Competitive pressures are making winners rather than wilters out of some hospitals.
The nation's 100 top hospitals, as anointed by two healthcare management and consulting firms, combine razor's-edge management with an ability to take a marketplace punch and maintain their balance sheet.
These hospitals also are finding ways to maintain lower-than-expected rates of complications and mortality even as they shorten the length of inpatient stays and increase their outpatient business.
And more often than not, they're found in markets highly influenced by managed care and for-profit healthcare companies, especially in California, Florida and Texas.
But influence doesn't necessarily mean domination. The rise of Columbia/HCA Healthcare Corp. as a for-profit contender apparently has spurred a competitive response that elbowed a number of Columbia hospitals off this year's list of 100 top-performing facilities.
An analysis of 1995 Medicare cost and discharge data on 3,575 acute-care hospitals produced a list of 100 Top Hospitals: Benchmarks for Success. The study, now in its fourth year, is jointly conducted by HCIA, a Baltimore-based healthcare information company, and the Health Care Provider Consulting Practice of William M. Mercer, a New York-based human resources management consulting firm.
The analysis reviewed eight measures of clinical, operational and financial performance to rate hospitals grouped into five categories of similar characteristics.
A certain number of hospitals were allotted to each category to arrive at the final tally of 100:
20 from a group of 1,388 urban hospitals of fewer than 250 beds.
20 from a group of 1,384 rural hospitals of fewer than 250 beds.
20 from a list of 296 nonteaching hospitals of 250 or more beds.
15 from a group of 120 teaching hospitals of 400 or more beds at major academic medical centers.
25 from a list of 387 less-intensive teaching hospitals of 250 or more beds.
Hospitals were not ranked in any order within each category.
Performance of the top hospitals on all eight measures was used to establish "benchmarks" in each of the five categories of hospitals, and the benchmark performances also were combined for a national set of benchmarks to compare against the median performance of all U.S. hospitals.
A higher percentage of this year's top hospitals repeated their standing as benchmark performers than in any of the previous three years.
Of this year's group, 42 made the list for the second straight year, compared with 29 last year. Of the 42 repeating this year, 14 also were on the list in 1994, making this year's appearance their third straight.
But only one facility-Brigham and Women's Hospital in Boston-has earned a place on every list since the benchmarking effort began in 1993 (See related story, p. 60).
For-profit presence. The highlight of last year's study was the disproportionate presence of Nashville, Tenn.-based Columbia, which claimed 29 of the Top 100 hospitals and was in the process of acquiring two more that had earned a place on the list.
Florida led all states last year with 17 on the HCIA/Mercer list, and 14 of those were part of Columbia's chain of nearly 350 hospitals. Florida also dominated the category of nonteaching hospitals of 250 beds or more, putting 12 on that list of 20-all of them Columbia properties.
This year's Top 100 still displayed a disproportionate share of for-profit hospitals, but Columbia accounted for only 17 of the 30 facilities on the list that are owned or managed by a for-profit company (See chart on p. 56).
The top five states for benchmark hospitals combined for 44 of the Top 100-the same number contributed by the top five states last year-but Columbia accounted for 11 of them this year compared with 20 a year ago.
Florida again led the nation, this time with 13 benchmark hospitals, nine of them owned by Columbia. But in other states with significant numbers of benchmark hospitals-and the mounting competitiveness that goes with the territory-Columbia nearly was shut out.
Texas again had the second-highest concentration with 10, followed by California with nine, Ohio with seven and Tennessee with five. Of those 31 hospitals, Columbia was represented by one in Texas and one in Tennessee.
"The tremendous shift to Florida last year was a wake-up call" for Columbia's competitors, said Jean Chenoweth, HCIA senior vice president.
"The fact that 23% of all benchmark hospitals are concentrated in Florida and Texas further exemplifies the tremendous strength of competition as a change agent," according to a report on the benchmark analysis prepared by HCIA and Mercer.
The South also has been relatively free of regulation and has been targeted by progressive managed-care companies, the report said. Those conditions have attracted investor-owned chains seeking market share.
"Given the rapidly growing financial strength and access to capital of investor-owned hospitals, these hospitals will be formidable competitors in any market they choose to enter," the report said. "At the same time, the study is providing ample evidence that not-for-profit hospitals are maintaining their clinical, operational and financial viability in an increasingly competitive environment."
Fighting back. In the Columbia stronghold of Texas, for example, a few notable not-for-profits clambered onto the Top 100 list this year in the major markets of Dallas and Houston, while Columbia hospitals dropped off.
Making the transformation to a managed-care, outpatient-focused environment was Methodist Health System in Houston, which only a few years ago drew widespread attention as one of the most profitable beneficiaries of fee-for-service healthcare.
Also appearing for the first time was Presbyterian Hospital of Dallas, which three years ago began a comprehensive re-engineering of its operations and information systems as part of an overhaul of the four-hospital Presbyterian Healthcare System (May 6, p. 66).
Meanwhile, the two Columbia hospitals in those markets on last year's list dropped off this year: Columbia East Houston Medical Center and Columbia Hospital at Medical City Dallas.
The only Columbia representative in Texas on this year's list was Columbia Clear Lake Regional Medical Center in Webster, 25 miles southeast of Houston. Columbia has 60 hospitals in Texas.
Columbia fared better in Utah. Four hospitals made the list from that state, three of which are Columbia facilities. Intermountain Health Care, a powerful Salt Lake City-based not-for-profit system known for advances in information systems and innovation in performance measurement, was represented by Alta View Hospital in Sandy. That small urban facility returned to the Top 100 after making the list in 1993.
"We've made a tremendous push to build our outpatient volume" during the past few years, said Wes Thompson, administrator of Alta View. About 70% of all surgery is now done on an outpatient basis.
The hospital also has built concentrations in women's health and orthopedics, investing in cutting-edge technology that helps physicians perform procedures that result in shorter hospital stays or outpatient visits, Thompson said.
Joint surgery is a prevalent procedure because of the many ski resorts in the area, and Alta View has worked to create a specialty in delicate knee-damage repair while getting the length of stay down to one day, he said.
Physicians also have built a proficiency in laser-assisted hysterectomies, "which are less invasive to the lady, a quicker recovery and a smaller incision," Thompson said.
The hospital has increased use of its radiology department by adding two new mammography machines, both of which are near capacity. Alta View also has one of the busiest emergency departments in the state, with 33,000 visits last year.
The outpatient surgery, radiology, emergency and lab areas combined to produce more outpatient than inpatient revenues in 1995, according to HCIA figures. Nearly 54% of total patient revenues were derived from outpatient sources.
And that output had a direct correlation with the hospital's low expense per adjusted discharge of $2,013, Thompson said. Nationally, the median expense of all urban hospitals of fewer than 250 beds was nearly $3,900.
The measure converts outpatient activity to an equivalent of inpatient stays to arrive at an overall expense per discharge.
When patients do stay, Alta View gets them back home a day and a half earlier than the typical 4.75 days for urban hospitals of fewer than 250 beds.
Benchmark slowdown. The shift to outpatient business is going on everywhere, not just concentrated at the leading edge of management. That's one surprise picked up in this year's study.
A central aim of the yearly HCIA/Mercer analysis is to establish performance targets that the best hospitals are hitting and the rest of the nation's hospitals can shoot for.
But this year's analysis revealed an industrywide gallop toward outpatient business so universal that the national benchmark standard actually was overtaken by the national median of all U.S. hospitals.
Among this year's Top 100, the percentage of total patient revenues derived from outpatient sources stood at 35.2%, an increase from last year's benchmark of 32.5%. But the outpatient percentage for all U.S. hospitals was 37%.
The reason, HCIA and Mercer pointed out, is that the national benchmarks are skewed toward the performance of larger hospitals, which account for 60% of the hospitals in the Top 100 but only 22% of all hospitals nationwide.
Larger hospitals, defined as having 250 or more beds, lagged behind small urban and rural facilities in the transition to outpatient care and thus dragged down the national benchmark, even though benchmark hospitals within each of the five hospital categories uniformly outperformed their peers.
For major teaching hospitals, the benchmark for percentage of outpatient revenues was 26%, just a percentage point ahead of all major teaching hospitals. The best rural hospitals, by contrast, nearly doubled that proportion at 51%, and rural hospitals as a group pulled in 43% of revenues from the outpatient side.
This year's study also disclosed a slowdown in improvement of some benchmark targets compared with previous years.
Until this year, those benchmarks were all moving targets. Rapid improvement at the leading edge of hospital management created successively higher standards, meaning a hospital in the Top 100 one year could lose its standing by reaching those same marks a year later.
But this year's benchmarks improved only modestly compared with last year's marks in the clinical and operational areas.
Only in the financial areas did the nation's best continue to improve significantly on those of a year ago.
The moderation in clinical and operational benchmark improvement is expected, said Michael Blaszyk, senior principal in the Boston office of Mercer's healthcare consulting practice.
Blaszyk said most hospitals are well on their way to using clinical pathways, a program of coordination among all medical professionals to treat a given condition by following a standard but flexible framework.
Leading-edge hospitals "have gotten about as much improvement in complications as they can" from the initial benefit of better-managed conditions, he said, and are tooling up for an imminent surge in quality expectations among payers and consumers once competition eliminates the spread in price that's now foremost in healthcare decisionmaking.
Keeping financial balance. That surge in expectations likely will spark providers to produce solid evidence of customer satisfaction and quality health management. Leading hospitals understand that those challenges call for investment capital and an operating cushion to cover costs against short-term shortfalls in revenues, Blaszyk said.
"They know there's another round coming" and are keeping "an absolute, straight-line, laser focus" on buildup of assets and equity to carry them through, he said.
The key indicator of that ability to withstand a marketplace hit is a measure of the average annual compound growth in equity from 1993 through 1995.
This year's Top 100 recorded equity growth of about 21% per year for those three years, more than double the 10% median of all U.S. hospitals. Last year's benchmark group managed about 19.5% annual growth.
And in a measure of productivity, benchmark hospitals produced a total asset turnover ratio of 1.12 compared with 0.98 for all U.S. hospitals and 0.95 for last year's Top 100 hospitals.
According to the HCIA/Mercer report, the ratio of net patient revenues divided by total assets measures the amount of productivity a hospital achieves in relation to the assets it controls.
Among the top performers in equity-building is Fountain Valley (Calif.) Regional Hospital and Medical Center, which has produced an average annual compounded growth rate of 181% during the past two years.
Buildup of that financial cushion coincided with the 359-bed hospital's acquisition by OrNda HealthCorp in August 1994. Previously it had been a freestanding, physician-owned facility for more than 20 years.
Some financial benefits were realized right away as the month-to-month amortization costs of the hospital's mortgage were lowered and other significant expenses for a stand-alone hospital-accounting, legal, insurance-were leveraged into OrNda's corporate structure, said Richard Butler, Fountain Valley's chief executive officer.
But the hospital also worked to reduce its resource consumption and length of stay while increasing both the number of surgeries it performs and the percentage of those procedures done on an outpatient basis, Butler said.
"In the last few years, our case management has really taken hold," he said.
The clinical results have shown up in a mortality rate of 0.74 and a complication rate of 0.78, both well below even the benchmark for nonteaching hospitals of 250 beds or more.
The hospital collected 44% of total patient revenues from outpatient sources in 1995, and it got there by increasing its outpatient revenues 62% per year since 1993, according to the HCIA/Mercer analysis.
Growth in outpatient surgery was key to that performance, Butler said, and the trend has continued into 1996. In August 1996, the hospital did 719 surgeries, 60% of them on the outpatient side. By comparison, 614 surgeries were performed in August 1995, 49% on an outpatient basis.
A hospital didn't have to be part of a system to build equity and keep costs down. At Queen of Angels/Hollywood Presbyterian Medical Center in Los Angeles, 90% of total revenues come from Medicare and Medi-Cal, California's version of Medicaid, but the freestanding 416-bed facility still managed to post equity growth of 114% per year from 1993 to 1995.
"We run a very lean operation," said Terry Bonecutter, chief operating officer. The hospital operates with a level of 4.2 full-time-equivalent employees per occupied bed and is aiming to lower that to four, Bonecutter said. Three years ago, the hospital's FTE ratio was five per occupied bed.
Togetherness. Fountain Valley demonstrated the value of becoming part of a large corporate structure. The HCIA/Mercer study also is providing some evidence that hospitals are starting to reap the rewards of being part of a multiple-facility regional strategy rather than trying individually to be a comprehensive provider.
Columbia Gulf Coast Hospital in Fort Myers, Fla., has developed a concentration in pediatrics and obstetrics in a bid to raise volume and build a countywide reputation as the place to go for those two services, said Valerie Jackson, CEO of 120-bed Gulf Coast and neighboring Columbia East Pointe Hospital in Lehigh Acres.
Gulf Coast opened a pediatric emergency department last year and a pediatric intensive-care unit in 1994. It recently began an infertility program.
Meanwhile, 400-bed Columbia Regional Medical Center of Southwest Florida in Fort Myers takes all cancer and cardiac patients in Columbia's Lee County network. Columbia Regional and Gulf Coast both were in this year's Top 100.
Gulf Coast's pediatric focus extends to getting advice from a 13-member advisory board of children ages 9 through 15. Selected from about 200 local applicants, the board members "really keep us focused on what it's like to be a kid in the hospital," Jackson said.
Besides advising hospital executives, the children take turns being "on call" as buddies for pediatric patients. "They make rounds, play Nintendo and just make themselves available for kids," she said.
That buddy system increasingly is being called upon for pediatric outpatients. Powered by an average per-year increase of 30% in outpatient revenues, Gulf Coast posted a 50/50 split between outpatient and inpatient revenues in 1995.
The hospital also exceeded most benchmark targets for small urban hospitals, driving its mortality rate down to 0.70 and the complication rate to 0.65 while keeping length of stay to 3.75 days and posting expenses per discharge of $2,737.
"Three years ago, the facility did not have a primary focus," Jackson said.
Now it's in a three-hospital network, which is moving toward a goal of providing any patient need within a 20-minute ride, she said.
The same strategy is at work at Alta View in Sandy, Utah, a city of 95,000 people 20 minutes from downtown Salt Lake City.
LDS Hospital in Salt Lake City, the 413-bed flagship of Intermountain Health Care's not-for-profit system, shares much of the same management as Alta View and a third facility, 155-bed Cottonwood Hospital Medical Center in Murray.
One management team has operated all three sites for the past five years.