Managed Care

Strategic hospital alliances have yet to add financial value to individual member hospitals

Throughout the 1990s, hospitals began to form local strategic hospital alliances (SHAs) to defend against increasingly powerful hospital rivals and to improve their market positions relative to aggressive and consolidating managed care organizations. These alliances have been structured to be controlled by single or multiple hospital owners, and some have been dominated by for-profit versus other types of ownership. However, regardless of the type of SHA structure or ownership, SHAs have not created added financial value for hospital collectives, at least at this stage of their development, concludes a study supported by the Agency for Healthcare Research and Quality (HS09217) and conducted by researchers at Virginia Commonwealth University.

SHAs with single ownerships, which should find it easier to coordinate and negotiate, were no more effective at enhancing hospital revenues or reducing costs than SHAs with multiple owners. Also, and unexpectedly, for-profit ownership of SHAs was not significantly related to any financial performance measures. It is possible that as SHAs mature and integration progresses, the more tightly structured SHAs will show better financial performance, according to the authors of the study. They analyzed financial performance across SHAs in all metropolitan statistical areas in 1995.

The researchers found that several factors may have mitigated the influence of SHA type on financial performance. There was little evidence that SHAs during the mid-1990s had coordinated and centralized their operations. In some markets, hospital members within SHAs competed against each other or resisted efforts to function as a unified local system. Recent SHA growth has taken place within more loosely coupled operational entities, such as partnerships and network arrangements, which are devoid of the structures or interorganizational power that would lead to improved financial performance. HMO price pressures did not help to reduce operating costs among SHAs. Finally, the collective presence of SHAs in the market may not have been sufficient to enable them to negotiate favorable rates from HMOs, note the authors.

Details are in "Strategic hospital alliances: Do the type and market structure of strategic hospital alliances matter?" by Michael J. McCue, D.B.A., Jan P. Clement, Ph.D., and Roice D. Luke, Ph.D., in Medical Care 37(10), pp. 1013-1022, 1999.

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