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Journal of General Internal Medicine

, Volume 33, Issue 7, pp 1020–1027 | Cite as

Factors of U.S. Hospitals Associated with Improved Profit Margins: An Observational Study

  • Dan P. Ly
  • David M. Cutler
Article

Abstract

Background

Hospitals face financial pressure from decreased margins from Medicare and Medicaid and lower reimbursement from consolidating insurers.

Objectives

The objectives of this study are to determine whether hospitals that became more profitable increased revenues or decreased costs more and to examine characteristics associated with improved financial performance over time.

Design

The design of this study is retrospective analyses of U.S. non-federal acute care hospitals between 2003 and 2013.

Subjects

There are 2824 hospitals as subjects of this study.

Main measures

The main measures of this study are the change in clinical operating margin, change in revenues per bed, and change in expenses per bed between 2003 and 2013.

Key results

Hospitals that became more profitable had a larger magnitude of increases in revenue per bed (about $113,000 per year [95% confidence interval: $93,132 to $133,401]) than of decreases in costs per bed (about − $10,000 per year [95% confidence interval: − $28,956 to $9617]), largely driven by higher non-Medicare reimbursement. Hospitals that improved their margins were larger or joined a hospital system. Not-for-profit status was associated with increases in operating margin, while rural status and having a larger share of Medicare patients were associated with decreases in operating margin. There was no association between improved hospital profitability and changes in diagnosis related group weight, in number of profitable services, or in payer mix. Hospitals that became more profitable were more likely to increase their admissions per bed per year.

Conclusions

Differential price increases have led to improved margins for some hospitals over time. Where significant price increases are not possible, hospitals will have to become more efficient to maintain profitability.

KEY WORDS

profitability prestige market power 

Notes

Acknowledgments

This project was supported by grant number U19HS024072 from the Agency for Healthcare Research and Quality, by grant number R37AG047312 from the National Institute on Aging, and by grant number T32AG000186 from the National Institute on Aging. The content is solely the responsibility of the authors and does not necessarily represent the official views of the Agency for Healthcare Research and Quality or the National Institute on Aging.

Compliance with ethical standards

Conflict of Interest

The authors declare that they do not have a conflict of interest.

Supplementary material

11606_2018_4347_MOESM1_ESM.docx (18 kb)
ESM 1 (DOCX 18.2 kb)

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Copyright information

© Society of General Internal Medicine 2018

Authors and Affiliations

  1. 1.Interfaculty Initiative in Health PolicyHarvard UniversityCambridgeUSA
  2. 2.VA Boston Healthcare SystemWest RoxburyUSA
  3. 3.Department of EconomicsHarvard UniversityCambridgeUSA

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