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Chapter 3

Hospitals: Origin, Organization and

Performance

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CHAPTER OBJECTIVES

• Understand origins of America’s hospitals • Understand reimbursement and other factors that

shaped the current hospital system till today• Appreciate the many dimensions of hospital

functions and financing• Appreciate the quality and financial challenges in

today’s hospital environment

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Character of American Hospitals

• Appreciated• Maligned• Poorly understood• Places of:

– Treatment– Research– Education– Employment, community economy

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Early History (1)• 1700’s seaport cities: decrepit pesthouses

segregated contagious, diseased sailors

• Pesthouses commissioned by town boards housed mentally & physically ill who offended polite society

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Early History (2)

• 1736: Bellevue housed the “poor, aged, insane and disreputable.”

• 1789: Public Hospital of Baltimore, later Johns Hopkins University Hospital

• 1835: Eloise Hospital, Michigan serving “old, young, deaf, dumb, blind, insane and destitute”

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Early History (3)

• Physicians founded hospitals with citizen funding (1800s): – Protect well from sick, insane– Provide “practice” teaching sites

• Religious Orders (mid 1800s)– Protestant and Catholic Sisters played major roles

in “professionalizing” nursing care: Sisters of Charity and German “Deaconesses”

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Factors Shaping the Hospital Industry (1)

• Private health insurance: Blue Cross, other plans changed “charitable” mission to business motive

• Medical specialization, advances

• Hill-Burton Act (1946): federal support for new construction & expansion

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Factors Shaping the Hospital Industry (2)

• Medicare & Medicaid fueled costs & utilization– Changed prior “social role” of hospitals in

caring for the most needy– Struggles to define the relative roles of

voluntarism, government and business continue

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Growth & Decline in the Number of Hospitals

• 1873: 178• 1909: 4,300• 1946: 6,000• 1970: 7,200• 1980-present: 5,700• Since 1980, 1500 closures; 33% decline in in-patient

days

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Types of Hospitals

• Acute care: avg. stay ≤30 days

• Sponsorships: Voluntary not-for-profit, for-profit, government

• Teaching: medical school affiliation, student & resident clinical education

• Community: non-teaching

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Hospitals by Ownership Status, 2005

• All U.S. Registered Hospitals: 5815– 60% Non-governmental not-for-profit

• Teaching and non-teaching

– 23% State and local government• State, city, county owned

– 17% Investor-owned for profit• Management companies, physicians

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Physician-owned Specialty Hospitals

• Usually limited to orthopedics, surgery or cardiology

• Upscale and patient-friendly• Treat less complex, profitable cases• Potential conflict of interest with physician

owners• Competition for community hospitals

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Hospital Financial Condition (1)

• Declining occupancy: major shifts to ambulatory settings

• Insurer pressures to cut utilization and costs

• Rising operational & capital costs

• Medicare reimbursement reductions

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Deteriorating Financial Condition (2)

• Physician- developed, freestanding diagnostic and treatment centers

• Physician- developed private specialty hospitals

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Academic Health Centers (1)

• Medical, dental, nursing, pharmacy, allied health schools combined with teaching hospitals for tri-fold mission:

– Education

– Research

– Service

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Academic Health Centers (2)• Technologically advanced

• Serve needs of underserved populations

• Major contributors to research, treatment advances, specialization

• High costs

• Fragmented services

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Hospital System of the Department of Veterans Affairs (1)

• The largest health care system in the U.S.: 156 hospitals, 136 nursing homes, 43 residential rehab facilities, 800 outpatient clinics

• Major teaching centers• Insulated from other hospitals’ financial woes by

strong Congressional support

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Hospital System of the Department of Veterans Affairs (2)

• Veteran’s Integrated Service Networks (VISNs: decrease cost & improve quality; 22 VISNs function as vertically integrated delivery systems.

• Health Services Research & Development Service (HSR&D): spans clinical research to management policy

• Quality Enhancement Research Initiative (QUERI): incorporates evidence-based research findings into patient care.

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Structure and Organization of Hospitals (1)

• Typical organization model is the not-for-profit hospital

• Direction, control & governance rest on a three-legged platform: – Board of Directors (trustees)– Administration– Medical staff

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Structure and Organization of Hospitals (2)

• Major Operating Divisions

– Medical

– Nursing

– Patient support

– Diagnosis

– Administration & Fiscal

– Human resources

– Hotel services

– Community relations

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Structure and Organization of Hospitals (3)

• Medical staff organization: headed by physician President or Chief of Staff

• Nursing Division: largest personnel component

• Allied Health Professionals: support physicians, nursing, other professionals

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Structure and Organization of Hospitals (4)

• Diagnostic: e.g. labs, imaging, non-invasive cardiology

• Patient support: e.g. pharmacy, social work, nutrition, discharge planning

• Administrative: non-clinical• Hotel: e.g. plant facilities, housekeeping

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Hospital Complexity

• Many employ 1000+ persons

• Hundreds of inter-related services, functions and procedures

• Complicated morass for patients and families– Patient advocates navigate issues & concerns

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Patient Rights, Responsibilities

• Rights protected by U.S. Constitution, state laws, regulations

• “Bill of Rights” (AHA) provided to every patient upon admission

• Patient responsibilities: accurate information, respect providers, other patients, financial obligations

• Complexity challenges rights.

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Patient Bill of Rights (Synthesis) (1)

• Patients have the right to:1. Receive respectful, considerate treatment2. Know names & titles of all individuals providing their

care3. Complete and understandable explanations of their

diagnosis, treatment and prognosis4. Receive from physician all information necessary to

provide informed consent

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Patient Bill of Rights (Synthesis) (2)

5. Request & receive consultation on their diagnosis & treatment or obtain a second opinion

6. Set limits on the scope of treatment or refuse treatment & be informed of consequences of such refusal

7. Leave the hospital, unless unlawful, even against physician’s advice & receive an explanation of responsibilities in exercising that right

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Patient Bill of Rights (Synthesis) (3)

8. Request & receive information & assistance in discharging financial obligations & review a complete bill, regardless of payment source

9. Access their records on demand & someone capable of explaining records

10. Receive assistance in planning and obtaining post discharge services

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Informed Consent

• Legally recognized since 1914

– Patient understands medical procedure to be performed and why

– Benefits– Risks and consequences & their likelihood– Consent freely given

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Second Opinions

• Insurers require for many procedures

• May be patient-generated

• Guard against unnecessary, inappropriate or non-beneficial procedures

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Diagnosis Related Group (DRG) Hospital Reimbursement

• Retrospective reimbursement was perverse to cost control

• Response to over-use, rising costs, corporate outcries

• Shift to prospective reimbursement, reversed financial incentives

• Medicare adopted 1983

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Discharge Planning

• Arranges post-hospital care

• Involves physicians, social workers, insurance company and nursing

• Right of discharge appeal: Medicare, Federally designated peer review organization (PRO)

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Subacute Care• Between hospitalization & nursing home care• Mix of convalescent, rehabilitative services, 10-100

days.• Financial opportunity: hospitals, nursing homes

capture maximum Medicare reimbursement• Lower than hospital costs are attractive to managed

care organizations

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Market-driven Reforms Affecting Hospitals (1)

• Managed care focus on: costs, accountability, negotiated rates, competition

• Reengineering: radical system change responses to market, reimbursement pressures

• Consolidations, conversions, closures

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Market-driven Reforms Affecting Hospitals (2)

• Patient-Focused Care Needs (Picker/Commonwealth Study):– Friendlier staff– Appetizing food, family accommodations– Unrestricted visiting– Concierge services for inpatients and visitors– Improved communication between providers

and patients

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Integrated Health Systems

• 1980s response to market pressure

• Horizontal: merges “like” services for economies of scale, e.g. hospital mergers; least successful

• Vertical: links many levels of care into continuum, e.g. hospital, home health care, linkages; most successful

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Market Responses to Managed Care Penetration

• Little or no penetration: service disorganized, fragmented

• Minor: some horizontal integration

• Major: vertical integration to negotiate for population groups

• Predominant: vertical integration expands, economic risk-sharing

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Quality of Hospital Care (1)

• Operational factors, indicators, value judgments• Historically: “degree of conformance with pre-set

standards”• Peer review: implicit criteria• Avedis Donabedian: structure, process, outcome• Landmark studies revealed wide variations.

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Quality of Hospital Care (2)

• Hospital accreditation by the JCAHO initially structural; moved to process and most recently to outcomes

• Computerized information & analytical techniques allow adjustment of findings to account for patient variables previously held to confound fair assessments of patient outcomes

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Landmark Studies of Hospital Care Quality

• NYC Teamsters Union (Columbia U.) 1960s: Implicit criteria record reviews revealed:– Specialists’ care superior– Better care in medical school affiliated hospitals– Unnecessary/questionable admissions– Substandard care– Differences among hospitals’ & physicians’

quality• Other studies revealed similar findings

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Variations in Medical Care

• John Wennberg, Alan Gittlesohn (1973): documented variations in the amounts and types of medical care provided to patients with the same diagnoses living in different geographic areas– Amount & cost of hospital treatment related more

to number, specialties and preferences of physicians than to patients’ conditions

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Hazards of Hospitalization

• IOM Report 1999: 44-98,000 annual deaths from errors

• System deficiencies, not negligent providers• Types: diagnostic, treatment, preventive, other• Congressional, professional responses rapid,

but short-lived

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Nursing Shortage Crisis

• Contributing factors:– Dissatisfaction with staff reductions, overwork,

and inability to maintain quality patient care– Qualified individuals have many more less

demanding career options– 1/3 of nursing workforce is 50+ years of age;

young persons disinclined to enter the profession

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Quality Improvement Research

• JCAHO: quantitatively defined quality with measurable, results focus

• Hospital satisfaction studies

• Studies on test, procedure appropriateness: 1/3 or more of all procedures of questionable benefit

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Quality Responses- Purchasing and Industry Groups

– Leapfrog: 160 Fortune 500 companies and other companies representing 36 million enrollees with RWJF support to track hospitals’ implementation of 30 recommended safety practices of the National Quality Forum.

– Institute for Health Care Improvement with the AMA: “100,000 Lives” 2005 initiative to prevent medication errors, infections and follow-up evidence-based treatment guidelines

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FIGURE 3-1 Proportion of

Procedures Judged Either “Clinically

Inappropriate” or “Of Equivocal Value”:

Summary of Selected Studies

Source: Reprinted with permission from: Rand Health Research Highlights, “Assessing the Appropriateness of Care: How Much is Too Much?” RB-4522, © RAND.

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Governing Boards: Responsibility for Quality

• Boards carry ultimate responsibility for quality; oversee quality assurance & monitor indicators such as:– Mortality rates by department– Hospital-acquired infections– Patient complaints– Adverse drug reactions– Hospital-incurred traumas

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Hospitalists- A Rapidly Growing Innovation

• Substitutes for patients’ primary physicians

• Coordinate all in-hospital care

• Most are qualified in internal medicine

• Many assessments underway regarding quality & coordination of care

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Forces of Reform: Cost, Quality and Access

• Cost, quality & access have become hospital survival criteria of the future– Overuse of expensive technology without

evidence-based patient benefits will be curtailed– Americans are more attuned than ever to

shortcomings of the expensive, ineffective health care system

– Hospital performance will be matters of public judgment based on published outcomes criteria

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Conclusions: The Future of Hospitals

• Hospitals no longer the “axis” of the delivery system• Major financial challenges from payer mandates,

charitable care mandates, uninsured, physician competition for profitable services

• Public demands for transparency threaten hospital competitive status

• Creative responses evolve to lure patients