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For-profit Hospitals A comparative and longitudinal study of the for-profit hospital sector in four Western countries Patrick Jeurissen Untitled-3 1 27-04-09 14:31 For-profit Hospitals A comparative and longitudinal study of the for-profit hospital sector in four Western countries Patrick Jeurissen For-profit Hospitals A comparative and longitudinal study of the for-profit hospital sector in four Western countries Jeurissen, Patrick Doctoral thesis, Erasmus University Rotterdam Cover illustrations [front, left to right: 1. group of x-rays on light board, 2. modern hospital; 3. income – cost = profit; spine of book: 4. stock chart; back, left to right: 5. cross on the gates of hospital de la Santa Crue I de Sant Pau, Barcelona, 6. silhouette of human brain, 7. medical stethoscope on background dollar denominations] ISBN: 978-90-8559-008-8 DNLM [1. For-profit hospitals – United States, United Kingdom, Germany, and the Neth- erlands. 2. Health care politics and policy – history, comparative analysis. 3. Health care reforms. 4. Hospitals and health care providers - history. 5. Health care economics and funding. 6. Capital investments - hospitals. 7. Comparative health care studies.] © Patrick Jeurissen No part of this book may be reproduced in any form, by print, photoprint, microfilm or any other means without written permission from the author. Contact: pptjeurissen@gmail. com Layout and printing: Optima Grafische Communicatie, Rotterdam, The Netherlands For-profit Hospitals A comparative and longitudinal study of the for-profit hospital sector in four Western countries Commerciële Ziekenhuizen Een vergelijkende en longitudinale studie naar de commerciële ziekenhuissector in vier westerse landen Proefschrift ter verkrijging van de graad van doctor aan de Erasmus Universiteit Rotterdam op gezag van de rector magnificus Prof.dr. H.G. Schmidt en volgens besluit van het College voor Promoties. De openbare verdediging zal plaatsvinden op donderdag 27 mei 2010 om 13.30 uur door Patrick Paulus Theodoor Jeurissen geboren te Lobith Promotiecommissie Promotoren: Prof.dr. T.E.D. van der Grinten Prof.dr. F.T. Schut Overige leden: Prof.dr. K. Putters Prof.dr. W.N.J. Groot Prof.dr. J.A.M. Maarse Voor Hanna en Lucas Contents List of abbreviations xi List of tables xiii List of figures xvii 1 Introduction and framework of study 1.1 Aim of this work and central questions 1 1.2 For-profit ownership in hospital care 3 1.3 Theoretical explanations of the prevalence and development of for-profit hospitals 7 1.3.1 Explanations for the viability and growth of for-profit hospitals 7 1.3.2 Explanations for the presence and dominance of nonprofit hospitals 10 1.3.3 Conclusions 14 1.4 The methodology of this research 16 1.5 Study objects: hospitals, countries, and time-period 18 1.6 Organization of the book 22 Appendix 1.1 Overview of empirical studies on the effect of ownership on hospital performance 24 2 United States: the ups and downs of the largest for-profit sector 31 2.1 Introduction 31 2.2 Developing for-profit hospital care 32 2.2.1 The origins of proprietary hospital care 32 2.2.2 Proprietary hospitals in the interbellum 35 2.2.3 Reaching the bottom: proprietary hospitals before Medicare 42 2.2.4 Medicare/Medicaid: for-profit hospitals set for a new start 47 2.2.5 The take-off of the for-profit hospital sector (1965–1983) 53 2.2.6 The IOM’s report on for-profit health care 57 2.2.7 The 1980s: less favorable for-profit reimbursement and increasing countervailing powers 60 vii For-profit Hospitals 2.2.8 Ups and downs in the 1990s and thereafter 64 2.3 Analysis 74 2.3.1 Proprietary hospitals: lack of competitive powers 74 2.3.2 Changing trends and the rise of for-profit hospital chains 77 2.3.3 The dynamics of a mature for-profit hospital sector 79 2.3.4 Conclusions 83 3 United Kingdom: for-profit hospitals outside the mainstream system 3.1 Introduction 85 3.2 The development of for-profit hospital care 85 3.2.1 Pay hospitals and paying wards before World War I 85 3.2.2 Pay hospitals, paying wards, and pay beds before World War II 87 3.2.3 The National Health Service 89 3.2.4 The survival of a small independent hospital sector 90 3.2.5 Moderate growth in independent hospitals 91 3.2.6 Politicization: the left and the birth of for-profit hospital care 93 3.2.7 Politicization: right-wing policies and the for-profit hospital boom 96 3.2.8 Internal market: the NHS contracting for-profit hospitals 100 3.2.9 Labour: new business models to the for-profit hospitals 103 3.3 Analysis 111 3.3.1 A small and stable fringe of proprietary hospitals (pay homes) 112 3.3.2 The creation of the NHS brings about a ‘two-tier’ logic 113 3.3.3 Political tensions fuel the rapid expansion of for-profit hospital chains 115 3.3.4 Internal market strategies induces higher demand for value-for- money 117 3.3.5 Conclusions 119 4 Germany: the impact of public capital subsidies on for-profit hospitals 4.1 Introduction 121 4.2 Developing for-profit hospital care 122 4.2.1 Historical background 122 4.2.2 Old policies embedded in new institutions 125 4.2.3 Scarce resources dominate hospital policies 127 4.2.4 Initial consequences of the Hospital Finance Act 131 4.2.5 Cost containment policies and their impact for the for-profit sector 134 viii Contents 4.2.6 Erosion of the dual funding of capital 138 4.2.7 Rapid for-profit hospital growth 142 4.2.8 The transformation of the scale and scope of for-profit hospitals 147 4.3 Analysis 149 4.3.1 Constraints on the scale and scope of a declining proprietary sector 149 4.3.2 Prolonged stagnation of the proprietary hospital sector 151 4.3.3 Further decline of the proprietary hospital sector 152 4.3.4 Rapid growth and consolidation of for-profit hospitals 154 4.3.5 Conclusions 156 Appendix 4.1: For-profit rehabilitation and preventive care 158 5 The Netherlands: the non-emergence of for-profits 5.1 Introduction 161 5.2 Historical description 161 5.2.1 The exclusion of a proprietary hospital sector 161 5.2.2 The government accommodates the nonprofit hospital sector 164 5.2.3 Cost-containment and pre-structuring managed competition 168 5.2.4 Prelude towards for-profit hospital ownership? 170 5.3 Analysis 173 5.3.1 Insurmountable barriers to proprietary hospitals 173 5.3.2 Institutional barriers replace the barriers of the market 174 5.3.3 Cost-containment policies consolidate the dominance of nonprofits 175 5.3.4 Managed competition paving the way for for-profit hospitals? 175 5.3.5 Conclusions 176 Appendix 5.1: for-profit ambulatory acute care 177 6 A comparative and longitudinal analysis of for-profit hospital development 6.1 Introduction 181 6.2 Patterns in for-profit hospital development 182 6.3 The expansion and decline of proprietary hospital care 185 6.3.1 Why did proprietary hospitals emerge and why did market shares differ between countries? 186 6.3.2 Why did proprietary hospital care go into long-term decline? 191 6.4 Stagnation and pre-structuring a for-profit hospital sector 194 6.4.1 Why stagnated the decline of the proprietary hospital sector? 195 ix For-profit Hospitals 6.4.2 Did changing institutional frameworks and physician interests pre-structure for-profit sectors? 197 6.4.3 Did proprietary hospitals pre-structure a for-profit sector? 201 6.5 Strong for-profit hospital growth 203 6.5.1 Why did the turnaround in the for-profit sectors occur at different points in time? 204 6.5.2 Did for-profit hospitals have similar business models in the countries studied? 208 6.5.3 What has caused the interruption in rapid for-profit growth? 210 6.6 Key determinants in the development of for-profit hospitals 213 6.6.1 A hierarchy of determinants 213 6.6.2 Summarizing the answers to the research questions 216 Notes 219 List of interviewed experts 271 References 273 Samenvatting 311 Dankwoord 319 Curriculum vitae 321 Index 323 x List of abbreviations AHA American Hospital Association AHR Agency of Hospital Remuneration (the Netherlands) AMA American Medical Association AMBAC American Municipal Bond Assurance Corporation AMI American Medical International ASC Ambulatory surgery center BDPK Federal For-Profit Hospital Association (Germany) BMA British Medical Association BMJ British Medical Journal BUPA British United Provident Associations CDC Center for Disease Control (US) CDU Christian Democratic Union (Germany) CMS Centers Medicare and Medicaid Services (US) CON Certificate-of-need CSU Christian Social Union (Germany) DHA District Health Authority (UK) DHSS Department of Health and Social Services (UK) DM German Mark DRG Diagnostic-related-group DTC Diagnosis treatment combination EMTALA Emergency Medical Treatment and Active Labor Act FASB Financial Accounting Standard Board (US) FDP Free Democratic Party (Germany) GAO General Accounting Office (US) GDP Gross domestic product GP General practitioner HCA Health Corporation of America HCSA Health Care Structure Act (Germany) HFA Hospital Finance Act (Germany) HHS Department of Health and Human services (US) HMA Health Management Associates HMFA Health Management Finance Association (US) HMO Health Maintenance Organization HMSO Her Majesty’s Stationery Office (UK) HRA Hospital Restructuring Act (Germany) xi For-profit Hospitals IGZ Health Care Inspectorate (the Netherlands) IOM Institute of Medicine (US) IRS Internal Revenue Service (US) MCO Managed Care Organization NAO National Audit Office (UK) nHFA new Hospital Finance Act (Germany) NHS National Health Service (UK) NME National Medical Enterprises OECD Organization of Economic Cooperation and Development PFI Private finance initiative
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