Who benefits from health system change?

The organization of medical care is changing more rapidly now than at any point in the last century. For decades, health care was a cottage industry: physicians practiced independently or in small groups and had arms-length relationships with hospitals, imaging and laboratory facilities, and other health care entities. Those organizations alternately competed and cooperated as part of an informal local health care system. Recentyearshave seen theadventof large, integrated, corporate medicine. Today, the typical US city has 3 to 4 integrated health care systems, generally anchored around large hospitals andextending to suburbanareas.1 These systemsare conglomerationsofhospitals, primary care andspecialist physicians,outpatient facilities, andpostacutecare facilities.There remainsa fringeofunaffiliated institutionsandphysicians,but the number of such institutions is declining. Why is this occurring? And who benefits from it? Three reports in this issue of JAMA examine this question. Joynt and colleagues2 examined the question of why consolidation is occurring, focusing on the conversion of not-for-profit hospitals to for-profit status. During their study period (20022010), 237 hospitals (5.2% of their sample) converted from not-for-profit to for-profit status. For each converting hospital, the authors identified up to 3 matched control hospitals based on size category, teaching status, and region. In their primary analysis, they compared clinical and economic outcomes 2 years before conversion to 2 years after conversion and used difference-in-differences models to minimize any temporary economic and clinical outcomes occurring just before the conversion and to identify changes that occurred after a reasonable period. A central finding of the study by Joynt et al was that hospitals that converted from not-for-profit to for-profit status had very poor financial performance prior to conversion. The typical converting hospital had a patient-based operating margin ([net revenue from patient care and related revenue − total operating expenses]/net revenue from patient care and related revenue) of −6.6% and a total margin ([total revenue − total costs]/total revenue), including non–patient care activities, of −1.2%. Performance at this level is clearly not sustainable. Thus, part of the rationale for conversion is to stabilize cash flow. Based on the findings of Joynt et al, hospitals converting to for-profit statuswere successful at this. Between2years before and 2 years after conversion, operating margins at converting hospitals increased by 3.2%, and total margins increasedby2.2%.Operatingmargins remainednegative,but the hospital as a whole would break even. This improvement in marginswas significantly greater for the converting hospitals than for a set of matched controls. Joynt et al were not able to determine the factors associatedwith cash flow improvements, but theydid rule out some explanations. The authors showed that neither Medicare reimbursementnor thenumberofMedicareadmissionschanged in the converting hospitals, nor did these hospitals experienceanabnormal reduction inMedicaid admissions.What are the converting hospitals doing? There are several explanations. First, converting organizationsmay be able to increase revenue from private payers. Price increases may be possible if convertinghospitals joineda largehealthcaresystemormore inpatientoroutpatient referrals couldbeobtained.Second, the for-profit organization could be better at reducing costs. Billing and insurance-related services can often be streamlined, andwageshigher thanmarket levelsmight be reduced. Third, some costsmight simply be shifted to another level in the organization. The debt of the converting hospital may be servicedat thecorporate level rather thanthehospital level,which would make the hospital’s balance sheet look better even in the absence of a reduction in the actual debt. Similarly, some of the “back office” costs (such as for billing services or human resource functions) may be paid for centrally. Differentiating among these explanations is a clear need in evaluating the financial outcomes of for-profit conversions. Operating losses are not the only explanation for the recent surge in organizational changes, nor is switching to forprofit status theonly formof changeoccurring.Health careentities thatprovidemedical careareconsolidating to raisecapital for investment in facilities and equipment (the for-profit acquisitions of Detroit Medical Center and Caritas Christi in Bostonboth involvedpromisesofnew investment); to takeadvantage of economies of scale, such as in buying and maintaining information technology; to negotiate risk-based contracts with insurers; and to develop deeper referral networks inmarketswithdeclining inpatient admissions. Themultifactorial nature of consolidation suggests it almost certainlywill continue. A second piece of the consolidation puzzle is who benefits from consolidation. The reports in this issue of JAMA by Robinson and Miller3 and by Baker and colleagues4 suggest that health care organizations and perhaps physicians benefit, in the form of higher prices. Robinson and Miller examined total spending for more than 4.5 million patients in California physician organizations owned by physicians, by local hospitals, or by multihospital systems. Using total medical spending data from 2009-2012, the authors estimated that medical spending was 10.3% higher in organizaRelated articles pages 1644, 1653 and 1663 Opinion