What happens when hospitals flip to for-profit status?

When for-profit Vanguard Healthcare bought the Detroit Medical Center in late 2010, worried murmurs rippled through the community. DMC is the largest provider of charity care in the state, and it wasn’t clear whether Vanguard would feel obliged to honor the hospital’s charitable mission—would they keep serving the uninsured, or would access and quality of care suffer? These concerns were echoed by patient advocates when Tenet Healthcare—another for-profit—acquired Vanguard in 2013, absorbing DMC in the process.

Were people right to worry? Maybe not, according to a new study published today in JAMA by Karen Joynt, John Orav, and Ashish Jha.

Conclusions and Relevance: Hospital conversion to for-profit status was associated with improvements in financial margins but not associated with differences in quality or mortality rates or with the proportion of poor or minority patients receiving care.

Existing literature on what happens when a hospital turns for-profit is dated:

Most of the data on conversions are from the 1990s, and those data generally suggest that conversions were associated with higher margins but also higher mortality rates. However, these transitions took place during an era in which national efforts such as the Hospital Compare program designed to monitor hospital quality were not yet in existence and prior to the emergence of powerful consumer advocate groups focused on quality and safety, such as the Leapfrog Group. Thus, whether prior findings on conversions would hold today is unclear.

The JAMA study compares 237 conversion hospitals against controls matched on size, teaching status, and geographic market (hospital referral region). The authors used a difference-in-differences model and Medicare data to compare changes in financial performance, quality of care, and patient populations.

Conversion hospitals started with lower margins at baseline relative to controls; those margins increased by 2.2% on average  compared to only 0.4% growth among matched controls. Quality—performance on process measures and mortality—did not meaningfully change for conversion hospitals, nor did patient volume. The proportions of poor, disabled, and minority patients also appear to be unaffected by the transition to for-profit.

It’s not clear where added revenue came from—the study did not find higher Medicare patient volumes or evidence of increased Medicare payments. The authors suggest two possible mechanisms: the hospitals found ways to cut costs or extracted better payments from private insurers.

Although we cannot test this directly, it is possible that the corporations purchasing these hospitals brought experienced management to struggling institutions, which allowed them to improve their efficiency. For a hospital with persistently negative margins, for-profit status may also bring access to capital and other financial resources that can lead to changes in the hospital’s economic viability.

We want to clarify that mechanism—some of the revenue probably is efficiency gains, but I imagine a lot of conversions also represent consolidation, and there’s plenty of concern about consolidation increasing prices to go around.

And there are other knots left to untangle. The authors looked at Medicare data, so it’s not clear whether results generalize to the uninsured, privately insured, or those on Medicaid. The study finds good signals that hospitals didn’t reduce care provided to vulnerable populations: the authors looked specifically at the proportion of Medicare enrollees who were poor (dual-eligible with Medicaid) or disabled, and found no changes associated with conversion. The administrative data doesn’t paint a full picture of the population’s risk profile, though, which could have changed in ways that weren’t picked up. There also wasn’t a reliable measure for charity care provided by the hospitals, so the authors “cannot rule out a decrease in this specific type of care provision.”

This is important research, and I hope we see more of it.

Adrianna (@onceuponA)

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