Assessing the Effect of Increased Managed Care on Hospitals.

EXECUTIVE SUMMARY

This study uses a new relative risk methodology developed by the author to assess and compare certain performance indicators to determine a hospital's relative degree of financial vulnerability, based on its location, to the effects of increased managed care market penetration. The study also compares nine financial measures to determine whether hospitals in states with a high degree of managed-care market penetration experience lower levels of profitability, liquidity, debt service, and overall viability than hospitals in low managed care states.

A Managed Care Relative Financial Risk Assessment methodology composed of nine measures of hospital financial and utilization performance is used to develop a high managed care state Composite Index and to determine the Relative Financial Risk and the Overall Risk Ratio for hospitals in a particular state. Additionally, financial performance of hospitals in the five highest managed care states is compared to hospitals in the five lowest states.

While data from Colorado and Massachusetts indicates that hospital profitability diminishes as the level of managed care market penetration increases, the overall study results indicate that hospitals in high managed care states demonstrate a better cash position and higher profitability than hospitals in low managed care states. Hospitals in high managed care states are, however, more heavily indebted in relation to equity and have a weaker debt service coverage capacity. Moreover, the overall financial health and viability of hospitals in high managed care states is superior to that of hospitals in low managed care states.

Federal and state initiatives to use managed care organizations (MCOs), specifically HMOs, to reduce the increase in healthcare expenditures have been very successful. MCOs have lowered hospital admission rates and patient lengths of stay by directing patients to lower cost healthcare delivery alternatives. Several studies suggest that hospital utilization rates have been retarded by the effects of increased managed care. Studies also indicate that hospitals in areas of high managed care market penetration have experienced diminished fiscal solvency and financial performance. Using a new methodology and different data sources, this article will attempt to confirm the results of earlier studies that have indicated that managed care has negatively affected hospitals' levels of profitability and liquidity. The results of this study will discuss the effect of HMOs and increased managed care on the utilization of hospital services and on hospital financial performance.

RESEARCH METHODS

I. Assessing a Hospital's Potential Financial Vulnerability to the Effect of Increasing Managed Care Market Penetration

As managed care and negotiated payment arrangements between hospitals and various payors and purchasers of hospital services become more prevalent, hospitals must be able to assess the potential financial effect of increased managed care market penetration. Hospitals in states currently experiencing a significantly higher degree of managed care demonstrate dramatically different financial and utilization trends than hospitals in other states.

This study uses a Managed Care Relative Financial Risk Assessment (MCRFRA) methodology developed by the author to assess the relative financial risk of the effects of increased managed care market penetration on hospitals. The process analyzes the hospital's comparative indicators of financial and utilization performance. This analysis and assessment methodology uses aggregate hospital data at the state level since several of the indicators included in the MCRFRA are population-based indexes that cannot be accurately compared at the individual hospital level. The population base at the hospital-specific level is both smaller and harder to define geographically. Nine financial, demographic, and utilization measures form the basis of the risk assessment and include comparative data for admission rates, average lengths of stay, patient days, inpatient worker-hours per discharge, and indicators of Medicare and managed care enrollment for the state in which the hospital is located. The MCRFRA risk assessment methodology provides a quantitative predictive model that can predict the potential financial vulnerability of a hospital to the effects of increased managed care market penetration based on the hospital's state location.

The MCRFRA methodology compares hospitals within each state to a Composite Index of the top five states with the highest managed-care market penetration (see Table 1).

TABLE 1
HMO Market Penetration by State, Five Highest
and Five Lowest States

Rank       State         Penetration (%)

  1     Massachusetts         42.1%
  2     California            38.4%
  3     Minnesota             35.7%
  4     Oregon                34.9%
  5     Colorado              34.7%
 46     North Dakota           2.4%
 47     Montana                2.1%
 48     Mississippi            1.0%
 49     Wyoming                  0%
 50     Alaska                   0%

Source: 1995 Managed Care Digest, HMO-PPO Edition, Hoechst, Marion, Roussel, Inc.(1)

According to the 1995 Managed Care Digest, in 1994, the states with the highest percentage of managed care market penetration were Massachusetts, California, Minnesota, Oregon, and Colorado. These states are referred to as high managed care states (HMCS).

States with the lowest percentage of managed care market penetration are referred to as low managed care states (LMCS); in 1994 they were North Dakota, Montana, Mississippi, Wyoming, and Alaska.

The HMCS Composite Index represents the average of the individual indicators for a particular measure, for example, average length of stay. An overall risk rate of 100 indicates that hospitals located in the comparison state are perfectly aligned with the financial and utilization performance of hospitals represented by the HMCS Composite Index. In this state of equilibrium, the hospital is maintaining an admission rate, occupancy, patient days, and average length of stays characteristic of hospitals in the HMCS composite group. A relative risk rate below 100 indicates that a hospital is vulnerable to the potential negative financial effect of increased managed care. The lower the rate, the greater the potential financial risk. This risk results from maintaining higher admission rates, occupancy percentages, and patient days that are unsustainable in an HMO-dominant market. The sources of the indicator data used in the risk assessment methodology are presented in Table 2.

TABLE 2
Data Sources--Relative Risk Assessment

Index                   Numerator           Source

Admissions per          Total 1994          1995 AHA Hospital
 1,000 population        inpatient          STATS
                         admissions
Average length of       Total 1994          The 1995 Almanac
 stay                    inpatient days
Patient days per        Total 1994          1995 AHA Hospital
 1,000 population        inpatient days     STATS
Surgical operations     Total 1994          1995 AHA Hospital
 per 1,000 population    surgical           STATS
                         operations
Percentage of non-HMO   1994 population     1995 Managed Care
 population              not non-HMO        Digest
                         enrollee
Inpatient man-hours     1994 Inpatient      The 1995 Almanac
 per discharge           man-hours
Percentage on           1994 Non-Medicare   The 1995 Almanac
 non-Medicare            discharges
 discharges
Inpatient revenue       1994 Inpatient      The 1995 Almanac
 percentage              revenue
Occupancy percentage    Total 1994          The 1995 Almanac
                         inpatient days

Index                   Denominator         Source

Admissions per          1994 state          1995 Statistical
 1,000 population        population          Abstract
                         divided by 1,000    of the United States
Average length of       Total 1994          The 1995 Almanac
 stay                    admissions
Patient days per        1994 state          1995 Statistical
 1,000 population        population          Abstract
                         divided by 1,000    of the United States
Surgical operations     1994 state          1995 Statistical
 per 1,000 population    population          Abstract
                         divided by 1,000    of the United States
Percentage of non-HMO   1994 total state    1995 Managed Care
 population              population          Digest
Inpatient man-hours     Total 1994          The 1995 Almanac
 per discharge           discharges
Percentage on           Total 1994          The 1995 Almanac
 non-Medicare            discharges
 discharges
Inpatient revenue       Total 1994          The 1995 Almanac
 percentage              revenue
Occupancy percentage    Total available     The 1995 Almanac
                         beds times
                         365 days

Sources: AHA Hospital STATS, Statistical Abstract, Managed Care Digest, Almanac.

Relative Risk Assessment

Nine financial and utilization indicators have been selected to assess a hospital's potential financial vulnerability or relative risk of experiencing a negative effect from increasing managed-care activity. For example, the indicator "Total Patient Days per 1,000 Population" can provide an indication of a hospital's vulnerability to increased managed care utilization controls, perdiem payment arrangements, or capitation. Hospitals with significantly higher patient days than the HMCS average risk losing revenue resulting from the increased managed care cost controls that focus on patient-day reduction. Similarly, a hospital with higher admissions per 1,000 population than hospitals in HMCSs are at risk from the effects of increased managed-care market penetration. HMOs and other MCOs control their costs of providing health maintenance and other health services by using more disease prevention, health promotion, and other nonacute care services This conscientious avoidance of inpatient hospitalization and bent for lower-cost outpatient care by HMOs results in lower admission rates per 1,000 population for hospitals experiencing the effects of an increasing managed care market

MCRFRA methodology in this study is composed of nine measures of hospital financial performance and utilization activity These measures or indicators are defined in Table 2. The HMCS Composite Index and associated risk for each indicator are described in Table 3. The associated risk described in Table 3 is payment system sensitive. Per diem, per case, discounted fee-for-service (FFS), and capitation payment systems provide differing incentives and provider motivations A more thorough analysis of the effect of managed care on hospitals--an analysis beyond the scope of this study--should consider payment-scheme prevalence as an important variable in the analysis Table 4 displays the actual values for each indicator for the HMCSs and for the comparison state, New Jersey The indicator values for the five HMCSs are totaled and averaged to derive the Composite Index for each indicator.

TABLE 3
Relative Financial Risk Indicators

                         HMCS
                         Composite
Indicator                Index       Associated Risk

Admissions/1,000         112         Lower occupancy and reduced
 population                           revenue resulting from HMO
                                      preference for outpatient
                                      services
Average length of stay   4.6 days    Reduced revenue under per-diem
                                      or FFS payment arrangements;
                                      increased efficiency and
                                      per-case profit margin under
                                      per case or capitated
                                      payments
Patient days/1,000       918 days    Reduced revenue under per-diem
 population                           or FFS payment arrangements;
                                      increased efficiency and
                                      profit margin under per-case
                                      payments or capitation
Surgical operations/     87          Reduced revenue resulting
 1,000 population                     from movement of cases
                                      to ambulatory sites
% of non-HMO             63%         Reduced revenue resulting
 population                           from shift away from
                                      charge-paying patients to
                                      negotiated payment
                                      arrangements
Inpatient                141 hours   Reduced profit margins
 man-hours/discharge                  resulting from inefficiency
                                      and higher expenses
                                      associated with staffing
% of non-Medicare        61%         Greater reliance on
 discharges                           negotiated payment
                                      arrangements for
                                      non-Medicare payors results
                                      in less predictable volume
                                      and revenue
Inpatient revenue        60%         Reduced inpatient revenue
 percentage                           resulting from movement
                                      to lower-cost outpatient
                                      services
Occupancy percentage     45%         Reduced inpatient revenue
                                      as a result of lower
                                      HMO hospitalization rates
TABLE 4
Managed Care Relative Financial Risk Assessment (MCRFRA)

Index                  CA    CO     MA     MN    OR

Admission/1,000        103   104    138    114    99
Average length of      4.5   4.4    5.8    4.4   3.8
 stay
Patient days/1,000     721   779   1231   1181   676
 population
Surgical Operations/    68    82    108     91    87
 1,000
 population
% non-HMO              62%   65%    58%    64%   65%
 population
Occupancy %            48%   48%    61%    30%   37%
Inpatient              144   169    129    137   129
 man-hours/
 discharges
% non-Medicare         67%   68%    59%    50%   60%
Inpatient revenue %    67%   63%    60%    57%   54%

Overall Risk Ratio (100 = No Risk)

Index                  Composite
                       Index         NJ     RFR      US

                       (E)          (O)     E/O
                                          x 100

Admission/1,000        112          141      79     127
Average length of      4.6          6.7      69     5.3
 stay
Patient days/1,000     918         1271      72   1,046
 population
Surgical Operations/    87           82     106      92
 1,000
 population
% non-HMO              63%          77%      82     79%
 population
Occupancy %            45%          69%      65     48%
Inpatient              141          170      83     151
 man-hours/
 discharges
% non-Medicare         61%          77%      79     58%
Inpatient revenue %    60%          77%      78      62

Overall Risk Ratio (100 = No Risk)           79

Patient days, admission rates, occupancy, and average length-of-stay indicators are interrelated. They do, though, provide individually different signals regarding the potential financial vulnerability of a hospital located in an area of increasing managed care market penetration. Depending on the payment method employed by the MCO, variances in these indicators will have different revenue implications. For example, a reduction in patient days as a result of increasing levels of managed care under a per-diem payment scheme will have significant negative revenue consequences for the hospital. However, capitation payment arrangements provide an incentive to the hospital for reducing patient days since the hospital usually receives a prepaid per-member per-month payment regardless of the utilization of inpatient hospital services.

HMCS Composite Index

The actual performance measures for each of the nine relative financial risk (RFR) indexes are displayed in Table 4. The HMCS Composite Index is reflected as the average of the individual state measures for each of the nine indexes. In developing the relative risk rate for hospitals in a particular state, the HMCS Composite Index becomes the numerator (E = expected value) in the calculus. The performance measure for each indicator for the comparison state is also reflected and represents the denominator (O = observed value) in the calculus. The RFR represents the relationship between the comparison state's measures and those of the HMCS Composite Index.

An overall RFR rate can be determined by simply adding the individual relative risk factors for each of the nine indexes. Again, an RFR rate of 100 would indicate that hospitals represented by the comparison state measures are perfectly aligned with the financial and utilization performance of the comparative control group of hospitals in HMCS. An RFR rate below 100 indicates a level of potential financial risk for hospitals with similar measures; a rate of 70 is worse than a rate of 80, and so on.

As demonstrated in Table 4, an RFR rate for hospitals in a particular state can be developed by comparing the observed financial and utilization performance of hospitals in the comparison state to that of hospitals represented by the HMCS Composite Index. The RFR rate for New Jersey hospitals, for example, is 79, a number significantly below the equalization risk rate of 100. This low RFR rate signals a relatively high degree of financial risk associated with a potential increase in managed care market penetration. The potential financial risk for hospitals in New Jersey, which is indicated by their RFR rate of 79, emanates from the absence of managed care utilization controls and restrictive payment schemes in the past. New Jersey's significantly higher admission rates, average length of stay, and patient days reflect the state's long history of predominant per-case and fee-for-service payments to hospitals supported in part by a state rate-setting system until 1992. Higher occupancy rates and inpatient revenue sources also indicate that New Jersey hospitals have not been subjected to the same managed care utilization controls, financial pressures and service constraints that hospitals in high managed care states have experienced.

II. Comparison of HMCS and LMCS Financial Performance

Hospitals in HMCS, represented by the five highest managed care market penetration states, generally report higher profitability than hospitals located in the five LMCS. Hospitals represented by the LMCS composite generally reflect better liquidity and capital structure performance than the high managed care composite group of states. Regarding overall financial performance, hospitals represented by the high managed care state composite indexes are more financially viable than hospitals represented by the LMCS composite indices (reflected by their higher Financial Flexibility Index). A comparative analysis of the nine key financial ratios or indicators for both the HMCS and LMCS groups that were used to reach this conclusion are displayed in Table 5. The analysis includes a comparison of three liquidity ratios or indicators, three profitability indicators, two capital structure ratios, and one overall measure of hospital financial performance, the Financial Flexibility Index developed by William Cleverley, Ph.D., at Ohio State University.

TABLE 5
Comparative Financial Analysis--HMCSs and LMCSs

                                               New     United
Financial Ratio                HMCS    LMCS   Jersey   States

Total margin                   3.8%    3.3%    2.7%     3.2%
Operating margin               2.8%    1.6%    2.5%     2.7%
Return on investment           9.9     9.0     8.7      8.9
Current ratio                  1.72    2.79    1.58     1.79
Days cash on hand             86      67      96       98
Average payment period        63      49      70       62
Long-term debt to equity        .61     .34      .88     .74
Debt service coverage          3.6     5.0      2.4     3.1
Financial Flexibility Index    2.69    1.78     1.61    2.00

Sources: The 1995 Almanac of Hospital Financial & Operating Indicators

Note: The Financial Flexibility Index is a composite of seven financial ratios that measure a firm's ability to control funds flow and is intended to provide a measure of the overall financial health of a firm.

RESULTS

Comparative Profitability

The three indicators of hospital profitability used for this study are total margin, operating margin, and return on investment. The total margin reflects profits from both operations and non-operations. In 1994, both the HMCS and LMCS groups out-performed all other hospitals in the United States. Nationally, hospitals reported an average total margin of 3.2 percent in 1994 while HMCS hospital total margins averaged 3.8 percent and LMCS hospitals averaged 3.3 percent. The operating margin ratio represents the proportion of revenue realized in income from operations. In 1994, the HMCS composite group slightly out-performed all hospitals in generating a 2.8 percent operating margin compared to the U.S. average of 2.7 percent. LMCS hospital profitability (1.6 percent), as measured by the operating margin, was significantly below the national average in 1994. Similarly, hospitals in the HMCS group reported a higher return on investment (9.9) than did LMCS hospitals (9.0) or hospitals nationally (8.9). Analysis of hospital performance data from 1990 through 1994 confirms the indication that hospitals in HMCSs experience greater profitability than hospitals in LMCSs. The HMCS group reported the same total margin performance (3.7 percent average per year) as did the LMCS group during the same period. Return on investment performance was similar during this five year period with the HMCS group (9.5 ROI) slightly out-performing the LMCS group (9.1 ROI). However, HMCS hospitals posted a significantly higher operating margin (2.3 percent) than did hospitals in the LMCS group (.9 percent) between 1990 and 1994. While the data included in this analysis indicate that there is not a positive relationship between increased managed care and diminished hospital financial performance, specific state hospital financial performance data do seem to indicate that a direct correlation exists between increased managed care market penetration and diminished profitability. As portrayed in Table 6, Colorado and Massachusetts hospital experience, for example, demonstrates that as the level of managed care market penetration increases, profitability, as defined by total margin, decreases.

TABLE 6
Relationship Between Hospital Profitability
and Increased Managed Care

               Colorado              Massachusetts

Year   Total Margin   % HMO   Year   Total Margin   % HMO

1991       7.0%       22.5%   1991       2.3%       30.6%
1992       6.1%       26.6%   1992       2.5%       35.4%
1993       5.1%       28.7%   1993       1.7%       38.9%
1994       4.1%       34.7%   1994       1.5%       42.1%

Comparative Liquidity

Hospitals in LMCSs enjoy significantly higher liquidity as measured by the current ratio and the average payment period. The LMCS group reports a collectively higher current ratio, the relationship of current assets to current liabilities, of 2.79 compared to the HMCS group ratio of 1.72. Similarly, hospitals represented by the LMCS composite experience a much faster average payment period of 49 days compared to either the HMCS group (63 days) or the national average of 62 days. However, HMCS hospitals report a higher level of days cash on hand (86 days), nearly 20 days higher than the LMCS group (67 days), but still below the national average of 98 days. This disparity between the HMCS and LMCS composite data for the days cash on hand indicator is misleading, however, because a high outlier in the HMCS group (Colorado with 108 days of cash on hand) and a low outlier in the LMCS group (Alaska with only 31 days of cash on hand) skew the result. Removing these two states from the analysis of days cash on hand reduces the difference to only four days with the HMCS group reporting 80 days of cash on hand and the LMCS group with 76 days of cash.

Comparative Debt and Debt Service

The comparative analysis of the 1994 data indicates that hospitals in HMCSs are nearly twice as indebted (.61 long-term debt to equity ratio) as hospitals in the low managed care group (.34 long-term debt to equity ratio). Regarding the hospitals ability to pay both the principal and interest associated with long-term indebtedness, the debt service coverage ratio indicates that hospitals in the LMCS group maintain a much stronger debt service capacity (5.0) than do hospitals in the HMCS group (3.6). Both groups, however, are above the national average debt service coverage ratio of 3.1.

Comparative Overall Financial Viability

As measured by the Financial Flexibility Index described in Table 6, hospitals represented by the HMCS are in better overall financial health than hospitals in the LMCS group of states. HMCS hospitals report an Financial Flexibility Index of 2.69 while the Financial Flexibility Index for hospitals in the low managed care group is 1.78. An Financial Flexibility Index of 2.00 or above is desirable; in fact, the national average was 2.00 in 1994.

CONCLUSIONS

As demonstrated by the MCRFRA model, which was developed by the author as a method of assessing the potential financial vulnerability of a hospital to the effects of increased managed care market penetration, a hospital's potential risk associated with greater HMO market influence can be predicted. By examining the key hospital financial and utilization indicators most influenced by HMOs, we might identify trends characteristic of hospitals in high managed care areas that can be applied to other states, and to other hospitals, to estimate the financial ramifications of an increasing managed care market. This study confirms that the utilization of acute care hospital services in HMCSs has been suppressed compared to the utilization of hospital services nationally. Specifically, admission rates (112 admissions per 1,000 population), patient days (918 patient days per 1,000 population), and occupancy (45 percent) experienced by hospitals in HMCSs are all significantly lower than the national averages of 127 admissions/1,000, 1,046 days/1,000, and 48 percent occupancy. As the percentage of managed care market penetration increases in a particular area, hospitals can predict the financial effect of the change by utilizing the indicators of relative financial risk contained in the model presented in Table 4.

This study was not able to confirm the its original assertion that increased managed care activity negatively influences the financial solvency of hospitals subject to the change in managed care market presence. While hospitals in LMCSs do seem to maintain better financial liquidity as measured by the current ratio and the average payment period, hospitals in HMCSs demonstrate better cash positions and higher profitability. The operating margin, the most common measure of hospital profitability, for the HMCS group (2.8 percent) was significantly higher in 1994 than the average margin for the LMCS group (1.6 percent). This higher profitability of hospitals in HMCSs in 1994 was not an aberration, in the data; hospitals in HMCSs also significantly out-performed hospitals in the LMCG regarding profitability, for the five-year period 1990 through 1994. While HMCS hospitals were generally more profitable in 1994, they were also twice as indebted as hospitals in the LMCS group. The LMCSs also posted a stronger debt service capacity than did hospitals in the high managed care group of states. Overall, the financial health and viability of hospitals in the HMCSs is superior to the overall financial condition of hospitals in the LMCSs identified in this study. The Financial Flexibility Index, developed by Ohio State University, was the indicator upon which this conclusion was reached.

The author recognizes that other confounding factors may very well have influenced the results of this study, such as the average age of the state's population, socioeconomic differences among the states being compared, the absence or presence of healthy lifestyle habits among the populations being compared, how urban or rural the states area, the influences of state certificate-of-need laws, and the level of state regulatory oversight of healthcare delivery. However, for the purposes of analyzing both the potential and realized financial effect of increased managed care on hospitals, it is assumed that because the states in this study were selected exclusively based on their degree of managed-care market penetration, the potential confounders may randomly occur in the study group of states; therefore, our conclusions are both valid and reliable.

While data from Colorado and Massachusetts indicates that hospital profitability diminishes as the level of managed care market penetration increases, the overall study results indicate that hospitals in HMCSs demonstrate a better cash position and higher profitability than hospitals in LMCSs. Hospitals in HMCSs are, however, more heavily indebted in relation to equity and have a weaker debt service coverage capacity. Moreover, the overall financial health and viability of hospitals in HMCSs is superior to that of hospitals in LMCSs.

PRACTITIONER RESPONSE

Robert S. Curtis, FACHE, Clara Maas Health System, Belleville, New Jersey

As managed care organizations penetrate the United States healthcare industry, it is vital for your organization to plan its position in the marketplace. Each state's degree of managed care penetration varies, from California (high) to Wyoming (low). Determining your state's level of managed care market penetration in assessing and preparing your organization for managed care. Mr. Mowll's study presents a means for practitioners to gauge their hospitals' relative degree of financial vulnerability in a high managed care market. It demonstrates the effect managed care has on the overall financial performance of hospitals in high managed care states (HMCSs) and low managed care states (LMCSs). uses a "new relative risk methodology" that consists of measurements of hospital financial and utilization performance combined with a HMCS index with which to compare by state individual hospital financial vulnerability to managed-care penetration.

The basis for the risk-assessment methodology is nine hospital performance measurements that include data for admission rates, average length of stay, patient days, surgical volume, inpatient work hours per discharge, and Medicare and managed care enrollment. These data are then quantified into a single index number for each state (or individual hospital) and compared against a composite index for the top five states with the highest managed care market penetration. A resulting state or hospital index number below the composite index indicates financial vulnerability to managed care while an average above the composite index indicates financial strength.

The study has an interesting approach to evaluating hospital vulnerability to managed-care penetration by taking the nine significant but not all-inclusive performance indicators and condensing them into one numerical value, which is then to be compared against a composite standard. These data can be used to develop a case to boards or medical staff in an effort to support a unified approach that will better position an organization to deal with the effect of increased managed care. In addition, the development of this methodology demonstrates to this audience the interrelationship multiple indicators have relative to each other and how one can impact on the other. The methodology does not, however, weight each of the measurements, but rather tries to condense a complicated set of measurements and give them equal value for the purposes of coming up with one number for comparative purposes. There is some risk in assuming that each of these measurements carry equal weight and thus equally share in the overall vulnerability of the hospital. By weighting these measurements the methodology and application of the information could be strengthened.

As a practitioner in the state of New Jersey, and one of the states used to illustrate the value of the methodology in this study, I can support its logic as well as its outcome. New Jersey is only into fourth year of managed care penetration but is rapidly catching up to the HMCSs. The nine performance measurements are among many that we consider important as we evaluate strategies for the future. I find the risk assessment methodology and comparative analysis useful as an easy indicator for the board, medical staff, and management to use in trying to understand a complex subject with many interrelated components.

In the second part of the study, designed to compare the financial performance of hospitals in HMCSs to LMCSs, the author used nine key financial ratios to assess overall financial viability of hospitals. Contrary to the literature and assumptions made by the author, the study determined that the financial performance and viability of hospitals in HMCSs compared quite favorably to that of hospitals in low managed-care states.

Overall the methodology developed for this study quantifies into one number for comparative purposes a very complex issue with many interrelated components. This has value as a benchmark to keep track of your institution's progress but more importantly as a tool to illustrate the potential impact of managed care penetration for your board, medical staff, and management.

References

1995 Managed Care Digest, HMO-PPO Edition. 1995. Kansas City, MO: Hoechst, Marion, Roussel, Inc., p. 16.

American Hospital Association. 1996. Hospital STATS, 1995-1996 Edition. Chicago: American Hospital Association

U.S. Department of Commerce. Statistical Abstract of the United States, 1995. Washington, DC: September 1995, p.28.