Assessing Hospital Administrators' Responses to Prospective Payment

Abstract

Few studies have assessed the relationship between hospital administrators'efforts at planning and subsequent performance of health care organizations. Nonetheless, planning is viewed as an important mechanism for aligning health services delivery efforts with community needs and operating constraints. When prospective payment (PPS) was first introduced, hospital adninistrators had little choice other than to plan how they would respond to the new reimbursement policies. However, it is unclear whether they actively undertook planning in an effort to address prospective payment and related pressures. This article presents a case study of rural New Mexico hospital administrators'efforts to respond to prospective payment. Two dimensions of planning effort by administrators-intensity andformality-are analyzed within rural hospitals during the PPS transition (i.e., 1983 to 1987) and after itsfull implementation (i.e., since 1988). Thefindings suggest thatplanning intensity during the PPS transition is associated with higher performance; notably, higher net patient care revenues, lower costs per patient day, higher operating margins, higher net income, and higher planning effectiveness. However, the strength of these associations weakened as PPS was fully implemented. Given the exploratory nature of this evaluative case study, the results should be viewed as preliminary until confirmed by larger studies. The implicationsfor research that evaluatesplanning-performance relationships in the health care field are discussed.