Hospitals

As indicated earlier, technology, reimbursement policies, and continuing concern over rising health care costs have combined to stimulate competition in the health care industry. This competition in turn is prompting fundamental restructuring of the organization, financing, and delivery of health care in hospitals.

Hospital care expenditures accounted for 42 percent of personal health care expenditures in 1993. Growth in hospital spending decreased in 1993 for the third consecutive year, mostly because of reduced admissions and lengths of stay. As shown in Figure 3.3, nearly all hospital care is financed by third parties, with only 3 percent paid out-of-pocket. Private health insurance accounted for 36 percent; public funding financed 56 percent of the total PHCE, with the primary payers, Medicare and Medicaid, accounting for more than 41 percent share. Medicare's share of funding for all hospital expenditures was 28 percent in 1993, the highest since the mid-1980s. In 1993, 61 percent of Medicare benefits were for hospital care (including inpatient, outpatient, and hospital-based home health care), reaching $92.7 billion in 1993, an increase of 10.1 percent in just 1 year (Levit et al., 1994).

Hospitals are responding in various ways to the need to reduce costs and to adapt to managed care and other payment arrangements that fix in advance the reimbursements received for patient care. Among the responses are efforts to reengineer care and staffing for that care in innovative ways. These actions and their implications for hospitals and inpatient care are discussed briefly below.

Restructuring of Hospital Services
Integrated Systems

In response to the emerging dominance of payers, providers have engaged in various forms of reorganization and reevaluation. Searching self-examination is part of the current transition in the medical care arena. Physicians are organizing in some communities to negotiate with payers so that they can contract with other providers for the delivery of services to patients. Physicians in this role compete with traditional insurers—HMOs and other managed care organizations. Hospitals are organizing integrated delivery systems in which they purchase physician practices. Thus, hospitals are now competing with physicians and insurance companies in some markets.

Hospitals are developing integrated systems of care through networks, mergers, and consolidations. These structures seek to incorporate the concept of continuum of care, providing services ranging from ambulatory to long-term care in a "seamless" care system for the consumer. Hospitals also are competing for physician referrals and physician loyalty by teaming up with physicians in vari-



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