“The increase in Medicaid coverage since then has been gigantic,” Duggan says. The Affordable Care Act of 2010 alone added nearly 16 million low-income patients to the program, according to government data. “Our study underscores how changes that are occurring in the health care system, including the widespread privatization of public hospitals, can have unintended consequences for the most vulnerable patients.”

According to American Hospital Association data cited in the study, public control of hospitals declined by 42 percent from 1983 to 2019 as hospitals either closed or were taken over by private interests. As of 2020, roughly 80 percent of the approximately 4,500 general acute care hospitals in the United States are controlled by private non-profit or for-profit organizations. And as the share of public hospital beds dropped, Duggan and his collaborators find that the total number of patients admitted to newly privatized hospitals — including those on Medicaid — fell by 8.5 percent.

Job losses were also notable as private owners pared costs. Duggan and his co-authors estimate that full-time hospital staff declined by 8 percent on average, with many of the cuts hitting managers, medical technicians and back-office workers. They calculate, on average, a 30 percent decrease in the number of employed physicians. Privatization did not affect nursing staffs.

Duggan says the study findings are especially important given that health care represents the largest sector of the U.S. economy at 19 percent of GDP and that hospitals employ as many workers as the entire U.S. construction industry.

“The profit motive is embedded throughout the health care system, which can be both good and bad,” Duggan says. “Good in the sense that maybe things get done more efficiently, but bad in that it can end up having adverse effects for the least profitable patients who are typically poor.”

Duggan’s co-authors are Atul Gupta, an assistant professor at The Wharton School at the University of Pennsylvania; Emilie Jackson, an assistant professor at Michigan State University; and, Zachary Templeton, a doctoral student at Wharton. Gupta, PhD ’17, and Jackson, PhD ’20, are both former SIEPR graduate student fellowship recipients.

Why go private

The researchers look at nearly 260 privatizations of hospitals run by state and local governments between 2000 and 2018. While they find that admissions overall decline at newly private hospitals, neighboring hospitals absorbed most of the displaced patients.

But that wasn’t the case for low-income patients. Not only did newly private hospitals admit fewer Medicaid patients, but so did nearby hospitals — with the steepest declines in access occurring in markets with the highest levels of poverty and concentrations of hospitals.

Duggan says Medicaid patients lose out because hospitals in high-poverty areas already are financially strapped and that introducing a new competitor in the form of a newly privatized hospital makes it that much harder for all of them to stay afloat.

“At that point, all bets are off,” says Duggan, who first analyzed hospital ownership and the role of government spending on health outcomes for low-income patients in The Quarterly Journal of Economics in 2000.

Hospitals, including neighboring ones, shed unprofitable Medicaid patients more out of necessity than avarice, Duggan says. There are multiple ways that hospitals trim their volume of Medicaid patients. For example, they might not contract with states to serve patients covered by the program or they might cut back on care that low-income patients tend to seek more than others.

Red vs blue states: A counterintuitive finding

A better understanding of the effects of hospital privatizations on patient care is critical for policymakers, whose views on the right amount of government control appear to vary widely.

According to the study, some of the country’s most conservative states have the largest share of government-owned hospital beds, while more liberal states have among the lowest. State or local governments control 44 percent of hospital beds in Alabama, for example. In Pennsylvania, they control just 4 percent.

Those stark differences defy conventional wisdom, Duggan notes. Blue (more liberal) states tend to support a bigger role for government in providing services, while red states advocate for minimal public involvement.

“You might think that government’s role in hospital care would be larger in blue states, but it turns out to be much bigger in red states,” Duggan says. “Knowing that there’s tremendous variation across states further highlights the importance of understanding the consequences of hospital privatization and figuring out what is the appropriate amount of public control.”

There’s a lot more to investigate, the researchers say.

The effects on wages for hospital staff and a close examination of types of care — like psychiatry or obstetrics — are ripe for future research, Duggan says. “If you’re a nurse in a privatized hospital, do your wages go up less than if the hospital had remained under public control?” says Duggan, who plans next to start answering some of these questions by looking closely at specific state experiences with hospital privatizations.

Research by Stanford Health Policy’s Michelle Mello looks at what happens when a group of hospitals started systematically acknowledging adverse outcomes in care by apologizing and proactively offering compensation where substandard care caused serious harm. 

Hospitals have traditionally “crouched in a deny-and-defend posture when things go wrong in medical care,” said Mello, a professor of law at Stanford Law School and a professor of health research and policy. The new approach, called “a communication-and-resolution program,” or CRP, is being adopted by an increasing number of health-care facilities.

“None of the hospitals experienced worsening liability or trends after CRP implementation, which suggests that transparency, apology, and proactive compensation can be pursued without adverse financial consequences,” Mello and her co-authors write in the study published Monday in Health Affairs. However, despite the growing consensus that CRPs are the right thing to do, concerns over liability risks remain.”

Stanford Health Policy asked Mello some questions about the research:

Could this new approach to resolving patient conflict be a thing of the future?

Hospitals that adopt CRPs believe they will help improve patient safety and are consistent with the ethical obligation to disclose medical errors; they also hope they will reduce liability costs. However, there is a lot of uncertainty about their effects on costs. On the one hand, being honest with patients could avoid the anger that prompts patients to sue, and compensating injured patients early on saves on litigation expenses. On the other hand, in the traditional system, very few patients injured by substandard care ever get compensated. Offering up admissions of error and early compensation could mean a lot more patients receive payment, raising total costs. Uncertainty about this issue continues to be a barrier to widespread adoption of the CRP approach.

What were the key findings in your study?

We evaluated the liability effects of CRP implementation at four Massachusetts hospitals by examining before-and-after trends in malpractice claims, volume, cost, and time to resolution. We then compared those to trends among similar hospitals in the state that did not adopt CRPs. We found that CRP implementation was associated with improved trends in the rate of new claims and legal defense costs at the two big hospitals that implemented these programs — favorable developments that were not seen at comparison hospitals with no communication-and-resolution programs in place. CRP implementation was not associated with significant changes upward or downward in trends of new claims receiving compensation, compensation costs, total liability costs, or average compensation per paid claim, nor was it associated with a significant change in time to resolution.

So then why are the findings important?

The study helps resolve uncertainty about the liability effects of admitting and compensating medical errors, especially since the study design was much stronger than that of previous studies. We found that the CRP approach does not expand liability risk and may, in fact, improve some liability outcomes. Therefore, hospitals can “do the right thing” — be honest about errors, apologize, and compensate patients who are injured by negligence — without adverse financial consequences.

Who began the CRP approach and what is the average payment proactively made to patients who did not receive proper care?

The approach dates to the late 1990s and was first publicized by a Veterans Affairs hospital in Kentucky and then by the University of Michigan Health System, both of which reported very positive outcomes.  Stanford was also an early adopter.

The model calls for patients to be compensated at about what the hospital estimates their claim would be worth in traditional litigation. In our study in Massachusetts, the median payment to patients was $75,000. That’s a lot lower than the median payment in the tort system, but the mix of injuries is different. In traditional litigation, 85 percent of claims involve very serious injuries or deaths, because smaller claims aren’t attractive to plaintiff attorneys. They just go uncompensated. In CRPs, it’s easier for patients with moderate-severity injuries to have access to justice.

There is a wealth of data that could help hospitals cut costs while still providing high-quality service for patients, if physicians were willing to join forces with administrators to truly understand how much their services cost, according to a new article by Stanford researchers.

The Centers for Medicare and Medicaid Services (CMS) has been pushing physicians and providers toward population-based payment, which requires that providers reduce their internal costs below payment levels.

In this effort, the beleaguered health-care payer for the elderly has been undertaking innovative payment models, such as accountable care organizations (ACOs) and bundled payment that require providers to better coordinate care and reduce reimbursements and unnecessary or redundant patient procedures.

“However, it has proven challenging for the models, which focus on costs from the payer perspective, to achieve the desired effect of reduced Medicare spending,” writes Merle Ederhof, PhD, in this Health Affairs Blog. The researcher who focuses on issues at the intersection of health-care and accounting is with Stanford’s Clinical Excellence Research Center.

Her co-authors, Alexander L. Chin, MD, MBA and Jeffrey K. Jopling, MD, MSHS, are also at the center, which is dedicated to discovering, testing and evaluating cost-saving innovations in clinical care.

Changing old patterns at hospitals and among physicians

“Highly detailed cost data generated by internal cost accounting systems already exist in a large, and growing, number of health-care organizations,” says Ederhof. 

As Ederhof wrote in this New England Journal of paper last year, the data collected by the Healthcare Information and Management Systems Society shows that more than 1,300 U.S. hospitals have adopted sophisticated internal cost accounting systems.

The authors argue that the cost data produced by these accounting systems can be used in hospitals internally to lower their costs of providing services to all their patients, both within and outside the Medicare system. But physicians must get on board.

“The high adoption rate of these cost-measurement systems is not surprising, considering that the systems are designed around the existing data infrastructure that providers must have in place for billing purposes,” the authors write. “However, while provider administrators have used such cost accounting systems for some time, we are only now beginning to see them being used by interdisciplinary teams involving physicians to restructure clinical processes.”

Some large health-care systems have already started using these accounting systems alongside teams of physicians.

Partners HealthCare in Boston has started to use this approach to analyze costs for a set of services, for example, in a recent project a team of spine surgeons reviewed and discussed unblinded comparisons at the episode and cost-category levels. 

“Analysis of the costs in the individual categories revealed variation in clinical processes across surgeons, which was very illuminating to the team,” the authors wrote.

Leaders at NYU Langone Health have also started to use the cost data in the organization’s “Value-Based Management” initiative. A key feature of the initiative, the authors write, is a dashboard that is accessible to all physicians. For each specific diagnosis-related group (DRG), the dashboard shows cost averages for each physician performing the procedure, at the procedure level and at the level of individual cost categories, such as the ICU, laboratory, operating room and therapies.

“Physicians have been highly engaged and interested in the dashboard since it allows them to compare their costs to their peers and external benchmarks, and to learn how they can restructure clinical processes to lower their costs,” the authors write.

This Value Based Management initiative at NYU, which incorporates cost savings targets, development-level incentives and quality components, has apparently resulted in substantial cost savings for the organization.

Stanford Health Care has also joined the movement to promote value-based care, recently launching its Cost Savings Reinvestment Program. 

Compare, for example, the average cost for a hip replacement surgery among five surgeons who perform the surgery in the same hospital. Then take the “positive outlier,” or the surgeon with the lowest cost for the surgery.

“Once positive outliers are identified, detailed analysis that combines physicians’ clinical expertise and administrators’ insight can uncover ways in which clinical processes can be restructured to deliver high-quality care at lower total episode cost,” the authors wrote.

Then the interdisciplinary team of physicians and administrators must try to understand why that surgeon’s costs are lower and what he or she does differently. Did she order physical therapy sooner after the hip-replacement surgery? Did he use a different anesthesia approach that resulted in a shorter recovery for the patient? 

But you still have to get those four, more expensive surgeons to adopt the less-expensive treatments. And that can go to the heart of a physician’s identity.

“Even just a few years ago concern for the cost of providing health-care services still heavily clashed with physicians’ professional identity,” Ederhof said in an interview. 

The authors believe there is no turning back.

“In my view, the shift in recent years is attributable to the fact that physicians are starting to realize that the rising costs of the U.S. health-care system are no longer sustainable and that things will have to change — with or without their collaboration,” Ederhof said.

Stanford Health Policy’s newest faculty member, Joshua Salomon, believes that one urgent need in global health research is to improve forecasts of the patterns and trends that are the major causes of death and disease.

Salomon, who is leaving leaving his position as professor of global health at the Harvard T.H. Chan School of Public Health to join Stanford on Aug. 1, works on modeling of infectious and chronic diseases and their associated intervention strategies, as well as methods for economic evaluation of public health programs and ways to measure the global burden of disease.

And he looks at the potential impact and cost effectiveness of new health technologies.

“Projections of future trends in health are crucial to formulating policy,” said Salomon, who has a PhD from Harvard. “To think strategically about the technologies and policies that would make the biggest impact on health over the next 20 to 50 years, we really need to start by understanding the range of likely trends in major health challenges over the coming decades.”

Stanford, he said, offers him a “rich collaborative environment” to better learn from advances in forecasting across a range of other disciplines, such as economics, political science, and environmental science.

“With a better picture of what the world is likely to look like over the next 50 years — and what are going to be the most pressing health problems — we can invest wisely and put ourselves in a position to respond more effectively.”

Salomon is also the director of the Prevention Policy Modeling Lab, which is funded by a five-year award from the Centers for Disease Control and Prevention. The consortium represents the collaborative research of experts from Massachusetts General Hospital, Boston Medical Center, Dana Farber Cancer Institute, Yale School of Public Health, Brown University School of Public Health, and the Massachusetts Department of Public Health and.

He will continue directing the lab from Stanford and intends to bring in new research threads from his colleagues here on the Farm. The lab works on a wide range of projects dealing with policy analysis for hepatitis, sexually transmitted infections and diseases such as HIV, and tuberculosis.

“It’s a rewarding grant for me to work on because, unlike a lot of modeling projects, the work that we do really starts from urgent public health questions that policymakers have,” he said. “All of the questions that we are working on are questions that originated directly from discussions with CDC and other public health partners.”

With Salomon’s move to Stanford, the university gains a dynamic duo.

Grace Lee joins Stanford as the Associate Chief Medical Officer at Lucile Packard Children's Hospital in the fall, 2017.

His wife, Grace Lee, MD, MPH, joins in the fall as the Associate Chief Medical Officer at Lucile Packard Children’s Hospital. As a professor of population medicine at Harvard Pilgrim Health Care Institute & Harvard Medical School, Lee has led research in vaccine safety in the FDA-funded Post-licensure Rapid Immunization Safety Monitoring (PRISM) program and the CDC-funded Vaccine Safety Datalink, which monitors the safety of vaccines and studies rare and adverse reactions from immunizations.

She has also examined the impact of financial penalties on rates of healthcare-associated infections, as the principal investigator of an AHRQ-funded study, as well as developed novel surveillance definitions for ventilator-related events in neonates and children.

While at Stanford, Lee said, she intends “to find opportunities to enhance the learning health system approach to improve patient outcomes and population health.”

Salomon has spent his entire career as a collaborator on the Global Burden of Disease project, the world’s most comprehensive epidemiological study commissioned by the World Bank in 1990, which tracks mortality and morbidity from major diseases, injuries and risks factors.

“The study has made a major contribution to global public health because before this study we just didn’t have a comprehensive, systematic understanding of the things that cause death and disability in low- and middle-income countries. But now we do,” he said. “It’s hugely ambitious and very sweeping in scope — and a lot of my work is around providing the evidence we need to inform policy.”

Much of Salomon’s work is global in nature. He’s most recently focused on older adults in one rural South African community, which has a high prevalence of HIV and one of the world’s highest levels of hypertension. His research there aims to inform urgent prevention initiatives tailored to older adults where HIV and cardiovascular risks are moderate or high, as in similar communities in sub-Saharan Africa.

“People don’t expect a high level of ongoing HIV transmission in older adults,” he said. “The double burden that we find, with a very high level of HIV, as well as the high prevalence of diabetes and heart disease, creates enormous strains on the health-care system.”

Medicare Post-election by Stanford Health Policy on Exposure

Stanford Health Policy faculty members Michelle Mello, David Studdert and Laurence Baker discuss repealing the Affordable Care Act (ACA) and how it could affect health coverage in the United States.

Now that the United States has elected a Republican president and Congress, what is likely to happen to the Affordable Care Act (ACA)?

Michelle Mello and David Studdert: Exactly what will happen is unclear at this point, particularly since President-elect Trump’s own position on the ACA seems to be evolving by the day. In an interview on Nov. 11, he said he is interested in keeping some of the key provisions of the law, such as a ban on insurers discriminating on the basis of pre-existing conditions and provisions allowing young people to stay on their parents’ plans until age 26. But his opposition to other provisions, including the cornerstone provision requiring individuals to purchase insurance coverage, likely will remain. At this point, about the only thing one can say with certainty is that substantial change is coming.

Is the ACA likely to be repealed fully, or will some components be spared?

Mello/Studdert: On the campaign trail, President-elect Trump said repeatedly that repealing Obamacare is a priority. House Republicans have said the same. A complete repeal seems unlikely in the short term, though. There’s more opposition to some provisions of the act than to others, and millions of Americans now depend on health insurance coverage made available through the ACA. More likely, Republicans will target certain key elements – the individual mandate, minimum essential coverage rules, the subsidies available to low-income purchasers of health insurance and federal financing arrangements for the Medicaid program. Eliminating all of these features would spell the end of Obamacare as we know it. Eliminating any one of them would seriously threaten its viability, because the ACA’s strategy depends on having all major legs of the stool in place.

What is the legal process for repeal, and what issues would likely arise?

Mello/Studdert: Although Republicans will have a majority in the House and Senate, they fall just short of a filibuster-proof majority (60 votes) in the Senate. This is why a repeal is not likely to occur – at least not straight away – unless several Senate Democrats break ranks in the vote. A more likely scenario is that Republicans will use the budget reconciliation process to make the kind of changes mentioned above. Bills of this kind require only a simple 51-vote majority in the Senate, which they have.

Laurence Baker: Republicans have substantial ability to remove parts of the law under budget reconciliation. They can make changes to aspects of the ACA that involve financial in- and outflows to the federal government, but not other things. Reconciliation thus allows them to make changes to the major things like the mandate – because it involves a tax penalty – the subsidies and Medicaid. But they would not be easily able to repeal things like the exchange structures, guaranteed offers of insurance regardless of health status and other provisions. Guaranteed issue would be a real problem for insurance companies without the mandate, so repealing one but not the other threatens significant disruptions in insurance markets.

Most of the discussions thus far have focused on efforts to repeal the ACA’s expanding coverage aspects, but there are other aspects of the ACA that could be addressed. The ACA set up and funds the Center for Medicare and Medicaid Innovation (CMMI) and Patient-Centered Outcomes Research Institute (PCORI), two organizations that have not been discussed much in the repeal debates and which are seen by some Republicans in a more positive light. The ACA also makes changes to Medicare payments. It seems likely that repeal debates will focus more on coverage and less on these things, but it’s hard to tell at this point.

How will this affect Americans who current receive subsidies for health insurance?

Mello/Studdert: Elimination of the subsidies would have a major effect on the ACA’s core objective to cover the uninsured. By 2017, about 25 million people will have purchased their health insurance on the exchanges set up under the ACA, and about three-quarters of them will receive subsidies to help make premiums affordable. If the subsidies disappear, we should expect that health insurance will become unaffordable for many of these people or no longer look like a good deal. The tax credits and health savings accounts currently being discussed won’t make up for what is lost, and many people who currently have insurance can be expected to drop it. Elimination of the individual mandate will further open the way for this to happen.

Baker: The reality of the health care system is that there are not easily available alternatives to the ACA that would protect coverage and be palatable to broad groups of Republicans. Single-payer, or national health insurance, is a non-starter, so they’d be left with market-oriented reforms, and there are not obvious ways to pursue those without at least some core features of the ACA. Most of the proposals recently put forward for a replacement, including those highlighted by the Trump campaign, like cross-state competition, tax credits for insurance purchase and block granting Medicaid, would not really offer coverage to a large number of the people who would lose it under repeal. So a key question is what alternatives the Republicans come up with. In a similar way, the ACA and its provisions have become increasingly woven into our insurance system. Insurers and employers, among others, have made decisions and investments incorporating the ACA. Undoing those threatens disruptions and political challenges.

Michelle Mello is a professor of law and of health research and policy.

David Studdert is a professor of law and of medicine.

Laurence Baker is a professor of health research and policy, chair of the Department of Health Research and Policy in the School of Medicine and a senior fellow at the Stanford Institute for Economic Policy Research.