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For-Profit Hospitals Found Costlier : Study Says Nonprofit Institutions Are Equally Efficient

January 09, 1986|JONATHAN PETERSON | Times Staff Writer

For-profit hospitals tended to charge more for various services than their nonprofit counterparts but were not more efficient in their business practices, according to an article published in today's issue of the New England Journal of Medicine.

Researchers at the consulting firm Lewin & Associates and Johns Hopkins University reported that the for-profit hospitals charged 22% more per admission than the nonprofit hospitals. Higher charges for drugs, laboratory tests, medical supplies and other "ancillary services" accounted for most of the difference, they found.

"For-profit chain hospitals made more by charging more, not by costing less," said Robert A. Derzon, vice president of San Francisco-based Lewin & Associates and one of the study's authors.

The researchers found that admissions to the for-profit hospitals cost an average of $401 more per patient in 1980. The findings were based on an analysis of 1978 and 1980 data from 160 hospitals in eight states.

The impact of recent changes affecting the hospital industry, including the introduction of a new federal reimbursement system for Medicare, were beyond the scope of the study.

"I can't say whether this kind of price differential has been maintained over the last five years," said J. Michael Watt, a principal with Lewin who organized the study.

In a report that seemed to support some widely held conceptions about hospitals--while calling others into question--the researchers said that for-profit hospitals admitted about the same proportion of Medicare and Medicaid beneficiaries as the nonprofit hospitals. They did not measure which sector treated more of the indigent, although it is widely assumed that public hospitals handle most such patients. The researchers also detected little difference in the severity of illnesses handled by the for-profit and nonprofit sectors.

"The story one often hears is that for-profit hospitals often take the simplest kinds of cases," Watt said. "This was not borne out by the study."

Although officials of for-profit hospitals have cited more efficient management practices as a reason for their profits, the study found little justification for such claims.

This finding may have implications for the ability of many for-profit hospitals to compete in the fast-changing environment of the health-care industry. For example, Watt said, some for-profit hospitals "are going to have a hard time" in arrangements with health maintenance organizations, in which they are reimbursed a fixed amount rather than for all of their charges, a practice that demands efficiency.

In recent years, the federal government has moved in such a direction by capping the amount that it reimburses hospitals for Medicare patients. Previously, it paid hospitals essentially all that they charged.

The researchers concluded that such changes in reimbursement practice were adding "new pressures for cost control and moderation in charges, to which both types of hospitals must adapt. Neither type has a clear-cut advantage in the ability to make necessary changes."

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