The effects of hospital-physician integration strategies on hospital financial performance.

Abstract

STUDY QUESTION: This study investigated the longitudinal relations between hospital financial performance outcomes and three hospital-physician integration strategies: physician involvement in hospital governance, hospital ownership by physicians, and the integration of hospital-physician financial relationships. DATA SOURCES AND STUDY SETTING: Using secondary data from the State of California, integration strategies in approximately 300 California short-term acute care hospitals were tracked over a ten-year period (1981-1990). STUDY DESIGN: The study used an archival design. Hospital performance was measured on three dimensions: operational profitability, occupancy, and costs. Thirteen control variables were used in the analyses: market competition, affluence, and rurality; hospital ownership; teaching costs and intensity; multihospital system membership; hospital size; outpatient service mix; patient volume case mix; Medicare and Medicaid intensity; and managed care intensity. DATA COLLECTION/EXTRACTION: Financial and utilization data were obtained from the State of California, which requires annual hospital reports. A series of longitudinal regressions tested the hypotheses. PRINCIPAL FINDINGS: Considerable variation was found in the popularity of the three strategies and their ability to predict hospital performance outcomes. Physician involvement in hospital governance increased modestly from 1981-1990, while ownership and financial integration declined significantly. Physician governance was associated with greater occupancy and higher operating margins, while financial integration was related to lower hospital operating costs. Direct physician ownership, particularly in small hospitals, was associated with lower operating margins and higher costs. Subsample analyses indicate that implementation of the Medicare prospective payment system in 1983 had a major impact on these relationships, especially on the benefits of financial integration. CONCLUSIONS: The findings support the validity of hospital-physician financial integration efforts, and to a lesser extent the involvement of physicians in hospital governance. The results lend considerably less support for strategies built around direct physician ownership in hospitals, particularly since PPS implementation. RELEVANCE/IMPACT: These findings challenge prior studies that found few financial benefits to hospital-physician integration prior to PPS implementation in 1983. The results imply that financial benefits of integration may take several years after implementation to emerge, are most salient in a managed care or managed competition environment, and vary by hospital size and multihospital system membership.

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