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Hospitals. Chapter 9 Tracey Lynn Koehlmoos, PhD, MHA. Hospital History 101. Phase 1: 1751 to mid-1800’s Voluntary hospitals—donations Public hospitals—tax supported Phase 2: Mid-1800’s to 1890 Particularist Hospitals: children, TB specific 172 hospitals in US at end of period

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Hospitals l.jpg


Chapter 9

Tracey Lynn Koehlmoos, PhD, MHA

HSCI 678 Intro to US Healthcare System

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Hospital History 101

  • Phase 1: 1751 to mid-1800’s

    • Voluntary hospitals—donations

    • Public hospitals—tax supported

  • Phase 2: Mid-1800’s to 1890

    • Particularist Hospitals: children, TB specific

    • 172 hospitals in US at end of period

  • Phase 3: 1890 to 1920

    • Profit-making hospitals

    • 4,000 hospitals & 521 mental illness centers

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Hospital Historical Transition

Beginning: social welfare, charity poor patrons,

Later: medical science, business, health service professionals

The hospital became the hub of medical education and practice

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Today’s Hospital

  • 8510 general short-stay hospitals (2000)

  • Can be categorized by:

    • Urban/Rural

    • Bed Size

    • Level of Care

    • Ownership

    • Teaching Status

    • Specialty Status

    • Government Status

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Hospital Supply

  • Hill-Burton Program

    • Post WWII: funds for rural hospitals

    • Later, urban hospitals and up-grades

  • Capital Expenditure Review Program

    • Certificate of Need program

    • 1122 program of SSA 1965

    • Limited impact on hospital distribution

    • Both repealed in mid-1980’s

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Distribution: SCH, RPCH

  • Sole Community Hospitals:

    • TEFRA 1982: ONLY source of care

    • Reimbursement exception Medicare/Medicaid

  • Rural Primary Care Hospitals:

    • Small hospital, rural areas

    • Stabilization then transfer

  • Essential Access Community Hospitals

    • Rural areas, enhanced emergency services.

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Centers of Excellence

  • High cost to maintain surgical functions

  • High quality, high volume = cost savings

  • Medicare reimburses CoE only

    • CABG, Joint Replacement, Outpatient cataract, heart transplant

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Board of


Medical Staff



Hospital Organization

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Hospital Medical Staff

  • Most physicians NOT hospital employees

  • Except radiology, pathology, ER

  • MD’s given Privileges to admit patients

  • Market exceptions:

    • HMO—hospitalists

    • Physicians who staff Public Hospitals

    • Military, VA, other government employed Drs.

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Hospital Administration

  • Recognized as a profession since early 1900’s.

  • Experts in organization and finance

  • Focusing on market share

  • Strategic positioning

  • Structure with physicians & other providers

  • Planning for emergency situations

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Hospital Governance

  • Depends on hospital type

  • Not-for-profit: 52%, Board of Trustees

    • Community leaders & business people

    • Diminishing role as hospitals use debt financing

  • For Profit: 13%, Board of Directors

    • Shareholders

  • State and Local Government: 20%

    • Board of County Commissioners & advisors

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Hospital Systems

  • Freestanding hospitals—rare, rural

  • Cooperative agreements, joint ventures, organizational linkage

  • Public hospitals—unlikely to be linked, “safety net” for indigent care

  • Hot Topic: acquisitions and mergers at the national scope (like HCA)

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Horizontal Integration

  • Development of Continuum of Care

  • Hospitals joining with hospitals and other hospital based services to expand market share and reach

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Vertical Integration

  • Hospital captures and controls more patient care that leads to and from in-patient services

    • Out-patient services

    • Urgent Care Centers


    • Rehabilitation Center

    • Nursing Home

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Uncompensated Care

  • Any person who presents at the ER has the right to receive treatment if the hospital participates in Medicare.

  • Voluntary and Private hospitals must at least stabilize the patient before transfer to a public hospital.

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Uncompensated Care

  • Big financial implications to hospitals

  • Unevenly distributed

  • About 6% of care is uncompensated

  • Urban, public hospitals: 1/3 US total

  • Major teaching hospitals, 3x market share in uncompensated care

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Regulation of Hospitals

  • Quality of Care

    • Licensure, Medicare/Medicaid, JCAHO

  • Utilization:

    • Medicare’s (QIO); payer’s utilization review

  • Capital Development: no current restrictions

  • Costs/Provider Payment:

    • Periodic freezes on Medicare/Medicaid

    • Cost-containment boards like in Florida

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Regulation v. Competition

  • Healthcare: social good or market good?

  • Regulation prevents true competition

  • However, can hospitals be truly competitive?

    • Cost containment measures

    • Social role

    • For Profit hospitals, offering only profitable services

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More Financing Issues

  • Medical Teaching Adjustment Funds

    • SSA 1965, GME provision (more tests, more supplies, more staff)

  • Medicare/Medicaid Disproportionate Share Funds

    • Catch-up mechanism of PPS for hospitals with a disproportionate share of low income patients.

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Hospitals in Transition

  • Reimbursement changes lead to care changes.

  • Medicare PPS—push to more outpatient services, shorter lengths of stay

  • Acquisitions and Mergers (1980’s)—efficiency v. market share

  • Downsizing: resulting from mergers and duplications of services, closing of smaller rural hospitals

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  • The hospital was once the hub of patient care, now it is part of a network of patient care.

  • Hospitals and the administrators who run them must stay abreast of the changing market place in order to stay financially viable.