For-profits cost Medicare more

October 1, 1999

Pharmaceutical Representative

For-profit hospitals cost the Medicare program more than not-for-profit hospitals, according to a recent article published in the New England Journal of Medicine (vol. 341, no. 6).

For-profit hospitals cost the Medicare program more than not-for-profit hospitals, according to a recent article published in the New England Journal of Medicine (vol. 341, no. 6).

Co-authors Elaine M. Silverman, Jonathon S. Skinner and Elliot S. Fisher used American Hospital Association data to calculate the 1989, 1992 and 1995 spending rates in for-profit and non-profit hospital areas.

"The major findings in the study were that Medicare spending in areas served by for-profit hospitals was higher than in areas served by non-profit hospitals." said Elaine Silverman, co-author of the article.

Though the report doesn't give a reason for the spending differences, Silverman ventured several guesses. "There are differences in patient populations that correspond to a need for greater services in the for-profit areas. However, we don't think that's a likely explanation because we controlled for many characteristics of the hospital service areas and the patients who lived in them that might influence cost. We think that the difference is likely due to differences in the organizational behavior of these hospitals that might influence cost."

Not everyone agreed with the results of the report, however. Both the Federation of American Health Systems and the American Hospital Association accused the authors of the study of flawed reasoning and editorial bias.

"The statistical merit of this piece is highly suspect," said Tom Scully, president and CEO of the Federation. "This four-page study asks readers to blindly accept much of the methodology, which we need to know more about. Such as: How does the study account for the hospital wage index, which can account for as much as a 100% variation in hospital payments among areas for the same service?"

Mary Grealy, chief Washington council for the AHA, also accused the authors of failing to take all the necessary factors into consideration before coming to their conclusions. She said, "There are certain adjustments for disproportionate share hospitals, for teaching hospitals, there are all these different adjustments that hospitals get that do result in higher Medicare spending that [the authors] do not seem to have accounted for in their report." PR

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