The Changing Hospital Landscape

Abstract

The nature of hospital activity is changing in many countries, with some experiencing a broad trend towards the creation of hospital groups or chains and multi-hospital networks. This study seeks to contribute to the understanding of experiences in other countries about the extent to which different hospital “models” may provide lessons for hospital provision in England by means of a review of four countries: France, Germany, Ireland and the United States, with England included for comparison. We find that there has been a trend towards privatisation and the formation of hospital groups in France, Germany, and the United States although it is important to understand the underlying market structure in these countries explaining the drivers for hospital consolidation. Thus, and in contrast to the NHS, in France, Germany, and the United States, private hospitals contribute to the delivery of publicly funded healthcare services. There is limited evidence suggesting that different forms of hospital cooperation, such as hospital groups, networks or systems, may have different impacts on hospital performance. Available evidence suggests that hospital consolidation may lead to quality improvements as increased size allows for more costly investments and the spreading of investment risk. There is also evidence that a higher volume of certain services such as surgical procedures is associated with better quality of care. However, the association between size and efficiency is not clear–cut and there is a need to balance “quality risk” associated with low volumes and “access risk” associated with the closure of services at the local level.

The nature of hospital activity is changing in many countries, with some experiencing a broad trend towards the creation of hospital groups or chains and multi-hospital networks, particularly in the United States, and, more recently, in European countries. There is an expectation that the formation of such groups and networks will lead to economies of scale and scope, reduced duplication of resources, more effective training, greater market influence, and improved efficiency in the provision of services, among other motivations.

In this study we contribute to the understanding of experiences in other countries about the extent to which different hospital “models” may provide lessons for hospital provision in England. In particular we aim to explore the nature of group hospital provider structures and governance models and the extent to which these may be associated with greater efficiency and improved quality of service provision. We also seek to understand whether and how their evolution and further development may be facilitated by the wider national policy context of the health and regulatory systems. The evidence presented in this article seeks to inform ongoing policy thinking in the Department of Health on the clinical and financial sustainability of NHS organisations.

The study is comprised of an exploratory analysis of the experiences of four countries: France, Germany, Ireland and the United States, with England included for comparison. Data collection involved a review of the published and grey literature, using a structured template, complemented by information provided by key informants in the selected countries.

The Organisation and Governance of Healthcare Varies Across Countries

The countries reviewed provide examples of systems that vary in the way that healthcare services are organised and financed. For example, the health systems in France and Germany are funded mainly through statutory health insurance, while England and Ireland principally operate tax-based systems. The USA is a mixed system, with private sources dominating. The United States is currently also the most expensive system: in 2011, health spending as a percentage of gross domestic product and per capita spending was about twice that seen in England or Ireland.

Similarly, the five countries represent different approaches to the governance of healthcare. In the United States, healthcare governance is shared between the federal government and the states, while in Germany, responsibility for the publicly funded health system is shared by central government and corporatist actors, with state governments also playing a role. In England, healthcare policy is set nationally while the organisation of care is devolved to local organisations, and a similar approach can be observed for France, with selected functions gradually decentralised to regional agencies. Conversely, in Ireland, the establishment in 2005 of the Health Service Executive has meant a recentralisation of responsibilities.

All Five Countries Reviewed Have Experienced Considerable Change in Key Indicators of Hospital Care Over the Past Two Decades

For example, the number of inpatient beds and length of stay have fallen in all countries while the number of inpatient cases and bed days have increased, reflecting a growth in hospital activity. There has also been a common trend in the financing of hospital care, with all countries using some form of activity-based system, using diagnosis-related groups (DRGs). In France and Germany, all hospitals that are reimbursed under the statutory system are now almost entirely paid through this mechanism, while in England, financing using DRGs is complemented by locally-negotiated volume-based contracts. In the United States, DRGs form the basis for financing within the Medicare and Medicaid systems only, while payments through private insurers or health plans are based on per diem rates. Ireland is about to introduce a DRG-based hospital financing system as part of the planned health reform that seeks to introduce universal health insurance.

In France, Germany and the United States, Private Hospitals Contribute to the Delivery of Publicly Funded Healthcare Services

The overall definition of what constitutes a “hospital” is similar across countries, considering features such as the provision of diagnostic and therapeutic services to be core. Within that overall definition, however, hospitals are classified in different ways, and may be distinguished by function (such as acute care or general hospital), or by legal status and ownership. France, Germany and the United States differentiate public from private not-for-profit and private for-profit hospitals and all of these forms contribute to the delivery of publicly funded healthcare services. Conversely, in England and Ireland, what is generally referred to as private is traditionally considered to be distinct from the publicly funded sector. Although the private hospital sector in England has taken on the provision of some NHS funded healthcare its overall role has remained small.

There Has Been a Trend Towards Privatisation and the Formation of Hospital Groups in France, Germany and the United States

France, Germany and the United States experienced an increase in the number of private for-profit hospitals over the past two decades, with for example their proportion rising to a fifth of all hospitals in the United States and a third in Germany. There has also been a broader trend towards the creation of hospital groups and multihospital networks in these three countries, with over 60 per cent of hospitals now part of some form of partnership, system or network as defined in the country. It is expected that this trend towards consolidation and the formation of hospital groups is likely to continue in these countries.

A number of factors have contributed to these inter-related changes, with hospital consolidation in France occurring mainly through the closure of private hospitals and a greater concentration of services in larger hospitals in an attempt to improve quality and safety. Financial pressures have also played a role, with tariffs for remunerating hospital activity having stagnated or decreased recently. In Germany, the main drivers included financial pressures, in particular a decline in public funding available to support capital investment; regulatory efforts to enhance quality and safety through the introduction of minimum volumes; and the need to compete for patients in a market that is characterised by an oversupply of hospital capacity. In the United States, core drivers for consolidation include economies of scale alongside market forces and the greater negotiating power. The introduction of the Affordable Care Act has also led to increased merger activity.

Ireland is currently responding to recommendations that are likely to result in the formation of hospital groups, each with a unified governance and management structure with the vision that hospital groups will see the centralisation of high-risk care to larger centres.

Consolidation in the hospital sector has also occurred in England but the mode by which this has happened has differed from the other countries reviewed. Thus, during the late 1990s and early 2000s, NHS hospitals in England underwent a series of mergers, halving the number of short-term general hospitals and reducing the median hospital market from seven to five hospitals. These mergers aimed at addressing the problem of hospitals which were failing to meet their financial or quality targets, while also seeking to reverse the policy of competition between public hospitals for publicly funded contracts for healthcare that had been implemented in the preceding period. This differed from experiences in France, Germany and the United States, where consolidation has typically, although not always, involved privatisation, and was driven by a combination of factors, with the competitive environment in terms of capacity and economic pressures being seen to be among the main drivers.

The Underlying Market Structure Is Not Only Important for Understanding the Drivers for Hospital Consolidation, But Also for the Likely Impacts of Change

The evidence of the effects of hospital consolidation is not clear-cut, with the majority of empirical studies focusing on the impacts of hospital mergers, while less is known about the potential differential impacts of different forms of hospital consolidation that involve the formation of for example hospital groups or systems. Evaluation of the hospital mergers in the NHS in the early 2000s identified only limited impacts on outcomes, such as financial performance, productivity or clinical quality, and overall highlighted the importance of context and the drivers for change behind mergers as important factors determining “success.” Commentators in various settings warned of the potential negative impacts of hospital consolidation and concentration, reducing the scope for competition, and, as shown in the United States, potentially leading to price increases. For Germany, it has been estimated that more than one third of hospitals are now located in strongly concentrated markets, in particular in rural areas, posing a risk for inefficiencies in the long term.

There Is Limited Evidence Suggesting That Different Forms of Hospital Cooperation, Such as Hospital Groups, Networks or Systems, May Have Different Impacts on Hospital Performance

Evidence that is available seems to support the notion that the performance of inter-hospital cooperation will be dependent on the nature of the cooperative arrangement in place. Hospital groups or systems that are owned and managed by a single legal entity may be more successful in achieving efficiency gains and improvements in the quality of care than hospital networks that are formed through strategic alliance or contract agreement. However, this is likely to depend on the context within which the different formations operate, for example, whether they are based in urban settings, in highly competitive regions or in rural areas. This suggests that any hospital reconfiguration will have to take account of the context within which it is set. Thus, while a given approach that involves greater centralisation of activities may be appropriate for some settings it may be less suitable for others, and it would therefore be important to understand the specific inefficiencies in a given context first in order to then identify the most appropriate governance and structural model to address these inefficiencies.

While Hospital Consolidation May Lead To Quality Improvements There Are Also Some Risks And It Will Be Important To Monitor The Effects Of Consolidation To Protect The Public From Unintended Consequences

Hospital consolidation may lead to quality improvements as increased size allows for more costly investments and the spreading of investment risk. There is also evidence that a higher volume of certain services such as surgical procedures is associated with better quality of care. However, the association between size and efficiency is not clear-cut and there is a need to balance “quality risk” associated with low volumes and “access risk” associated with the closure of services at the local level. Benefits may be achieved through shared services with other hospitals, in recognition that economies of scale can be achieved through reducing the duplication of back office services and through the concentration of purchasing power. However, the services to be shared across hospitals may have to be selected carefully as evidence suggests that shared management and shared clinical workforce across hospitals may lead to poorer performance or inefficient use of resources.