What's New with HCFO : November 17, 2006

In exchange for tens of billions of dollars a year in tax breaks, non-profit hospitals are required to provide charity care and other benefits to their surrounding community. Few guidelines exist regarding obligatory charitable activities, yet some lawmakers have begun to question the adequacy of non-profit hospitals’ current contributions.

Non-profit hospitals’ special tax-exempt status continues to receive scrutiny in national debates. In exchange for tens of billions of dollars a year in local and federal tax breaks, non-profit hospitals are required to provide charity care and other benefits to their surrounding community. Few guidelines exist regarding the nature or level of obligatory charitable activities, yet some lawmakers have begun to question the adequacy of non-profit hospitals’ current contributions.

Lawmakers’ doubts have been fueled by media accounts that have exposed high executive compensation packages, unfair billing, and aggressive collection practices toward low-income, uninsured patients.^1,2 Other reports have revealed few differences between for-profit and non-profit hospitals’ provision of charity care and community benefits.¹

Non-profits Under Investigation
Several government investigations were initiated to clarify what benefits non-profit hospitals provide to justify their tax-exemption. In June, the Internal Revenue Service (IRS) sent compliance check questionnaires to 550 non-profit hospitals. This is a significant increase over previous levels of inspection for the roughly 7,000 non-profit hospital and health care organizations, which have received only 375 audits in the last ten years. The IRS results could lead to more formal audits and updated guidance to the 1969 standard for “community benefits”.²

The Senate Finance Committee, chaired by Senator Charles Grassley (R-Iowa), recently completed a 15-month investigation of non-profit hospitals’ benefits to communities. A hearing was held in September to release findings and discuss strategies with industry leaders and academic experts. The Senate investigation found that non-profit hospitals routinely overcharge or deny care to the low-income, uninsured.³ Sen. Grassley has previously encouraged the industry to self-regulate but, in reaction to continued shortfalls, has recently considered introducing legislation that would set community benefit standards.⁴ A handful of states have also considered or instituted policies regarding charity care guidelines, transparency in nonprofit governance, spending mandates, or withdrawal of tax breaks.⁵

Some believe that current tax-exemption standards should remain unchanged because they allow non-profit hospitals the flexibility to address the unique needs of the community in which they are situated.⁶ A recent Health Affairs article argued that some community benefits are very difficult to measure and excessively inflexible standards should not substitute for decisions better made at the community level.⁷

Developing Guidelines
A recent Senate hearing highlighted Catholic Health Association’s (CHA) voluntary guidelines for planning, measuring, and documenting charitable activities, “A Guide for Planning and Reporting Community Benefits.” Sen. Grassley has been working with CHA to develop a set of best practices and has encouraged other non-profit hospitals to follow CHA’s example.

The American Hospital Association (AHA) developed a separate set of voluntary guidelines. AHA and CHA’s proposals diverge on what activities should be classified as community benefits. CHA recommended hospitals stop counting bad debt and Medicare shortfalls as charity care, while AHA feels that hospitals should get credit for direct and indirect costs of subsidized health care services, charity care, bad debt, and the unpaid costs of government-sponsored health care, including Medicaid, Medicare and public and/or indigent care programs.^8,9

While many industry leaders have advocated for voluntary adoption of guidelines, some worry that additional mandatory requirements for charity care and community benefits would put increased economic pressure on non-profit hospitals that may already be struggling.¹⁰ Simply tracking and reporting community benefits can require significant resources. Despite fiscal pressures, some nonprofit hospital systems have chosen to prioritize charitable activities emphasizing increased transparency and accountability. One example was explored in a recent HCFO Findings Brief. James Robinson, Ph.D., of University of California-Berkeley examined how a forty-hospital, non-profit system was able to reorganize and reverse losses, while preserving its charitable mission.¹¹

Examining Differences and Similarities
Critics of non-profit hospitals argue that they are more similar than different to for-profit hospitals, questioning their special tax status. Several HCFO-sponsored projects have examined this question. Karen Eggleston, Ph.D., of Tufts University, Frank Sloan, Ph.D., of Duke University, and Gary Young, Ph.D., J.D., of Boston University each investigated how hospital ownership and non-profit conversions impact different aspects of performance. In general, the evidence has provided mixed results that make it difficult to compare non-profit and for-profit hospitals. Eggleston preformed a meta-analysis to try to explain why the literature has such different findings regarding the impact of hospital ownership on quality and financial performance. Her preliminary findings indicate that the diverse results can be explained largely by the studies’ different analytic methods.

HCFO grantee, Jill Horwitz, Ph.D, J.D., of the University of Michigan is investigating the impact of hospital ownership mix and medical service provision. She is examining whether non-profit and for-profit hospitals offer different kinds of services in markets with varying for-profit penetration; whether shifts in for-profit market share change the propensity of non-profit hospitals to offer profitable and unprofitable services; and how for-profit penetration relates to the overall percentage of hospitals providing different types of medical services.

Conclusion
As state and federal policymakers consider tax regulation and community benefit standards, they need additional evidence to distinguish the differences between non-profit and for-profit hospital systems, determine whether non-profit conversion is decreasing public good, and develop effective strategies for non-profits to achieve financial stability and accountability. HCFO-sponsored research can provide some of the evidence needed by policymakers.

Title: Hospital Pricing and the Uninsured
Institution: RAND
Principal Investigator: Glenn Melnick, Ph.D.
Grant Duration: February, 2006–January, 2008

Are hospital prices to the uninsured systematically different from prices to the insured by examining the trends in charges (list prices), net revenues (net prices)? Is there a relationship between the two, while controlling for other factors that may affect prices at the hospital level? This study would address the following questions: (1) Is there evidence that uninsured patients are charged more than insured patients for similar services? (2) Is there evidence that uninsured patients pay more than insured patients for similar services? (3) If uninsured patients pay higher prices than insured patients are the differences systematically related to factors such as type of hospital or financial status of the hospital? (4) For hospitals that are collecting higher prices from uninsured patients, what is the order of magnitude of these additional revenues and how important are these higher prices to overall profitability and financial status of the hospital? The objective of this project is to inform policymakers and hospital leaders about the effects and implications of current hospital pricing practices on the uninsured, on the future of high deductible health plans, and on hospital finances.

Title: The Effects of Health Plan Concentration on Hospital Prices, Costs, Capacity, Charity Care, and Outcomes
Institution: RAND
Principal Investigator: Glenn Melnick, Ph.D.
Grant Duration: February, 2006–January, 2008

Do differences in health plan concentration affect hospital performance in important areas, including prices, costs, staffing, capacity, charity care, and patient outcomes? In particular, they will address the following questions: 1) Do increases in health plan concentration slow hospital price growth? 2) Does increased health plan concentration lead to lower hospital growth? 3) Do increases in health plan concentration led to reduced capacity in terms of closure or reductions of specialty units in hospitals (such as ER or trauma center) and/or reduced hospital staffing? 4) Do increases in health plan concentration affect patient outcomes? 5) Do hospitals reduce charity care in response to increased health plan concentration? 6) Do any of the above observed effects of health plan concentration differ depending on the level of managed care penetration, differences in dominant form of managed care (HMO vs. PPO), or differences in markets dominated by for-profit compared to not-for-profit health plans? The objective of this project is to inform the policy debate about whether health plan consolidation is welfare decreasing or welfare increasing.

Title: Peer Pressure: Hospital Ownership Mix and Medical Service Provision
Institution: University of Michigan Law School
Principal Investigator: Jill R. Horwitz, Ph.D., J.D., M.P.P
Grant Duration: September, 2006–August, 2007

Does medical service provision by nonprofit hospitals vary with the for-profit share of the market? The researchers will examine approximately 40 medical services sorted into three profitability categories (relatively high, relatively low, variable) and address three related questions: (1) Do for-profit and nonprofit hospitals offer different kinds of services in markets with varying for-profit penetration; (2) Do shifts in for-profit market share change the propensity of nonprofit hospitals to offer profitable and unprofitable services; and (3) How does for-profit penetration relate to the overall percentage of hospitals providing different types of medical services? The objective of this project is to inform federal and state policymakers as they consider tax regulation and community benefit standards, as well as decision makers considering availability and access to services in conjunction with the negotiation of hospital conversion terms.

Title: Hospital Ownership and Performance: An Integrative Research Review
Institution: Tufts University
Principal Investigator: Karen Eggleston, Ph.D.
Grant Duration: June, 2004–November, 2005

How does hospital ownership affect health care providers and health plan performance? The researchers are conducting a quantitative meta-analysis of the main findings of the empirical literature on hospital ownership and performance. They are examining the significance of ownership effect on performance by statistically combining the information in each independent study (1990-2004), while taking in to account differences in quality of the empirical design. They will also note how studies account for market interaction and selection bias, since ownership conversions do not occur randomly among hospitals, and for-profits do not randomly enter markets. The objective of the study is to provide policymakers evidence-based guidance on a wide range of policies regarding hospital ownership, including setting provider payment and evaluating for-profit conversions in health care markets.

Title: Hospital Ownership Conversions
Institution: Duke University
Principal Investigator: Frank A. Sloan, Ph.D.
Grant Duration: December, 1998–November, 2001

What is the impact of hospital ownership changes on strategic and clinical outcomes? Using the Lewin database (approximately 600 conversions), particularly those for which there is complete transaction information (approximately 350), supplemented with data from the Medicare Cost Reports, Medicare Provider of Service Files, American Hospital Association Annual Survey of Hospitals, IRS Sources of Income, and the Area Resource File, researchers from Duke University examined: 1) why some hospitals choose to convert to for-profit status and why they select a particular type of ownership change; 2) in what percentage of cases a "fair" price is paid by the acquiring organization; and 3) how conversions affect the hospitals’ internal decision-making process. They also obtained some information by telephone from hospitals and other parties familiar with the transactions. Finally, they analyzed how strategic business decisions and clinical decisions are affected by will conducting 20 case studies of converted hospitals, comparing the information collected with similar information from 20 matched control hospitals. The investigators hypothesized that organizational goals vary by ownership and differences in goals are reflected in differences in decision-making processes and outcomes. In addition, they posited that conversion increases uncertainty, which, in turn, may reduce the effectiveness of staff and put the hospitals at risk for poor outcomes. The objective of the study was to provide policymakers and regulators with additional information about where oversight and/or intervention with respect to hospital conversions might be desirable.

Title: The Impact of Nonprofit Conversions on Community Benefit
Institution: Boston University School of Public Health
Principal Investigator: Gary J. Young, J.D., Ph.D.
Grant Duration: September, 1997–August, 1998

How do hospital conversions from nonprofit to for-profit status affect the communities they serve? Researchers at Boston University examined both short-term and long-term impacts using several different measures of community benefit, including uncompensated care, provision of unprofitable services, price discounts, and community representation on governing boards. They also assessed the number of conversions that resulted in either hospital closures or changes in service orientation. The researchers studied hospital conversions in three states: California, Florida and Texas. California and Florida data will cover the period between 1979 and 1996; Texas data span 1988 through 1995 (1996 if available). They also examined Medicare Cost Reports and American Hospital Association survey data. The objective of the study was to assess whether, and how, hospital conversions from non-profit to for profit status affects the community that these hospitals serve.

Title: Changes in Hospital Configurations Between 1980 and 1995 in Urban America
Institution: Boston University
Principal Investigator: Alan Sager, Ph.D.
Grant Duration: April, 1996–September, 1998

How has the hospital industry changed since 1936, and what indicators could be used to predict change? Researchers at Boston University compiled a data set comprising 1400 variables on approximately 1200 hospitals in 52 large and mid-size U.S. cities from 1936 to 1980. In this project, they updated the dependent variable -- whether the hospital has closed, relocated, merged, or remained open in place -- for the years 1990 and 1995. The researchers described the changes in hospital configuration in 52 cities from 1936 to 1995. They delineated how the different changes in hospital configuration vary by city size and region of the nation and analyze the predictors of hospital closings, relocations, and mergers between 1980 and 1990, between 1990 and 1995, and for the full fifteen years together. The objective of this study was to help policy makers better understand the meaning of how market and environmental factors affect hospital configurations.

Grantee Spotlight - Richard A. Rettig, Ph.D.

Richard A. Rettig, Ph.D., is an adjunct senior social scientist at the RAND Corporation’s Washington office. Dr. Rettig was at RAND from1975 until 1981, and returned in 1995. He served at the Institute of Medicine (1987-1995) as Director of the Council on Health Care Technology; Acting Director of the Drug Development forum; and directed studies of the Medicare End-Stage Renal Disease program, the Food and Drug Administration advisory committee system, and federal government regulation and methadone treatment.

Dr. Rettig was trained in Political Science at the Massachusetts Institute of Technology and taught at Cornell University , Ohio State University, and the Illinois Institute of Technology. He is the author of Cancer Crusade: The Story of the National Cancer Act of 1971 (Princeton, 1977, republished by Authors Choice Press, 2005) and has also written about end-stage renal disease, organ transplantation, health care technology assessment, clinical research, and medical innovation.

In December 2001, HCFO awarded Dr. Rettig a grant to explore the U.S. experience with high-dose chemotherapy and autologous bone marrow transplantation (HDC/ABMT) for breast cancer treatment. He and his colleagues, Peter Jacobson, J.D., M.P.H. (University of Michigan School of Public Health); Cynthia Farquhar, M.D. (University of Auckland New Zealand); and Wade Aubry, M.D. (Health Technology Center and the University of California at San Francisco Institute of Health Policy Studies), examined how treatment decisions were made and drew lessons for the use of other emerging technologies.

In a four-city, two continent collaboration, the researchers analyzed two parallel pathways of rapid (and premature) clinical use of HDC/ABMT and the much slower evaluation of the procedure by randomized clinical trials. Rapid clinical use was driven by patient demand, physician enthusiasm, courtroom trials, entrepreneurial oncology, and federal and state government mandates. They also examined how the absence of data of effectiveness, repeatedly indicated by many technology assessments, failed to slow diffusion. Only the existence of data showing no benefit, generated by randomized trials, decisively ended widespread use.

In this in-depth case study, Rettig and his colleagues found that three major factors drove HDC/ABMT along these parallel paths of widespread clinical use and slow accrual of patients to randomized controlled trials: initial conditions governed later developments; conflicting values presented themselves at every stage; and an institutional deficit, the absence of an authoritative body to oversee the evaluation of new medical procedures, hampered systematic evaluation. Their findings, discussed in detail in their forthcoming book False Hope: Bone Marrow Transplantation for Breast Cancer,[1] demonstrate the complex dynamics surrounding the introduction of new treatments for life-threatening conditions prior to adequate, evidence-based evaluation.

[1] False Hope: Bone Marrow Transplantation for Breast Cancer by Richard A. Rettig, et.al., is available at a pre-publication discounted rate of $42.50 (regularly $49.95) through Oxford University Press. For additional information or to order online, go to http://www.oup.com/us and use promo code 25102.

Spotlight on Grantee Publication

Richard A., Rettig, Ph.D., Peter D. Jacobson, J.D., M.P.H, Cynthia Farquhar, M.D., and Wade Aubry, M.D., will release their new book, False Hope: Bone Marrow Transplantation for Breast Cancer, in December 2006. The book “tells of the rise and demise of HDC/ABMT for metastatic and early stage breast cancer, and fully explores the story's implications, which go well beyond the immediate procedure, and beyond breast cancer, to how we in the

United States

evaluate other medical procedures, especially life-saving ones.”

Current HCFO grantee publications and recent grant findings will be regularly featured in the results section of our Web site.

New HCFO Grant Awarded

Title: Changes in Drug Utilization for Seniors without Prior Prescription Drug Insurance
Grantee Institution: Brigham & Women's Hospital, Inc.
Principal Investigator: Sebastian Schneeweiss, M.D., Sc.D.
Grant Period: November 01, 2006 – October 31, 2007
Grant Summary: The researchers will assess changes in prescription drug use among elderly patients who had no prescription drug coverage prior to Medicare Part D. In particular, they will examine the following research questions: 1) How fast is the uptake of Medicare Part D among seniors without prior insurance? Is there an increase in preventive drug use (more new users, better adherence)?; 2) Is there switching to more effective or more expensive drugs?; 3) Is there a reduction in discontinuation of drugs for chronic conditions?; 4) To what extent does total drug spending per patient change?; 5) What proportion of spending is shifted from patients to Medicare?; 6) Are prescribing changes clustered within physicians, pharmacies, or chains?; 7) How do prescribing patterns change when some patients exhaust their initial coverage but have not yet reached the catastrophic coverage (in the “doughnut hole”)? The objective of the study is to influence discussion of how to improve Medicare drug coverage after the first year of its existence by providing timely methodologically rigorous evidence.

New HCFO-SCI Issue Brief

Many challenges exist in controlling health care costs, and major changes in benefit design could offer promise toward this goal. It remains unclear to what extent specific changes would impact health care costs, and whether these changes would make a lasting difference. Despite these unanswered questions, benefit design changes are taking place in every market. Evaluating the effects of these changes is the only way to truly understand their capabilities.

New HCFO Findings Brief

Who Decides: Do Individual Physicians in Group Practices Have Discretion Over Acceptance of New Medicaid Patients?

New research led by Phillip R. Kletke, Ph.D. formerly of Health Research and Educational Trust examines the extent to which physicians’ have discretion over their acceptance of new Medicaid patients and the affect that this discretion has on Medicaid participation.

This Month in the News

David Dranove, Ph.D., the Walter McNerney Distinguished Professor of Health Industry Management at Northwestern University’s Kellogg Graduate School of Management, was recently appointed to Huron Consulting Group’s Academic Council. A press release from Huron noted that “the Council members address matters of importance in economic litigation and related academic research.”

Jack Hoadley, Ph.D., a health policy analyst and political scientist at the Georgetown Health Policy Institute, was quoted in an October 14, 2006 article in the Pittsburgh Post-Gazette examining increased Medicare prescription drug plans for 2007. The article states that in Allegheny County, PA beneficiaries will have 89 local plan options, an increase over the 70 offered in 2006. Hoadley cautions that “polls suggest that many consumers would ‘prefer fewer choices rather than more’.” He went on to say that many seniors feel that “having many plans to choose from ‘makes it confusing and difficult to pick the best plan’.”

Glen Mays, Ph.D., associate professor and director of research at the University of Arkansas for Medical Sciences, was quoted in an article in the Arkansas Democrat-Gazette on October 8, 2006 that examined Arkansas’ “any willing provider” law. The article states that although Arkansas is not the first state to have such a law, “it could be a trailblazer in enforcement of such legislation.” Mays stated that “in most situations, a complaint-driven strategy should be a ‘fairly effective’ way to enforce any willing provider laws.”

Stephen Parente, Ph.D., associate professor of finance at the Carlson School of Management at the University of Minnesota, was quoted in a November 5, 2006 article in the Minneapolis-St. Paul Star Tribune that examined the growing number of high-deductible health plans being offered to employees. The article states that many employers are now offering three or four variations of high-deductible health plans. Parente notes that “a plan’s price tag is [a] major variation.” He adds that the University of Minnesota lost nearly 700 high-deductible plan enrollees between 2005 and 2006 because the University offered a smaller contribution to an employee’s HRA.

Bruce Stuart, Ph.D., professor of drug therapy and aging at the University of Maryland-Baltimore, was quoted in an October 27, 2006 article in the Detroit News examined Wal-Mart’s plan to offer $4 generic prescription drugs. The article details Wal-Mart’s success in its new plan in several states, noting that “the deal already had kicked off a flurry of competition in Michigan and elsewhere.” Stuart cautions that “the devil is in the details… the offerings may be very limited or they could be on select drugs that weren’t very expensive in the first place.”

New NCHS Data on Long-term Care Available for Researchers

The National Center for Health Statistics (NCHS) announces the release of two new, nationally representative long-term care data sets, the 2004 National Nursing Home Survey (NNHS) and the National Nursing Assistant Survey (NNAS).

The NNHS is a periodic survey providing data on nursing homes, nursing home residents, and their care. New features of the 2004 NNHS included expanded content on facilities; staffing; quality of care, and resident medical outcomes (e.g., medications, emergency department use, and hospitalizations), as well as the capability to link to the Centers for Medicare and Medicaid Services Minimum Data Set. Data are available for 13,600 patients in 1,174 facilities.

The NNAS is the first national probability sample of certified nursing assistants working in nursing homes. Designed as a supplement to NNHS and sponsored by the Assistant Secretary for Planning and Evaluation, the NNAS explores the factors that may influence the direct care workforce shortage in long-term care. Telephone interviews were conducted with 3,017 nursing assistants from 582 nursing homes. The interview included questions about recruitment, education, training and certification, job history, family life, management and supervision, client relations, organizational commitment and job satisfaction, workplace environment, work-related injuries, and demographics. The survey’s rich potential for exploratory analyses is enhanced by the ability to link NNAS with the NNHS. For data files and documentation for both surveys, see: http://www.cdc.gov/nchs/nnhs.htm.

The NNHS is one of a family of surveys known collectively as the National Health Care Surveys. For more information on the long term care, inpatient care, ambulatory surgery, and ambulatory medical care components of the National Health Care Surveys, please visit www.cdc.gov/nchs/nhcs.htm

NCHS/AcademyHealth Health Policy Fellowship

The Centers for Disease Control and Prevention's (CDC) National Center for Health Statistics (NCHS) and AcademyHealth are seeking applications for their 2007 Health Policy Fellowship. This program brings visiting scholars in health services research-related disciplines to the NCHS to collaborate on studies of interest to policymakers and the health services research community. Fellows can access the data resources provided by CDC and participate in developmental and health policy activities related to the design and content of future NCHS surveys.

Applications must demonstrate training and/or experience in health services research and methodology, reflecting disciplines such as:
* Public health
* Public administration
* Economics
* Sociology
* Health care administration
* Behavioral sciences

National Health Policy Conference (NHPC)

Attend the National Health Policy Conference February 12-13, at the Capital Hilton, Washington, DC and join leading health policy experts as they examine the issues associated with strengthening the health care workforce.

The workforce plenary session will provide insight from experts such as administration officials, senior congressional staff, state officials, executives from the health care industry, and political commentators while two breakout meetings will tackle the topic in greater depth. The following sessions and meetings will be offered:

* Macro Views on Strengthening the Health Care Workforce (Plenary session)
* The U.S. Physician Workforce: Beyond the Numbers
* RN Rx: A Prescription for the National Nursing Workforce Crisis

* Ann Bokelman, Southside Regional Medical Center
* Colleen Conway-Welch, Vanderbilt School of Nursing
* Richard Cooper, University of Pennsylvania
* David Goodman, Dartmouth College
* Chuck Kilo, Greenfield Health
* Bruce Morrison, Former Member of U.S. Congress
* Fitzhugh Mullan, The George Washington University
* Kevin Sexton, Holy Cross Health

In addition to workforce issues, the 2007 National Health Policy Conference will feature three additional topic tracks:
* Addressing Coverage Issues and Evolving Strategies
* Driving Quality Improvement
* Advancing Public Health

2007 Annual Research Meeting (ARM)

Submission deadline: JANUARY 9
Don't miss this opportunity to present your work to more than 2,000 health services researchers, providers, and key health care decision makers.

Interested in hosting a meeting at the ARM?
The ARM provides an ideal opportunity for you to reach health services researchers, policymakers and practitioners who are attending the ARM. About 41 percent of attendees at the 2006 ARM attended at least one adjunct meeting. Meeting space is provided on a first-come, first-serve basis. Reserve space.

What's New with HCFO - November 17, 2006 (Print All Articles)

Non-Profit Hospital Community Benefits Under Review