Becoming a Magnet Hospital Can Increase Revenue, Offset Costs of Achieving Magnet Status

Several studies have found that Magnet Hospitals have lower mortality rates, shorter lengths of stay, higher patient satisfaction, and better patient outcomes than non-Magnet Hospitals. They are also more likely to adopt National Quality Forum-approved patient safety practices. Until recently, though, little was known about the effect of Magnet status on hospital revenue.

A study funded by INQRI and published in the May issue of Medical Care finds that achieving Magnet status is worth the investment - increasing hospital revenue by an average of $1,229,770 to $1,263,926 annually.

On average, it takes a hospital 4.25 years to complete the process of attaining Magnet Status, at an average cost of $500,000 annually, for an average total investment of $2,125,000. At that cost, the researchers calculate that hospitals begin to realize payback from achieving Magnet Status in two to three years.

“Since Magnet Hospitals have better patient outcomes, we suspect that these increases in revenue reflect increased reimbursement rates from private insurers, relative to non-Magnet Hospitals,” said co-principal investigator Richard Lindrooth, PhD, associate professor in the Department of Health Systems, Management and Policy in the Colorado School of Public Health, University of Colorado Anschutz Medical Campus. “That increased premium is related to the perceived higher quality of care and the desirability of including high-quality hospitals in insurers’ networks. The higher costs likely reflect a combination of the cost of providing high quality care and, to a lesser extent, a shift toward treating more complex cases.”

The study finds that, the increase in revenue overshadowed changes in patient costs.  Net patient revenue increased on average by 3.89 percent compared to non-Magnet hospitals, while costs increased only by 2.46 percent.

The research team data from 1998-2006 for 2,541 non-Magnet Hospitals and 141 Magnet Hospitals from the American Hospital Association Annual Survey, the Hospital Cost Reporting Information System from the Centers for Medicare & Medicaid Services, and the American Nurses Credentialing Center (ANCC). Data included information on hospital characteristics, as well as utilization, costs, charges, and other relevant financial information.

The interdisciplinary research team was led by Jayani Jayawardhana, PhD, assistant professor of health policy and management, University of Georgia; John M. Welton, PhD, RN, professor in the College of Nursing, University of Colorado Anschutz Medical Campus; and Lindrooth.