Question

Explain how hospital financing has evolved throughout the years and discuss some of the issues that forced the evolution of different financial models. Do you think this has impacted admission and LOS rates? Why or why not?

Answer 1

First on most lists of factors explaining the growth of investor ownership and multi-institutional systems is ''access to capital." Although capital costs represent a relatively small proportion of health care costs (on average, approximately 7 percent of hospital costs under the Medicare program), capital expenditures (for example, for new technologies) often translate into higher operating costs. Access to capital by health care institutions is crucial not only to their own future but to the future shape and configuration of the health care system itself. Access to capital is also integral to the topic of this report, because it is affected (by definition and in practice) by whether institutions are for-profit, not-for-profit, or government owned. It is also a topic about which there are many misconceptions.

The purpose of this chapter is to explain the nature and importance of capital, to discuss the factors that affect institutions' access to capital and the cost of that capital, and to identify the costs that are associated with the use of different sources of capital. Although the committee did not get into the details of policy options regarding capital,1 it did examine some of the implications of the for-profit/not-for-profit distinction for capital policy in health care.