Multihospital system membership and patient treatments, expenditures, and outcomes

Health Services Research, August, 2004 by Kristin Madison

In recent years the proportion of hospitals affiliated with other hospitals has grown. In 1985, for example, 38 percent of nonpublic general medical-surgical hospitals responding to the American Hospital Association (AHA) Annual Survey identified themselves as being members of health care systems; by 1998, this percentage had grown to 66 percent. Bazzoli et al. (2001) report that in 1998, 3,221 hospitals nationwide participated in 365 health systems. Recent articles have examined multihospital systems in detail, developing a taxonomy of hospital networks and systems (Bazzoli et al. 1999), documenting changes in hospital ownership and related policy concerns (Spetz, Mitchell, and Seago 2000), and reporting on the financial performance of system hospitals (Bazzoli et al. 2000). (1) Yet much remains to be understood about the nature of multihospital system membership. In particular, little is known about whether the formation of partnerships between hospitals has affected patient care. This study expands the literature on health care organizations by examining the relationship between multihospital system membership and the treatment, expenditures, and health outcomes of Medicare patients with acute myocardial infarction (AMI).

The potential motivations for joining a system are many. They include the consolidation of administrative, information processing, and purchasing functions; increased access to capital, management expertise, and medical services (through increased physician recruiting, for example); improved ability to participate in managed care contracting; expanded referral flows; and enhanced market power with respect to purchasers of hospital services. These potential goals relate to two concerns central to the administration of a hospital, and any other self-financed organization: reducing costs and increasing revenues. Previous studies have examined the influence of system membership on measures of financial performance (Bazzoli et al. 2000; Clement et al. 1997; Menke 1997; Ermann and Gabel 1986).

Hospital affiliations can affect much more than income statements and balance sheets, however. They may also affect the treatment of patients, through at least two channels. The first channel is the impact of system membership on participating hospitals' decisions to offer services, including cardiac services such as catheterizations or angioplasties. While very small hospitals are unlikely to offer these services, and large hospitals are unlikely not to offer these services, other hospitals may be on the decision-making margin. System membership may affect the offerings of these hospitals, but the direction of such an effect is unclear. Affiliations may encourage the proliferation of sophisticated services by providing the management expertise and capital to build new facilities and recruit physicians (see, e.g., Blecher 1998). Systems may also choose to replicate services across their facilities to exploit economies of promotion (Dranove and Shanley 1995). Alternatively, affiliated hospitals may choose to concentrate services in a limited number of locations to exploit economies of scale. A multihospital system might consist of a large urban hospital offering a full range of cardiac services, and several smaller suburban or rural hospitals that would refer patients in need of services to the urban facility. (2)

If system participation affects cardiac service offerings, it may also affect patient treatment patterns. Service offerings certainly affect the location of patient treatment; if a hospital does not offer catheterizations, for example, then the patient must be transferred to another location to receive one. But decisions about service offerings may also affect whether the patient receives a procedure at all. Previous studies have found that patients admitted to hospitals with onsite cardiac facilities are more likely to receive cardiac services (Every et al. 1993; Blustein 1993). Service proliferation would then lead to higher procedure rates, on average, among patients of system hospitals, while service concentration would lead to lower procedure rates.

By affecting the nature and location of patient treatment, service offerings may also affect patient expenditures and health outcomes. If a hospital offers few services, it would likely experience higher transfer rates, which would tend to raise expenditures, but may also experience lower procedure rates, which would tend to lower expenditures (see discussion in the Data and Methods section). A hospital that offers a full complement of services, on the other hand, would not need to transfer patients, but might tend to treat its patients more intensively. The net effect on expenditures is unclear.

The net effect of service offering decisions on patient health outcomes is also unclear. Outcomes would depend on the clinical appropriateness of the procedures provided and the expertise of the providers. For example, if service proliferation increases procedure rates, and cardiac procedures are underprovided, then service proliferation would improve patient outcomes, all else equal. On the other hand, if proliferation leads to the overprovision of services, then patient outcomes would worsen. Proliferation may also harm patients by dispersing procedure volume across multiple facilities; lower cardiac procedure volumes have been shown to be associated with worse outcomes (Grumbach et al. 1995; Phillips, Luft, and Ritchie 1995).