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Contents
Executive Summary
Introduction
Context
Socioeconomic and Demographic Characteristics
Health Status
Health Insurance and Supply of Providers
The Hospitals
Hospital-Specific Utilization
Payer Mix
The Hospital Market
The Market for Insurance
The Maryland and Virginia Hospital Markets
The D.C. Hospital Market
Suburban and Regional Competition
Pressure for Change
Pressure from Private Insurers
Pressure from Public Payers
Hospital-Specific Pressures
Strategies
Cost Reduction
Patient Volume
The Future
Community Hospitals
Tertiary Care Hospitals—District Options
Tertiary Care Hospitals—Regional Options
Tertiary Care Hospitals—Regional Service Competition
Summary
Discussion
About the Authors
Tables and Figures
Table 1: Health and Demographic Data
Table 2: D.C. Health Care Resources
Table 3: D.C. Hospitals: Acute Care, Short-Term, Nonmilitary
Table 4: Hospital Utilization
Table 5: Hospital Financial Data
Table 6: Market Share
Figure 1: Hospitals in the District of Columbia
Executive Summary
The Washington, D.C., hospital sector has an excess of hospital beds and a concentration of services at the high end. Four community hospitals; three academic medical centers; a large, nonacademic tertiary care hospital; five specialty hospitals; and a public general hospital all compete to serve a city with a population of only 500,000. In addition, there are two military facilities. Forty percent of patients in this market are drawn from the adjacent Maryland and Virginia suburbs. The market is poised for change, driven by insurance market trends.
The insurance market in the District is bimodal. At one end, coverage is generous, strongly influenced by the federal employees' plan, which offers both fee-for-service and managed care and has historically subsidized the high end of the market. To compete for professional workers, private firms attempt to match the federal plan. At the other end, nearly one-fifth of the city's population is on Medicaid and another fifth is uninsured. Hospital overcapacity has given insurance plans the advantage in rate negotiations, and the consolidation among the plans that has begun in the past year threatens to further increase the bargaining power of the plans. In the public sector, the D.C. employees' plan has recently moved to managed care for new hires, and mandatory enrollment of Medicaid recipients in managed care has just begun.
| Washington has only one academic medical center that is a major provider of uncompensated care. Even unburdened by uncompensated care, the academic medical centers are financially insecure, suggesting that uncompensated care is not a driving force behind their poor financial performance. |
Hospital payer mix is determined in large measure by geographic location. While Medicare patients are fairly evenly distributed across the city, Medicaid patients are concentrated in certain geographic areas. Uncompensated care is also concentrated, largely by geography, but hospital mission is also a determinant. The city's public hospital provides the bulk of the uncompensated care, but there are other important providers as well. Total uncompensated care provision in the city declined during the 1990s, and its distribution became even more uneven, with the city's public hospital picking up more of the burden. Unlike many other cities, Washington has only one academic medical center that is a major provider of uncompensated care. Even unburdened by uncompensated care, the academic medical centers are financially insecure, suggesting that uncompensated care is not a driving force behind their poor financial performance.
The community hospitals are widely distributed geographically. They are niche players, serving their neighborhoods and other chosen target populations, and are generally more stable financially than the academic medical centers. Two important factors influence their financial health. First, they have greater flexibility than the larger facilities to identify and institute cost-reduction measures. The institutions that have combined this flexibility with foresight are much closer to achieving the level of efficiency demanded in the current highly competitive market. Second, community hospital missions do not require them to maintain as broad a range of services as specialization in tertiary care. The community hospitals have, therefore, been able to concentrate on excelling in a narrower range of services.
With increasing pressure from payers, rising competition from both District and suburban hospitals, and changes in public policy regarding Medicaid and Medicare, many District hospitals are struggling financially. They also face a growing for-profit presence, from a small community hospital that converted in 1992 and, since last year, from a major medical center. These changes affect different hospitals in different ways, depending on their patient base and payer mix. Hospital survival strategies are, nonetheless, fairly consistent across institutions and typically old-fashioned, concentrating on cutting costs and filling beds. Vertical integration of services is also being tried as a way to position the hospital as a unit of a continuum of care rather than as the central provider. Hospital mergers might seem a logical strategy as well, but to date hospitals within the city have shown little propensity to affiliate with one another. More frequently, D.C. hospitals look to hospitals in the adjacent states, particularly Maryland, for partners, reflecting the fact that the market for tertiary care services is becoming increasingly regional. The tertiary care centers are especially eager to expand their patient bases through affiliation with physician practices and hospitals in the Baltimore-Washington corridor, where the population is relatively affluent and population growth is relatively rapid. While some efficiencies might be expected from these affiliations, the dominant motivation appears to be to increase bargaining leverage with health plans and decrease competition for patients among the affiliated partners.
| It is the need to ensure accessibility and affordability that justifies public policy intervention in the hospital market.
|
Most observers believe that the hospital sector will look very different in the not-too-distant future, but there is little consensus on what it will look like. It has long been expected that at least one hospital will close, and many hospital managers seem to expect the closure to relieve market pressure and reduce the bargaining power of insurers. From a policy perspective, what is important as the sector restructures is that the surviving hospitals offer an appropriate mix of services at locations that are geographically accessible to all, including the publicly insured and the uninsured, and at a price that reflects a balance of efficiency, quality, and access. It is the need to ensure accessibility and affordability that justifies public policy intervention in the hospital market.
The imminence of change argues strongly for intervention soon. The city needs to quickly end the near vacuum of policy brought about by its recent financial troubles and the leadership ambiguities created when Congress imposed Control Board authority over most city services. As the city regains financial stability and a measure of local control over its services, it will need to make key decisions about health care, especially about hospitals that provide a large measure of the available indigent care. Market forces are currently being allowed to shape the hospital sector with little local public intervention. The interplay of market forces should lead to a more efficient provision of services, a favorable outcome for those whose insurance makes them participants in the market. However, for a large number of poor D.C. citizens, the only voice available to them in the market is government policy on Medicaid and on care for the uninsured.
The District has no formal policy on hospital care for the uninsured, implicitly relying on the goodwill of individual hospitals for charity and other uncompensated care. When hospital finances were more secure and competition among hospitals was minimal, this policy might have been effective. In the current climate, however, the uneven distribution of uncompensated care represents a competitive disadvantage for those hospitals that choose to care for the poor. City inaction by default favors hospitals that, by chance or design, provide little uncompensated care.
Other jurisdictions have used charity care pools, hospital ratesetting, or expansion of publicly sponsored or subsidized insurance programs to reduce uncompensated hospital care or to spread its burden equitably across hospitals. Current D.C. regulations require a minimum level of charity care by private hospitals, but the total amount required is insufficient to meet demand. The city's quasi-public hospital, D.C. General, and its associated clinics serve as providers of last resort for all, without regard to ability to pay. Once again, however, demand exceeds capacity, and the incentives in place do not promote the most efficient provision of care.
Currently under discussion are proposals to expand health insurance coverage for children and their parents, childless couples, and single adults under the federal Child Health Insurance Program and through Medicaid waiver programs. Expanding insurance coverage would directly reduce uncompensated hospital care. In addition, it should encourage greater use of primary and preventive care so that, in the long run, as new patterns of utilization are established, inappropriate emergency room use might be curtailed and the number of preventable hospitalizations might decline.
| The District ... should articulate a citywide policy on uncompensated hospital care so that the restructuring hospital sector will serve all D.C. residents.
|
Expansion of coverage should be encouraged, but uncompensated care will always remain. The District should analyze the pattern of uncompensated hospital care, looking at who is receiving care, what types of care are being received, and who is providing it. It should then articulate a citywide policy on uncompensated hospital care so that the restructuring hospital sector will serve all D.C. residents.
Instituted in response to market developments that reduce overall uncompensated care provision, policy could mitigate the worst effects of the new hospital market on the poor. Instituted before such a crisis, policy could influence which hospitals survive. Policies on uncompensated care do not represent simply protection for the safety net institutions. Rather, by spreading the social burden of caring for the disadvantaged, policies can level the playing field and allow the safety net institutions to compete on more nearly equal terms with the hospitals that provide little uncompensated care.
Note: This report is available in its entirety in the Portable Document Format (PDF).
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