There's some evidence that healthcare integration is resulting in more efficient use of hospital assets.
An analysis for MODERN HEALTHCARE shows that highly integrated, not-for-profit healthcare systems are getting more bang per invested buck.
Steve Renn, first vice president at AMBAC Indemnity Corp., New York, analyzed the fixed-asset turnover ratios, adjusted for price levels, of 17 systems considered "fairly far along the integration spectrum." He compared the ratios with a median value for freestanding hospitals with more than 100 beds. The highly integrated systems selected for analysis each have a health plan or insurance product, significantly developed ambulatory and outpatient settings, and investments in physician practices.
The ratio for the 17 integrated systems also was compared with an average for six investor-owned healthcare chains: American Medical International; Community Health Systems; Columbia/HCA Healthcare Corp.; Health Management Associates; National Medical Enterprises; and OrNda HealthCorp. AMI and NME have combined to form Tenet Healthcare Corp.
Efficiency in the use of assets is defined as some measure of revenues divided by some measure of assets. The fixed-asset turnover ratio is a measure of total operating revenues divided by net fixed assets (also known as property, plant and equipment). The resulting ratio has been adjusted for the age of assets across hospitals.
The 17 integrated not-for-profit systems in Renn's analysis had a turnover ratio of 1.78 in1994, meaning that, on average, they generated $1.78 in revenues for every $1 invested in fixed assets. That compares with a ratio of 1.45 for the 1,071 hospitals with more than 100 beds.
To Renn that means integrated systems' investments in property, plant and equipment are being used more efficiently than the assets of more traditional acute-care hospitals. In other words, the flurry of integration activity among hospitals today is paying off from an asset-efficiency standpoint.
"I think it's pretty clear evidence of a strategic decision on the part of the highly integrated systems to shift their capital away from hard, inpatient acute-care assets into noninpatient acute-care strategic assets," Renn said.
In addition to making more efficient use of their investments, systems are investing in less capital-intensive assets such as outpatient facilities, physicians and insurance products, he said.
Surprisingly, the analysis revealed that investor-owned systems, on average, aren't using their assets as efficiently as the highly integrated not-for-profit systems. The investor-owned systems' average fixed-asset turnover ratio, at 1.47, paled in comparison with not-for-profit systems' ratio of 1.78.
The investor-owned systems "have been somewhat slower on showing the more highly integrated structures," which include investments in physicians and insurance, Renn said. He suspects it's easier for not-for-profit systems to integrate with physicians because many of them have operations that are contained in a region. "It's harder to pull off on a national scale," Renn explained.
And, while the fixed-asset turnover ratios for not-for-profit systems and investor-owned hospitals have improved steadily over the 1990s, the median for the national group of hospitals with 100 or more beds slipped in 1994. This indicates that traditional hospitals' revenues haven't kept up with investments in property, plant and equipment, he said.