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Journal of Health Politics, Policy and Law 29.4 (2004) 885-905



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The Corporatization of American Hospitals

Virginia Commonwealth University
Corporations have begun to integrate a hitherto decentralized hospital system, enter a variety of other health care business, and consolidate ownership and control in what may eventually become an industry dominated by huge health care conglomerates.
—Paul Starr, The Social Transformation of American Medicine

Paul Starr, in The Social Transformation of American Medicine (1982) (hereafter TSTAM), discussed his expectations for major changes in the U.S. hospital sector. In particular, he focused on the transformation of what were then largely independent, freestanding, nonprofit hospitals into large centralized, corporate organizations in which individual institutions would lose their autonomy and become part of large-scale enterprises with centralized corporate control (428). Starr suggested that the hospital industry was in the early stages of this change in the 1980s and, though preoccupied at the time with increased government regulation, was not aware that hospitals were on the brink of "losing their autonomy to another master" (428).

On the face of it, Starr's predictions appear to have come true given the voracity with which hospitals have affiliated with multihospital arrangements since the 1980s. The percentage of U.S. community hospitals affiliated with systems increased from 30.8 percent in 1979 to 52.6 percent in [End Page 885] 2001. Health systems are arrangements in which a group of affiliated hospitals are owned and operated by a single parent organization. An additional 12.7 percent of community hospitals in 2001 were affiliated with more loosely connected multihospital health networks—an organizational form that was not present in the early 1980s. In health networks, hospitals and other health providers are tied together through alliances or contractual affiliations. These organizations in some instances have served as a springboard for eventual formation of more tightly structured health systems (Bazzoli et al. 2001). A second prediction of Starr that also appears to have come true is the adoption of various corporate strategies and practices by not-for-profit hospitals.

However, a major element of Starr's prediction—namely, the centralization of corporate control and the loss of local decision making—did not universally occur despite the growing involvement of American hospitals in multihospital arrangements. Indeed, what we typically see is a mixture of centralized and decentralized authorities with some key operational decisions remaining with individual hospitals and others flowing to the system. In addition, Starr discussed other transformational pathways that would give rise to centralized corporate control. Many of these alternative pathways were pursued after the writing of TSTAM but then fizzled for a variety of reasons. While Lawrence Casalino (this issue) examines the relative extent to which the physician, hospital, and health plan sectors of the U.S. health system have become more corporate, this essay focuses squarely on what Starr envisioned in relation to the corporatization of American hospitals, what came to pass and what did not, and why this likely was the case. The next section summarizes major tenets of Starr's arguments regarding the type of hospital corporate transformation he expected. After that, evidence is summarized about the specific types of transformation that did occur. Finally, the issues of health systems and centralized control and not-for-profit versus for-profit organizational forms in health care are discussed.

TSTAM on the Organizational Transformation in American Hospitals

Starr presents a very specific vision of the future for American hospitals and considers five alternative pathways by which hospitals would arrive at this point. In particular, he suggests that decentralized and autonomous hospitals were beginning to integrate into corporations that would consolidate ownership and control in what may "eventually become an industry [End Page 886] dominated by huge health care conglomerates" (428). This vision was not unique to Starr, as others around the time of the publication of TSTAM predicted a growing "medical industrial complex" that would be dominated by a small number of national firms (cf. Relman 1980) or that would require hospitals to adopt more corporate practices, service diversification, and...

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