Chapter 4

Hospitals: Origin,
Organization and
Performance

CHAPTER OBJECTIVES
Understand origins of Americas hospitals
Understand reimbursement and other factors
that shaped the current hospital system till today
Identify the many dimensions of hospital
functions and financing
Review the quality and financial challenges in
todays hospital environment
Identify effects of the ACA on future hospital role
and operations

Character of American
Hospitals

Appreciated
Maligned
Poorly understood
Places of:
Treatment
Research
Education
Employment, community economy

Early History (1)

1700s seaport cities: decrepit
pesthouses segregated contagious,
diseased sailors
Pesthouses commissioned by town
boards housed mentally & physically ill
who offended polite society
Although provided in the most
deplorable of conditions by todays
standards, early hospital care
reflected American concepts of
charity and public responsibility
providing for societys most destitute

Early History (2)

1736: Bellevue housed the poor,
aged, insane and disreputable,
originally The Poor House of New
York City
1789: Public Hospital of Baltimore,
later Johns Hopkins University
Hospital
1835: Eloise Hospital, Michigan
serving old, young, deaf, dumb,
blind, insane and destitute

Early History (3)

Following upon municipal pesthouses,
Physicians founded hospitals with citizen
funding in the 1800s:
Protect the well from sick and insane
Provide centrally located practice teaching
sites
Religious Orders (mid 1800s)
Protestant and Catholic Sisters played major
roles in professionalizing nursing care:
Sisters of Charity and German Deaconesses

Sources that Shaped the Hospital Industry:

Health Insurance, Specialization, Hospital
Expansion (1)

Private health insurance: Blue Cross, other

plans changed charitable mission with
business motives
In 1940, only 9% of U.S. population had
hospital insurance
By 1960, billions $$ flowing into hospitals
from insurance companies
Medical specialization, advances
encouraged hospital use
Hill-Burton Act (1946): federal support for
new construction & expansion

Sources that Shaped the Hospital

Industry: Health Insurance,
Specialization, Hospital Expansion (2)

Medicare & Medicaid fueled costs &

utilization
Medicare payment rates became the
national standard for hospital
reimbursement
Changed prior social role of hospitals
in caring for the most needy, the elderly
and poor; hospitals transformed to
lucrative business enterprises
Struggles to define the relative roles of
voluntarism, government and business

Growth and Decline in Number of

Hospitals
1873: 178; 1909: 4,300; 1946:
6,000+
1946 Hill-Burton Act expansions and
new construction through 1980s
yielded a high point of approx. 7,200
acute-care hospitals
1980s: medical advances transferred
procedures to ambulatory settings,
cost containment reduced numbers
to approx. 5,700 through mergers

Types of Hospitals
Acute care: avg. stay 30 days
Long-term care: psychiatric,
rehabilitation
Teaching: medical school affiliation,
student & resident clinical education
(400-6% of all hospitals)
Non-teaching: not medical-school
affiliated but may provide educational
experiences for health-related students

Hospitals by Ownership
Status, 2011
All U.S. Registered Hospitals: 5724
51%- Non-governmental not-for-profit
Teaching and non-teaching
21% -VA, State and local governments
Federal, state, city, county owned
18%- Investor-owned for profit
Management companies, physicians
10%-Non-federal psychiatric or long
term care

Physician-owned
Hospitals
Major growth since 1965 to over 1,000 in
2011; specialize in cardiology,
orthopedics, surgery.
High-efficiency with many amenities
Focus on less complex, profitable cases
Concerns regarding financial incentives,
competition with community hospitals
Supporters point out owners service to
community hospitals and tax payments
as for-profit entities

Financial Condition of
Hospitals
Declining occupancy: major shifts to
ambulatory settings
Private insurer and Medicare
pressures to cut utilization and costs
Rising operational & capital costs for
technology
Competition with physicians for
profitable diagnostic and treatment
services

Academic Health Centers, Medical

Education and Specialization (1)
Academic health center (AHC):
accredited, degree-granting
institution composed of a medical
school, one or more professional
schools (dentistry, nursing, public
health, pharmacy, allied health) with
an owned or affiliated relationship
with one or more teaching hospitals,
health system or other organized
care provider.

Academic Health Centers, Medical

Education and Specialization (2)
Technologically advanced; sources of major
clinical research and the sophisticated
technology
Technical advancements fuel specialization
Training sites for all health professionals;
high costs
Serve medically needy populations
Fragmented services result from training
venues

Hospital System of the

Department of Veterans Affairs (1)
The largest health care system in the
U.S.: 153 hospitals, 135 nursing
homes, 47 residential rehab facilities,
900+ outpatient clinics
Major teaching centers- most medical
school affiliated
Insulated from other hospitals
financial woes by strong
Congressional support

Hospital System of the

Department of Veterans Affairs (2)
Veterans 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

Structure and Organization of

Hospitals (1)
Typical organization model is the notfor-profit hospital
Direction, control & governance rest
on a three-legged platform:
Board of Directors (trustees)
Administration
Medical staff

Structure and Organization of

Hospitals (2)
Major Operating Divisions
Medical
Nursing
Patient support
Diagnosis
Administration & Fiscal
Human resources
Hotel services
Community relations

Structure and Organization of

Hospitals (3)
Medical staff organization: headed by
physician President or Chief of Staff
Liaison between administration and
physicians
Recommends physician appointments;
oversees quality of care

Attendings: physicians in practice with

hospital privileges
House staff: post-medical school
trainees under Attending/academic
supervision

Structure and Organization of

Hospitals (4)
Nursing Division: Largest professional
component of employees
Function in units by type of care
Units typically led by nurse
managers who coordinate staff and
patient service

Structure and Organization of

Hospitals (5)
Patient support: e.g. pharmacy,
social work, nutrition, discharge
planning
Diagnostic: e.g. labs, imaging, noninvasive cardiology
Administrative and fiscal: board of
directors relations, strategic
planning, non-clinical service
management, regulatory compliance,
billing, records

Structure and Organization of

Hospitals (6)
Human resources: employee hiring,
orientation, training, termination,
benefits management, regulatory
compliance, labor relations
Hotel: e.g. plant facilities,
housekeeping
Community relations: Media and
public relations management,
community services

Information Technologys
Impact on Hospitals
Hospital adoptions of EHRs more than
doubled from 16% to 35% since HITECH
Act of 2009
At mid-2012, 4,000+ hospitals enrolled in
Medicare & Medicaid EHR incentive
programs; received $ 5B in meaningful
use payments
Seek duplication and error reductions,
access to patient records, billing and
reporting efficiencies

Complexity of the
System
75% employ 1000+ persons;
systems may employ 10,000+
Hundreds of inter-related services,
personnel, functions and procedures
Complicated morass for patients and
families
Patient advocates help navigate issues
& concerns

Types and roles of

Patients
Persistent historical perceptions of
patients as needy and compliant with
authoritarian professionals
conditioned patients to assume
submissive sick role
More educated and assertive patients
increasingly reject passive role and
demand participation in care

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.

Patient Bill of Rights (Synthesis)

(1)
1. Receive respectful, considerate
treatment
2. Know names & titles of all individuals
providing their care
3. Complete and understandable
explanations of their diagnosis,
treatment and prognosis
4. Receive from physician all information
necessary to provide informed
consent

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 physicians advice &
receive an explanation of
responsibilities in exercising that
right

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

Informed Consent
Legally recognized since 1914
Patient understands medical
procedure to be performed, its
necessity and alternatives and why
Benefits
Risks and consequences &
likelihood
Consent freely given

Second Opinions
Insurers require for certain
procedures
May be patient-generated
Guard against unnecessary,
inappropriate or non-beneficial
procedures

Diagnosis Related Group (DRG)

Hospital Reimbursement
Retrospective reimbursement
perverse to cost control, fueled
utilization
Response to over-use, rising costs,
corporate outcries
Shift to prospective reimbursement
reversed financial incentives for
overuse of treatments, services
Medicare adopted 1983; other
insurers followed

Discharge Planning
Arranges post-hospital care
Involves physicians, social workers,
insurance company and nursing
Right of discharge appeal: Medicare
designated Quality Improvement
Organizations (QIOs) protect patient
rights to appropriate discharge
planning

Post-DRG and Managed Care:

Early Market Reforms (1)
Mid 1980s-2000: ~2,000 hospitals
closed; inpatient days fell by 1/3,
many consolidated into
local/regional/multi-facility systems.
1980s-1990s production line
concepts to gain efficiencies;
research highlighted alienated
patients and caregivers
2000-present: Refocus on
personalized, patient care and

Post-DRG and Managed Care:

Early Market Reforms (2)
Horizontal Integration: hospital
mergers under one or more
corporate structures to allow
economies of scale, enhanced expert
recruitment and deployment,
increased access to capital and
stronger brand marketing
Crested in mid 1990s and slowed
until 2002 when anticipated reforms
refueled consolidations and mergers

Post-DRG and Managed Care:

Early Market Reforms (3)
Vertical Integration: Operation of a
variety of related businesses; in
health care, ideal vertical system
encompasses full continuum:
Primary and specialty diagnosis and
treatment
Inpatient medical and surgical services
Short and long-term rehabilitation
Long term home and institutional
services

Quality of Hospital
Care (1)
Operational factors, indicators, value
judgments
Historically: degree of conformance
with pre-set standards
Peer review: implicit criteria with
qualitative judgments
Avedis Donabedian: structure,
process, outcome
Landmark studies revealed wide
variations.

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

Quality of Hospital Care (3)

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

Quality of Hospital Care

(4)
Leapfrog Group: Est. in 2000; 160
fortune 500 corporations, large
public and private benefit purchasers
w/Robert Wood Johnson Foundation
support
Hospital Quality and Safety Survey:
tracks progress in implementing 30
National Quality Forum safety practices;
available free, online.

Quality of Hospital Care

(5)
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
Improvement efforts continue with
some successes but no system-

Quality of Hospital Care (6)

Nursing Shortage Crisis
Dissatisfaction with staff reductions,
overwork, and inability to maintain
quality patient care
Qualified individuals have many less
demanding career options
1/3 of nursing workforce is 50+ years of
age; young persons disinclined to enter
the profession

Shortage improved 2002-2009 with

62% increase in employable RNs.

Research Efforts on Quality

Improvement
JCAHO: quantitatively defined quality
with measurable, results focus
Patient-focused hospital satisfaction
studies
Studies on test, procedure
appropriateness: On average, 1/3 or
more of all procedures of
questionable benefit (Fig. 4-1)

Responsibility of Governing
Boards for Quality of Care
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

Hospitalists: A Rapidly Growing

Innovation
Substitute for patients primary
physicians
Coordinate all in-hospital care
Most are qualified in internal
medicine
Many assessments underway
regarding quality & coordination of
care
Specialty designation currently under
consideration

Forces of Reform (1)

Cost, quality & access are 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

Forces of Reform (2)

ACA effects on hospitals
1. Population focus: shift to accountability
for overall outcomes of patient care,
not only within hospital walls,
requires new levels of coordination
2. Market consolidations: Mergers and
Acquisitions: Create new, larger
systems for negotiating power with
payers, increased efficiencies and
control of population groups

Forces of Reform (3)

ACA effects on hospitals, contd.
3. Accountable care organizations:
Hospitals join in legal arrangements
with physicians, other providers,
suppliers to coordinate patient care
across full spectrum of needs
4. Reimbursement and payment
revisions: ACO shared savings; hospital
value-based purchasing; readmissions
reduction program; bundled payments
for care improvement initiative

Continuing Change (1)

Retain core roles
technologically advanced care
education of physicians & other health
professionals
clinical research sites

Advance into new role

one component of integrated systems in
continuum of community-based care

Continuing Change (2)

Results of government and private
entity experiments with hospital roles
in a population-focused, value-driven
delivery system will inform about
refinements affecting costs and
quality.
Rising concerns about ACOs joining
prior competitors, creating market
power that may drive up costs

Continuing Change (3)

Positive reports on consolidated
hospital systems note that system
member hospitals outperform and
improve faster than independent
hospitals on important quality
parameters.
Likely to be variation in capability of
individual hospitals to adjust to
reforms; not all will survive.