The measure of success in healthcare delivery has changed dramatically in the three years that HCIA and William M. Mercer have formulated a list of top hospitals.
And that keeps HCIA and Mercer busy revising their evaluation formula to reflect industry changes and establish meaningful performance benchmarks.
This year's formulation retires some measures of financial and operational success that have outlived their usefulness as a result of healthcare's shift from an inpatient, volume-based business to one that stays lean and resourceful.
Replacing those original performance indicators are new ones measuring success in shifting care to the outpatient setting and in making the most of assets instead of just compiling them, said Peter Heisen, M.D., a principal with Mercer who directed the measurement revisions.
Hospitals are judged according to eight indicators of financial, operational and clinical performance selected annually for the HCIA/Mercer analysis. Data on those indicators are extracted from annual reports that hospitals must file as a requirement for participation in the Medicare and Medicaid programs (See chart, p. 64).
In the previous two computerized analyses resulting in the 100 Top Hospitals, data on the hospital charges rung up per discharge were figured into determining the efficiency of hospital operations and value to patients, Heisen said.
But HCIA and Mercer got a lot of criticism for using charge data that healthcare executives "felt did not measure anything useful about the operation of a hospital or health system," he said.
As healthcare executives would be the first to tell critics outside the industry, charges apply to a relatively small percentage of paying patients not covered by fixed reimbursements under Medicare or negotiated insurance contracts.
That anachronism from the days of inpatient fees for service was eliminated. It was replaced by a measure of progress in moving to outpatient business as the goal of businesses operating under fixed payment for services.
The measure is twofold: outpatient revenues as a percentage of total revenues; and the rate of growth in that percentage in 1994 compared with 1993, and also in 1993 compared with 1992.
The measure credits hospitals that are moving aggressively to improve their proportion of outpatient business, Heisen said. It also credits hospitals that may have a slower growth rate only because they already are getting a high proportion of their revenues from the outpatient side, he said.
The comparison with previous years marks the first time the HCIA/Mercer analysis includes long-term trends to supplement annual "snapshot" measures, which could vary widely from year to year depending on the short-term effect of market pressures or investment decisions, Heisen said.
This year's benchmarking effort also dropped two measures that could penalize creativity and savvy in managing and acquiring assets, he said.
One of them, a ratio of net fixed assets per bed, no longer means much in an environment where capacity is shrinking. Hospitals could be in trouble rather than in good shape by piling up capital assets such as expensive diagnostic imaging equipment.
Instead, the study measured return on assets, which reflects how well the available investments in plant and equipment are paying off. The new measure favors a smaller asset base used to its fullest potential rather than a huge roster of assets that results in empty beds, empty operating rooms and idle magnetic resonance imaging equipment, Heisen said.
A measure of a hospital's financial leverage-long-term debt to total assets-was dropped because it penalized creative financing that may look like it's saddling hospitals with debt in a given year but may actually be a smart move over time.
For example, financial officers could take advantage of low interest rates to borrow heavily but wisely for upcoming capital projects, Heisen said.
That's one practice frequently used by for-profit hospitals to exploit their borrowing clout and react quickly to capital requirements, said Jean Chenoweth, HCIA senior vice president. The de-emphasis of long-term debt to fixed assets "may level the playing field between the for-profits and not-for-profits," she said.
In place of that measure, this year's analysis substituted an indicator that measures change in equity during the past three years. Growth in the rate of equity shows that a hospital is building financial stability and is in a better position to sustain its operations in the face of short-term market pressures, such as low-margin contracts needed to hold on to market share, Heisen said.
The new measure of equity adds a second trend-charting element and provides more information about hospital performance in the face of rapid change, Heisen said.