overnment-financed health programs like Medicare and Medi-Cal have begun to direct their patients towards managed care plans. Consequently, hospitals now receive a substantial amount of their income from contracts negotiated prior to patients' arrival. These changes have essentially reversed hospitals' economic incentives. Patients are now spending far less time in hospitals than they once did. The resultant empty beds have led to a widespread shakeout within the industry. Between 1960 and 1990, vacancy rates in hospitals ranged from 30 percent to 35 percent. More recently, however, vacancy rates in some areas have exceeded 50 percent. Furthermore, between 1980 and 1993, some 949 hospitals in the U.S were closed (Shuit, 1995, pp. A1, A21).
The president of Centinela Hospital Medical Center in Inglewood, Russ Stromberg, compares the hospital industry transformation to similar changes which have already occurred within the grocery business. Neighborhood grocery stores were overwhelmed by larger chains; moreover, these chains eventually merged into
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