Changes in Hospital Financing and Organization and Their Impact on Hospital Performance

Since the 1980s policymakers have identified a wide range of policy interventions to improve hospital performance. Some of these have been initiated at the level of government, whereas others have taken the form of decisions made by individual hospitals but have been guided by regulatory or financial incentives. Studies investigating the impact that some of the most important of these interventions have had on hospital performance can be grouped into four different research streams. Among the research streams, the strongest evidence exists for the effects of privatization. Studies on this topic use longitudinal designs with control groups and have found robust increases in efficiency and financial performance. Evidence on the entry of hospitals into health systems and the effects of this on efficiency is similarly strong. Although the other three streams of research also contain well-conducted studies with valuable findings, they are predominantly cross-sectional in design and therefore cannot establish causation. While the effects of introducing DRG-based hospital payments and of specialization are largely unclear, vertical and horizontal cooperation probably have a positive effect on efficiency and financial performance. Lastly, the drivers of improved efficiency or financial performance are very different depending on the reform or intervention being investigated; however, reductions in the number of staff and improved bargaining power in purchasing stand out as being of particular importance. Several promising avenues for future investigation are identified. One of these is situated within a new area of research examining the link between changes in the prices of treatments and hospitals’ responses. As there is evidence of unintended effects, future studies should attempt to distinguish between changes in hospitals’ responses at the intensive margin (e.g., upcoding) versus the extensive margin (e.g., increase in admissions). When looking at the effects of entering into a health system and of privatizations, there is still considerable need for research. With privatizations, in particular, the underlying processes are not yet fully understood, and the potential trade-offs between increases in performance and changes in the quality of care have not been sufficiently examined. Lastly, there is substantial need for further papers in the areas of multi-institutional arrangements and cooperation, as well as specialization. In both research streams, natural experiments carried out using program evaluation design are lacking. One of the main challenges here, however, is that cooperation and specialization cannot be directly observed but rather must be constructed based on survey or administrative data.