FINANCIAL PRESSURE AND COMPETITION - CHANGES IN-HOSPITAL EFFICIENCY AND COST-SHIFTING BEHAVIOR

Using data from the American Hospital Association and the Medicare pro gram, the authors analyzed the effects of financial pressure and marke t competition on changes in several measures of performance of 1,435 a cute care hospitals between 1987 and 1989. Over the observation period , the least profitable hospitals constrained their growth in total exp enses to half that for the most profitable hospitals (13.3% versus 27. 6%) by limiting the growth of their staffs and their total assets. The se changes were associated with a reduction in inefficiency of 1.8% (1 1.2%) compared with a very slight increase in inefficiency for the hig hest profit group. Similarly, hospitals in highly competitive markets controlled expenses relative to those in the least competitive areas. However, they also experienced slower revenue growth than did less com petitive hospitals so that, in relative terms, their profit rates fell . The authors found no evidence to suggest that financial pressures cr eated by either low profits or market competition resulted in hospital s engaging in cost-shifting. The authors conclude that health care ref orms or market forces that put financial pressure on hospitals can res ult in cost-containment and improved efficiency without significant co st-shifting.