HOSPITAL-PHYSICIAN ARRANGEMENTS AND HOSPITAL FINANCIAL PERFORMANCE

OBJECTIVES. The introduction of the Medicare Prospective Payment Syste m and the more recent rise of managed care plans have greatly increase d the importance of effective hospital financial management. Because p hysicians play a central role in directing hospital resource use, poli cies to influence physician behavior and to align physician and hospit al interests more effectively are being advocated increasingly. This a rticle evaluates the effect of nine strategies to facilitate physician involvement and integration into the hospital on hospital financial p erformance. METHODS. Data came primarily from the Prospective Payment Assessment Commission's hospital-physician relations survey of 1,485 h ospitals and the Medicare Cost Reports. Both ordinary least squares an d first differencing models were used to evaluate the effect of physic ian integration on hospital financial performance. RESULTS. Hospitals with lower margins and higher costs were more likely to have implement ed strategies to integrate physicians and to modify physician behavior than their counterparts. Analysis using first differencing models ind icated that making department heads responsible for the profits and lo sses had a significant positive effect on margins, whereas including m edical staff on the hospital's board and offering physicians managemen t services had a significant negative impact on average Medicare costs . In addition the number of strategies implemented was associated posi tively with financial performance. The paper also emphasizes the impor tance of model specification in evaluations of hospital-physician arra ngements. CONCLUSIONS. Changes in hospital-physician relations may hav e been one reason why hospitals have been relatively successful at con taining costs and retaining profitability in recent years. More resear ch needs to be done on which specific arrangements affect hospital fin ancial performance, as well as their effect on the quality of patient care.