Hospitals
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Industry Overview
The US hospital industry includes about 3,600 organizations that operate about 6,500 hospitals with combined annual revenue of about $800 billion. Major companies include Ascension Health, Catholic Health Initiatives, HCA (Hospital Corporation of America), Kaiser Permanente, and Tenet Healthcare. The industry is fragmented: the top 50 organizations generate about 30 percent of revenue.
Hospitals provide inpatient and outpatient services using specialized equipment. This industry doesn't include residential care facilities, outpatient care centers, or doctors' offices.
The world has about 17,000 hospitals. The vast majority are in Europe and North America. But the number of hospital beds per 10,000 population, as measured by the World Health Organization, is only tangentially related to a country's economic stability and wealth. The countries with the most beds per 10,000 people are North Korea, South Korea, Japan, and Belarus. The US has about 30 hospital beds per 10,000 people.
Competitive Landscape
Demand for hospital services is driven by demographics, illness and injury rates, and advances in medical care and technology. The profitability of individual companies depends on efficient operations, since many hospitals offer similar services, and customer perception, since in many cities hospitals compete for patients. Hospitals also compete for physicians, and seek to attract doctors with state-of-the-art equipment and an attractive work environment. Large companies have advantages in buying supplies, sharing best practices, and negotiating contracts with health insurers. Large hospitals may offer a wider variety of services. Small hospitals can compete successfully by serving a limited geographical area or offering specialized services. About 75 percent of the 6,500 US hospitals are nonprofits, affiliated with churches, charities, or local governments.
Products, Operations & Technology
Major services include in-patient hospital care (about 60 percent of industry revenue) and outpatient services that typically don't require an overnight stay (35 percent). Other sources of revenue include prescription drug sales, ambulatory surgeries, and contributions from private donors, nonprofit foundations, and the federal government.
Hospitals can be government- or privately run, either by a charitable organization or a for-profit corporation. Most hospitals, including teaching hospitals and other institutions, are exempt from federal income tax. Around 80 percent of hospitals are general medical and surgical hospitals, accounting for 90 percent of total industry revenue. Around 1,300 hospitals provide psychiatric, substance abuse, and specialized services, generating around 7 percent of industry revenues.
Hospitals provide an efficient way for doctors to use facilities, equipment, and services too expensive to buy for private practices. Hospital operations revolve around routine patient care such as feeding and hygiene; treatment procedures (including medications); record-keeping; personnel management; purchasing; and billing. A typical large hospital may have 300 beds and annual revenue of $100 million; community hospitals generally have fewer than 100 beds.
Hospitals pay close attention to costs, because they usually receive a fixed amount of revenue per patient and must bear actual costs themselves. There are some economies of scale: a 50-bed hospital often needs the same expensive equipment (such as an MRI machine) as a 200-bed hospital. Hospitals usually need to keep a nursing staff in proportion to the number of "licensed" beds. Occupancy rates are often no more than 50 percent of beds. The average hospital stay for an in-patient is five to six days.
Labor is the largest single operating cost item, often equal to more than 40 percent of revenue. Nurses, aides, and technicians comprise the majority of the workforce. While hospitals may employ their own doctors, most doctors who use their facilities have independent practices and use the hospital under contract. Doctors may be affiliated with several hospitals within the same area. Some hospitals are affiliated with medical schools to provide student training, and many others host research facilities.
Technology is important in hospital management, largely through computer systems that manage patient records and billings. Many hospitals also have computerized purchasing systems that keep inventories low. Recent technological advances include medical information systems that help doctors with diagnoses and treatment, and prescription systems that help prevent drug interactions and medication mistakes. Some hospitals use wireless technologies that doctors and nurses can use at bedside. Hospital equipment is often expensive and may have a short useful life because of rapid technological advances.
