition and operational decisions related to the quality of hospital care," by Dr. Bazzoli, Jan P. Clement, Ph.D., Richard C. Lindrooth, Ph.D., and others, in the April 2007 Medical Care Research and Review 64(2), pp. 148-168.

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