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Tracking Revenue Streams and Operating Costs: IDN vs. Independent Hospital

November 26, 2019 BY Carisa McLaughlin

Tracking Revenue Streams and Operating Costs: IDN vs. Independent Hospital

In healthcare, health systems and independent hospitals compete fiercely for market share. An integrated delivery network (IDN) — one of the most common types of hospital affiliations — is a cohesive health system that offers a full range of preventative and acute care services as well as health insurance plans. This model offers an alternative to the loosely-associated group of providers and payors typically found at a non-affiliated facility. Members of a network are administered independently but collaborate for the community's benefit. Independent hospitals, therefore, are not part of a system, but they can be a member of a network.

The impact of net patient revenue

With hospitals being the primary care centers for the majority of Americans, it’s not surprising that they account for approximately one-third of all medical spending in the U.S. — about $1.1 trillion. Between 2014 and 2018 the average net patient revenue at U.S. hospitals increased from $282.7 million to $334.5 million.  

Net patient revenue is the amount of money a hospital receives for all patient care after contractual insurance adjustments. During the same time period, average operating expenses increased from $264.2 million to $313.9 million. Operating expenses at a hospital typically include insurance billing, labor costs, research and training, tests and technology, and liability, supplies and capital expenses.  

Many hospitals can maintain profits and high prices because of their market power, which has grown as competition has dwindled and providers have consolidated through mergers and acquisitions. The average dollar amount for net patient revenue increases at IDN-owned and -affiliated hospitals tends to be much greater than independent hospitals.  

Net Patient Revenue: Average Year-to-Year Change
2014-2018 IDN Owned/Affiliated

netpatientrevenue-idnFig. 1 Results based on 5,466 U.S. Hospitals with reported data each year 2014 to 2018. Outliers based on percentage change values +/- two standard deviations from mean percentage change removed from analysis. Definitive Healthcare data as of 10/17/2019. 

The data indicates, however, that from 2015 to 2018, the percentage increase in net patient revenue at independent hospitals was higher, and steadier in rate, than the percentage increase experienced by IDN-owned and -affiliated hospitals. From 2017 to 2018 net patient revenue at IDN- owned and -affiliated hospitals increased on average by 2.66% and for independent hospitals 4.53%.

Net Patient Revenue: Average Year-to-Year Change
2014-2018 Independent Hospitals

netpatientrevenue-independent

Fig. 1 Results based on 5,466 U.S. Hospitals with reported data each year 2014 to 2018. Outliers based on percentage change values +/- two standard deviations from mean percentage change removed from analysis. Definitive Healthcare data as of 10/17/2019. 

Net patient revenue growing at independent hospitals at a faster pace than health system-owned hospitals suggests that returns on mergers and acquisitions may be declining. With so many massive mergers over the past several years, the actual gain from it may be stabilizing more than anticipated.

However, according to a recent report from the American Hospital Association, hospital mergers helped reduce costs and improve quality. The report showed that mergers improved care coordination, reduced capital costs, and improved clinical standardization. Specifically, the study found that an acquisition is associated with a 2.3% decrease in operating expenses and a decrease of 3.5% in net patient revenue. This correlation leads to the suggestion that savings from merging hospitals are passed on to patients and their health plans.

 

Operating cost-cutting measures for all

Whether an IDN-owned and -affiliated or independent hospital, it’s increasingly necessary for all hospitals and health systems to define and track their costs – and allocate them properly. Obviously stated, there are overhead costs (indirectly related to patient care) that are simply unavoidable. In today’s market with value-based care becoming more of a priority, it’s crucial for every type of hospital to become more efficient without sacrificing care. Here are a few examples of cost-cutting measures:

  1. Reduce supply chain spending. Unlike labor, supply costs can be easily minimized without sacrificing clinical outcomes and efficiency, making them the primary target of healthcare organizations looking to reduce spending and optimize supply chain management.
  2. Utilize quality metrics to improve deficiencies. Improving the quality of processes that can lead to hospital-acquired infections is not only critical for patient care and safety — it’s also a cost reduction strategy. With government initiatives and reimbursements, better quality measures in this area will also result in higher reimbursements.
  3. Re-asses staffing strategies. There are many benefits associated with hiring locum tenens providers, including avoiding nursing strikes, reducing costs, and easing the loads of overworked facilities.

Learn more

Comparing the year-to-year changes in net patient revenue and operating expenses show that in general, the increases for operating expenses are higher than the net patient revenue increases both in dollar amount and percentage increase. Definitive Healthcare provides detailed financial data for hospitals to further explore and compare these trends at individual provider sites. 

Interested in learning more about revenue trends, and how you can leverage financial data to sharpen your sales strategy? Start a free trial today to see how you can:

  • Analyze trended financial data to target your ideal clients
  • Compare revenue trends at individual provider sites
  • Access spending and purchasing information across facility types

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