The differential effects of a change in reimbursement on public and private university hospitals

The primary purpose of the government's prospective payment system was to decrease the rate of federal spending for Medicare patients by paying fixed prices for services and by transferring the financial risk for the care provided to the hospital. While PPS certainly has affected all hospitals, this article has attempted to identify some of the expected and unexpected consequences of the change in reimbursement on publicly and privately owned university hospitals. Of importance is the discussion that has analyzed the specific effects of PPS on the components of the UHs' missions. The implementation of PPS may exaggerate the effects of the payment change on both types of UHs. The provision of broadly based primary and specialty care services may be in question as institutions find themselves potentially unable to deliver these services on a price-competitive yet profitable basis. The costs associated with educational, research, and community service programs can no longer be subsidized by excess patient care revenues as payers streamline payments to reflect only the costs of clinical care. Thus, university hospitals may be forced to reexamine their missions and change their operating plans to reflect the current fiscal environment. If taken to an extreme, it is likely that the local society may be negatively affected by these actions. Clinical and community services that increase access, assure continuity of care, or provide needed but costly (public) health services may be eliminated or reduced in scope in an effort to contain costs. Even those services that are cost beneficial from a societal perspective may be eliminated without some form of subsidy or direct payment as institutions are forced to reallocate their limited funds from these types of public health services to support nonprofitable, but critical clinical or academic programs. The potential impact on access, continuity of care, and morbidity and mortality will not be known for many years. Although it is not known how these changes will eventually affect university hospitals, two outcomes seem clear. University hospitals with different governance and management structures may not change their missions and means for achieving institutional goals as much as might have been expected. The interdependence of the university hospitals' goals and the role they play in their local communities may force them to begin to explore new ways to achieve their missions. Public-private sector cooperation is suggested as one approach to use in response to the demands of payers and patients while the institution remains true to its historical mission.(ABSTRACT TRUNCATED AT 400 WORDS)