Is the system really the solution? Operating costs in hospital systems

Area of Science:

• Health Services Research
• Healthcare Management
• Health Economics

Background:

• Hospital system formation has accelerated, with executives claiming scale economies reduce operating costs.
• Academic research has not consistently supported the cost-saving claims of hospital system consolidation.
• The efficiency of various hospital system structures remains an area of active investigation.

Purpose of the Study:

• To investigate whether hospital system membership is associated with lower operating costs compared to freestanding facilities.
• To identify which types of hospital systems (e.g., size, centralization, spatial configuration) are most cost-effective.
• To determine if the relationship between system structure and cost has evolved over time.

Main Methods:

• Analysis of financial data from approximately 4,000 U.S. hospitals between 1998 and 2010.
• Comparative analysis of operating costs based on hospital system membership, system size, and system organizational models (centralized vs. local hub-and-spoke, national).
• Statistical testing of hypotheses regarding the association between system characteristics and hospital costs, including changes over the study period.

Main Results:

• No overall evidence was found that hospitals within systems have lower operating costs than freestanding hospitals.
• Hospitals belonging to smaller systems demonstrated lower costs compared to those in larger systems.
• Hospitals within centralized systems exhibited lower costs than other system types.
• National system hospitals showed higher operating costs.
• The spatial configuration of systems was not significantly associated with cost differences.
• These findings remained consistent throughout the 1998-2010 study period.

Conclusions:

• Hospital system formation does not inherently guarantee lower operating costs.
• Specific system structures, particularly smaller and centralized models, are associated with cost reductions.
• Healthcare leaders should consider system type and organizational structure when pursuing cost efficiencies, as not all systems achieve economies of scale.