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Authors

Paul Kirby, MA
Joanne Spetz, PhD
Lisa Simonson Maiuro, MSPH, PhD
Richard Scheffler, PhD

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Abstract

This study will examine how the availability of services in California general acute care hospitals has changed between 1995 and 2000. It will examine factors associated with changes in profitability for specific types of hospital services, and the financial effect of service closures on neighboring hospitals. The study also will determine whether closures of hospital services result in decreased access to care in local communities. The study will consist of two components:

1. data analysis based on all general acute care hospitals in California and
2. case studies of hospitals and their communities.

The former will be based primarily on data for California general acute care hospitals obtained from The Annual Hospital Disclosure Report produced by the California Office of Statewide Health Planning and Development (OSHPD). The latter component will be based both on analyses of OSHPD data and on key informant interviews.

Numerous studies have demonstrated that price competition among hospitals in California measurably slowed the rate of growth in hospital costs and reimbursements in the 1990s. However, in the past few years, there has been growing concern that these reduced reimbursements are contributing to the increased financial distress hospitals are experiencing. Powerful business and purchasing alliances have placed pressure on insurance companies to lower premiums, and thus insurance companies push hospitals to accept low reimbursement levels. Federal reimbursements to hospitals were constrained substantially under the Balanced Budget Act of 1997, and Medi-Cal reimbursements are low. At the same time, hospitals face growing expenses, due to increasingly expensive medical technology, and unfunded mandates such as California's seismic retrofitting requirements.

In this environment, hospitals must consider any strategy available to reduce expenses and increase reimbursements, but there is little information about the effectiveness of different strategies, or about the effect of different approaches on access to care in local communities. Most studies of the effects of this financial environment have been limited to broad measures of hospital profitability. To our knowledge, no current studies have systematically looked at specific services that might affect the profitability of hospitals, or the community effects of the closures of services.

Hospital provision of services is an important factor in hospital competitiveness and overall health care costs. A substantial body of research suggests that hospitals compete for patients by increasing their scope of services and making high-technology procedures and devices available. This competition among hospitals, and the rapid diffusion of all technologies in the United States, is associated with increases in health care costs; in fact, most analysts believe a large share of health care cost growth resulted from the introduction and rapid diffusion of new medical technologies. In theory, managed care might help control technology-based cost inflation, but empirical evidence is mixed. Some studies have found that managed care growth slowed the adoption of technologies, but others have found that managed care has had no effect.

The maturation of managed care, passage of numerous unfunded mandates with which hospitals must comply, and the renewal of health care cost inflation raise questions about how hospitals will maintain profitability. Moreover, it is not clear how services will fit into hospital strategies. There may be a renewal of service mix-based competition, but hospital systems may seek to concentrate services in referral centers to control costs. Either of these scenarios have implications for the profitability of hospitals and access to services in local communities. There is little information on the current landscape of hospitals services in California, their profitability, and how access to services may have changed for California communities during the study period.

Click here to read the Full Report [PDF]
Click here to read the Press Release

Presentation of Research Findings

In Atlanta, Georgia on October 29, 2004, Paul Kirby participated in a panel discussion on Access To Health Care at the Association for Public Policy Analysis and Managements Twenty-Sixth Annual Research Conference, Creating and Using Evidence in Public Policy Analysis and Management. His presentation was based on the findings of this research project, and featured a slide show. That slide show may be viewed by clicking on the link to the right. You will need MS Powerpoint '97 or newer or a compatible viewer.

Download [PowerPoint]

For information on funding for this project, go to the funding page.