The For-Profit Hospital Juggernaut

Aerial view of operating room

Jackson Hill

Magazine cover with three photos of elderly people

This article originally appeared in Southern Exposure Vol. 13 No. 2/3, "Older Wiser Stronger: Southern Elders." Find more from that issue here.

The official publication of the National Association of Counties, County News, carried an ad in July 1984 proclaiming how well things have gone since Hospital Corporation of America (HCA) took over management of a Georgia public hospital. The chairman of the Hospital Authority of Habersham County, Georgia is quoted as saying, "We chose HCA because we had to have a winner. . . . In 1977, we found ourselves in trouble at Habersham County Hospital: We didn't have an administrator, it was hard just meeting payroll and we needed a lot of renovation. . . . HCA — working with a lot of people here — turned us around." 

This ad and others like it represent an extensive and successful campaign to buy out and gain control of the South's public hospitals. All too often, county and city governments fall for the sales pitch — and sell or turn over the managing of their hospitals to HCA or other chains. As public hospitals face large deficits, and as their physical plants continue to deteriorate, public officials have come to view the sale or management transfer of their public hospitals as the only way out of a fiscal morass. Public hospitals in the South are an especially easy and attractive target for the predatory chains. Southern lawmakers generally favor private control over government control, and an anti-regulatory environment has helped these firms to thrive. 

In 1983, for-profit (also known as proprietary and investor-owned) hospital chains owned 595 hospitals in the U.S. and managed 274 more. The Southern states have more than their fair share of these, with 21 percent of the South's hospitals owned by for-profit companies in 1984. It is estimated that 30 percent of acute care hospitals in the U.S. will be for-profits by 1990. The for-profit hospital industry is also consolidating. Five chains now control two-thirds of the for-profit market, led by Nashville-based HCA with over a third of this market and Louisville's Humana, Inc., which holds a tenth of the market (see Table 1). 

For the chains, caring for the ill is a money-making proposition. In 1980 the after-tax profits of hospital stocks doubled. During 1982, a recession year for most businesses, stocks of the top four hospital chains rose 30 percent. By 1983, after-tax profits of 20 for-profit chains increased by 38 percent. 

For-profit chains argue that they offer modem, efficiently run hospital systems, but consumers and communities have begun to wonder. Many are starting to realize that for-profit hospitals mean less care for the needy and elderly, higher costs for everyone, and decisions based on what's profitable, not what's needed. 


Hospitals with Artificial Hearts 

Hospital Corporation of America owns 5 of the 12 hospitals in its home city of Nashville. The largest of these HCA facilities, Park View, has no soft spot in its heart for sick people who need charity care. 

In 1983 a man suffering from lung cancer was referred by his doctors to Park View because it was the only hospital in the area that provided the type of radiology treatment he needed. When the patient (who lived on a 14-acre farm with his disabled wife on a combined income of $328 a month) and his sister arrived at Park View, they were told that "no treatment would be given until $500 had been paid in advance." The sister called John Colton, an HCA vice-president, and explained that she didn't have the money. She was told, "HCA does not provide care to anyone without assurance of payment." Because her brother was in "great pain" and "in tears," the sister gave the hospital $500 she could not afford and treatment was begun. A few days later, however, she was told to come up with another $500 or her brother's radiology treatment would be discontinued. At this point, she contacted attorney Gordon Bonnyman at her local Legal Services office, who was told by HCA's attorney that the hospital couldn't make an exception for his client because it "turned people away in similar circumstances every day." 

Bonnyman prepared a complaint against HCA charging abandonment, denial of emergency medical care, intentional infliction of mental distress, and extortion. HCA agreed to continue treatment the day the complaint was to be filed. 

"The poor just don't get into HCA hospitals in my city," Bonnyman believes. Data from the Tennessee Department of Health and Environment support his contention. In 1982 the seven Nashville not-for-profit hospitals provided 93 percent of the city's total free and bad-debt care, compared to 7 percent provided by the five HCA hospitals. 

HCA is not the only for-profit chain which denies care to the poor. Humana, Inc., the second largest chain, appears equally hard-hearted. In January 1982 the Health System Agency (HSA) of Northern Virginia issued its finding on Humana's certificate of need application to build a new 200-bed hospital in Reston, Virginia. (HSAs are regional planning agencies that review applications for a certificate of need before a new hospital can be built or an old one expanded.) The HSA determined in this case that given the surplus bed capacity in the area, not only was a new hospital not needed, but construction of a new Humana hospital might result in reduced access to care for the poor in the area. 

In the course of its assessment, the HSA had looked at patient transfers from Humana hospital emergency rooms to other hospitals and had determined that the chance of a patient at a Humana hospital emergency room being transferred to another facility was six times as great as for a patient who received emergency care at existing area hospitals. Many poor patients seeking care at a Humana hospital, the HSA predicted, would be transferred to other northern Virginia hospitals, "if they do not have third-party coverage or money for a down payment on their bill, and they are not in an immediately life-threatening condition." 

Several state studies have found large disparities in the amount of indigent care provided by for-profit hospitals and voluntary (not-for-profit, often church-run) hospitals and public hospitals. Typically, public hospitals provide the lion's share of uncompensated care; voluntary hospitals come in second, with for-profit facilities running a poor third. In Florida in 1983, although for-profit hospitals constituted 32 percent of the state's hospitals, they provided only 4 percent of the net charity care provided within the state. Florida's Hospital Cost Containment Board openly criticized for-profit hospitals in its 1983-84 annual report for their failure to equitably share the burden of serving the uninsured poor. 

Texas's for-profit hospitals also shun the poor. In 1983 they provided less than 1 percent of the total charity care in the state (see Table 2). 

For-profit hospital chains sometimes claim they provide as much indigent care as voluntary facilities, but they are reluctant to provide supporting data. According to a September 1983 article in the Nashville Tennessean, HCA hospitals in the state were the only ones which refused to answer a questionnaire about patient charges sent out by State Senator John Hicks. For years HCA and other for-profit hospitals in Georgia refused to submit to the state financial data that was routinely reported by other facilities. They began to comply only after the data was required as part of a certificate of need application. 

Some national data on provision of indigent care are available from the January 1981 Office of Civil Rights (OCR) survey of all general, short-term hospitals in the U.S. An analysis of OCR data on inpatient admitting practices showed that 9.5 percent of all hospital patients were uninsured in 1981; yet only 6 percent of patients treated at for-profit hospitals were uninsured while 16.8 percent of those treated at hospitals owned by state and local governments were uninsured. Alan Sager of Boston University also used OCR data in his study of hospital closures and relocations in 52 cities. He found that of the 4,038 patients categorized as "no charge" during the OCR survey, only 1 received care at a for-profit facility. 

Voluntary hospitals and even some public hospitals also turn away the poor. What distinguishes the actions of the for-profit chain hospitals from those of individual voluntary or public facilities is that the for-profits' policy of denying access is established at corporate headquarters and therefore affects all their facilities throughout the nation. Although many voluntary hospitals are reducing their uncompensated care load in order to survive, others continue to view care for the poor as part of their mission. For-profit hospitals have a different mission — profit — and these conglomerates see clearly that indigent care and unpaid debts mean fewer profits. 

Too often, local governments are succumbing to promises made by these chains that if they will sell, lease, or turn over management of their hospitals, red ink will run black, patient care will improve, and past inefficiencies will disappear under management techniques such as use of the most up-to-date computers and bulk purchasing. But studies have shown that public and some voluntary hospitals are losing money because they serve the uninsured, not because they are inefficient. Thus, the for-profit chains' promise really boils down to systematic exclusion of the uninsured poor from health care. 

This is what happened in Somerset, Kentucky, following the sale of its public hospital to Humana in 1973. Humana built a new facility to replace the older Somerset Hospital. It also stopped caring for the community's poor. With the sale of Somerset Hospital to Humana, the hospital's obligation to provide free care as a recipient of federal funds under the Hill-Burton Act was lost; the new hospital now provides little in the way of free or reduced-cost care.* According to one hospital spokesperson, Humana's policy is to treat all emergencies but to transfer indigent patients "to tax-supported hospitals once their condition has stabilized." Pregnant women are regularly denied admission to the hospital unless they pay a $1,200 deposit. 

In addition to requiring large preadmission deposits and transferring indigent patients, Humana's new hospital began systematically harassing people with unfair and improper debt collection practices. Some patients were told they had to pay over $1,000 before they would be released from the hospital. Some were told that their newborn babies would be kept at the hospital until their bills were paid; and others were told that they'd be sent to jail if they didn't pay their hospital bills. One woman was told to write a check even though she had no funds to cover it. "They told me that if I didn't make the check good in 10 days, they'd turn it over to the sheriff's office," she explained. Patients or family members were also required to sign installment loans, blank promissory notes, and post-dated checks before the hospital would release patients. 

After a nine-month investigation by the Consumer Protection Division of the Kentucky Attorney General's office, the hospital agreed in June 1983 to sign a voluntary compliance agreement. Denying any wrongdoing, the hospital agreed to stop its outrageous collection practices "solely in order to effect a settlement of this controversy." 

When a public hospital is sold, the sales contract sometimes includes a provision to provide indigent care, but the amount is usually limited and may not be guaranteed for the future. Some chain hospitals make it difficult even to find out about charity care. When asked why he would not post notices explaining how to apply for charity care, one HCA administrator in Georgia replied, "You wouldn't expect a department store to put up signs inviting people to shoplift, would you?" 

At other times, an indigent care trust fund is established with part of the proceeds of a public hospital sale. This, chains claim, is the answer to the problem of care for the poor. A September 1984 HCA ad in the Smithsonian magazine makes this point: "On May 31, 1983, Nita Franks, a part-time pecan sorter in Coriscana, Texas, carried her extremely weak son into the emergency room of Navarro Regional Hospital," a newly purchased HCA facility. The ad then notes that "like many rural hospitals, a large part of Navarro Regional's patient load is indigent care. The resulting financial burden had kept the old county hospital in the red for years — to the point of almost losing accreditation. But with financial support from the sale of the hospital to HCA, an innovative solution was found: The Navarro County Health Services Foundation. . . . Thanks to compassionate, far-sighted leadership and capital available from the sale of the old hospital, Navarro County and HCA have successfully addressed a very difficult problem." 

This ad is misleading. Here's how the trust fund works. Half of the county hospital's purchase price — $2.5 million — was placed in the trust. While proceeds from the trust vary by year depending on investments and the interest rate, in the last 12 months only about $250,000 to $300,000 was available to provide charity care. Poor people are not told of the existence of the fund when they come to the hospital. The financial screener interviews patients and their families and decides whom to recommend to a subcommittee of the foundation board as deserving of free care. Currently, the fund receives a great many more needy applicants than it can assist. 

The way this trust operates raises a whole host of questions. Care appears to be rationed to the "deserving poor." Moreover, the fund is very small: $250,000 for hospital care doesn't go very far. The hospital is the only one in Corsicana and does not turn away poor people who live in the county, but indigents are definitely required to pay a part or all of their bills. It is certainly an exaggeration to claim, as the ad does, that the problem of indigent care has been "successfully addressed." 

When people in a community hear a corporation's and local government's claim that the sale of their local hospital will create an indigent care fund, they should remember that they will still be paying for the fund out of another pocket. The purchase price paid by the corporation for the facility will be reflected in higher charges to individual users of the hospital. The fund is not created out of thin air. 

For-profit hospital chains make other promises to communities when they seek to purchase public hospitals. They always point out that since the hospitals will become tax-paying institutions, their profits will increase local government coffers. Indeed, this is the justification often given for their policy of denying care to the poor. One recent Humana certificate of need application in Florida contained an explicit statement of this philosophy: As a result of public policy and their status as taxpayers, Humana hospitals do not have the responsibility to provide hospital care for the indigent except in emergencies or in those situations where reimbursement for indigent patients is provided. 

Sometimes for-profit hospitals use more subtle means than outright denial to discourage the uninsured from seeking care. A recent study by Vanderbilt Hospital of Vanderbilt University in Nashville found that care for maternity, neonatal, and trauma patients accounts for 53 percent of the average hospital's uncompensated care load. Thus, one way to reduce the financial risk of uncompensated care is simply not to provide these services. 

"This is exactly what for-profit hospitals do in my area," asserts Randy Kammer-Phillips of Three Rivers Legal Services in north-central Florida. "Either they don't operate emergency rooms or, more commonly, have a closed emergency room which means that a patient needs a doctor's referral in order to be seen." According to an August 1983 article in the St. Petersburg Times, if all the nonprofit hospitals in Pinellas County, Florida, disappeared and the county was left with just the for-profit facilities, there would be no obstetrics, no care for newborns, and no training for physicians. 

Decisions by for-profit chains about which hospital services to provide have a lot to do with what is profitable, and very little to do with what a community needs. When Humana took over the newly built University of Kentucky Hospital (now called Humana Hospital University) in Louisville, there was a clear understanding that the hospital would open a burn unit, according to both state and local officials. Yet the hospital refused to do so unless the state provided increased funding for burn victims over and above the $22 million the hospital was already receiving to provide indigent care. "A bum unit had always been planned for the hospital, and Humana knew that. Its subsequent reluctance was unwarranted," a Louisville Courier-Journal editorial declared in September 1983. Following the much-publicized death of a burn victim at the hospital, Humana agreed to open the long-promised unit. 

When Humana bought the Sam Howell Memorial Hospital in Cartersville, Georgia, it closed the successful nurse midwifery service that had been delivering babies of the community's low-income families. The service was not profitable and did not generate nightly national news coverage for Humana like the high-technology artificial heart surgery program at its Louisville hospital. 


Hospitals with Artificial Hearts and Higher Prices. . . 

Studies have shown that patients end up paying more at for-profit hospitals. The people of Habersham County, Georgia found this out the hard way. 

On July 30, 1984, less than a month after the County News ad appeared extolling the virtues of HCA, the grand jury of Habersham County Superior Court issued a report on its in-depth investigation of HCA's management. Five years into the $226,000-a-year management contract to run the 59-bed public hospital, the grand jury found serious problems relating to quality of care and stated that many county residents in need of treatment "were choosing to go elsewhere." Examining the hospital's financial reports, the grand jury acknowledged that under the new administration the facility had moved from a 7.8 percent loss in 1978 to a 3.3 percent profit margin in 1983, and that the physical plant was in better condition. 

Delving beneath the company's and the hospital authority's assertions that HCA's efficiency had brought about the improvements, the grand jury found that the most plausible explanation for the profits was not efficiency but higher charges: gross in-patient revenue had increased since 1978 by 147 percent per patient day and by 131 percent per admission. Also, despite an increase in the number of community physicians (in part because of county subsidization of interest-free loans and free office rent), the hospital occupancy rate remained low and was declining. In investigating HCA's claims that it was saving the hospital money on supplies, the grand jury found that for 13 commonly used items, the prices paid by its hospital were higher on nine than those paid by an independent Georgia hospital. 

The grand jury found that HCA also deprived some patients of their rights and put the facility at risk of federal sanctions by mismanaging its obligation to provide free care under the Hill-Burton Act. Of the $211,258 reported to the federal government as fulfilling the hospital's Hill-Burton obligation, less than $25,000 was properly claimed according to Hill-Burton procedures. 


Habersham County's experience with HCA is far from unique. A comparison of charges at 280 California for-profit and nonprofit urban and suburban hospitals showed that the for-profit hospital charges per admission were 24 percent higher than those of the voluntary hospitals and 47 percent higher than public hospital charges. According to this study (by Robert Pattison and Hallie Katz, reported in the August 1983 New England Journal of Medicine) huge profits were made not in routine daily charges like room, board, and nursing care, but in ancillary services like pharmacy and laboratory services. Not only did the for-profit facilities charge more for several of these services, but their patients were more likely to receive these profit-making services — although no evidence exists that they had more complicated problems than patients at the comparison hospitals. Inpatient ancillary charges per admission at the for-profit hospitals studied were 38 percent higher and 76 percent higher than charges at the voluntary and public hospitals respectively. 

The study showed, moreover, that despite the claims of administrative savings, costs for "fiscal services" and "administrative services" (which include costs to maintain corporate headquarters elsewhere) were 32 percent higher in for-profit chain hospitals than in voluntary hospitals. In addition, Medicare has reimbursed for-profit hospitals for a portion of these "administrative services," costs ultimately passed on to the public in the form of higher taxes. The authors concluded that "the data do not support the claim that investor-owned chains enjoy overall operating efficiencies or economies of scale in administrative or fiscal services." 

For-profit hospitals also charge more for several procedures, according to a 1983 Blue Cross/Blue Shield of North Carolina study. Comparing charges for three commonly performed hospital procedures — gall bladder removals, hysterectomies, and normal deliveries — at six for-profit hospitals and six matched nonprofit hospitals, the study found that in all but one case the average total charge was from 6 percent to 58 percent higher in the for-profit hospitals. 

Since for-profit hospitals have greater access to investment capital than public hospitals, they claim they can build new facilities at a lower cost. This appeals to communities unwilling to pay higher taxes to support needed capital expenditures. Advertising heavily in County News and other publications directed at local officials, the for-profit chains scout for properties, promising to update aging facilities and bring better medical care to the community, all at no cost to the local taxpayers. Old-fashioned snake oil peddlers are not the only ones who have exploited our natural desire for a quick fix when it comes to healing. 

In fact, though, communities ultimately pay for all new construction and equipment — through increased hospital charges, larger insurance premiums, and higher tax costs to support Medicare and Medicaid.** 

When American Medical International (AMI) bought York General Hospital, the 50-year-old Rock Hill, South Carolina, hospital suffered from a leaky roof, an overcrowded emergency room, and frequent equipment breakdowns. AMI built a new $28 million hospital and furnished it with $3 million worth of new equipment. The hospital chain also added amenities like a "stork program'' — a steak, candlelight, and wine dinner for new parents. At the same time, AMI increased inpatient charges by 35 percent, the average charge per admission for supplies jumped by 133 percent, and the cost of a chest x-ray doubled. According to a Wall Street Journal news account of the takeover, "The representative of one local employer isn't impressed by the stork program or the $30,000 a year that American Medical is spending on public relations. 'It's icing on the cake,' he says. 'It's getting so we can't afford the icing — or even the cake.'" 

Even when a chain buys an existing facility without need of major capital improvements, the cost of care will escalate rapidly after the sale. In 1982 Humana bought Coweta General Hospital, a 144-bed public facility not far from Atlanta. Humana paid about $12 million for the hospital, which had cost the community around $6 million to build and renovate beginning in the 1960s. 

The hospital plant was in good condition. Yet an analysis by Georgia Legal Services showed that the sale itself would increase costs by about $1 million the first year, largely because the facility was being refinanced at a higher cost and higher interest rate. (Humana borrowed $9 million at 17 percent interest to purchase the hospital. Interest payments now account for 15.8 percent of operating expenses, or $52 per patient day, compared to 2.2 percent, or $5.92 per patient day, under public ownership.) 

The millions of dollars that Humana and the local officials supporting the sale argued would enrich the county coffers and ease the taxpayers' burden would actually be paid by hospital users directly and through their insurance programs and by the taxes that fund the Medicare and Medicaid programs. The estimated first-year cost of the sale to federal and state governments (and therefore to taxpayers) was almost $600,000. 

In response to large federal cost increases attributed to for-profit acquisitions, Congress reduced the federal government's subsidy of this activity in 1984. Congress also has considered stopping Medicare payments for chains' "return on equity" — a reimbursement that has been paid to for-profit hospitals for their capital costs, which includes a return for investors. 

Chains increase health care costs one final way — by building unneeded hospitals. Pat Groner of Baptist Hospital in Pensacola, Florida, observed in Health Care Management Review as early as 1979 that the capital-rich for-profit chains were contributing disproportionately to the costly problem of "overbedding" — more hospital beds in an area than are needed. He examined 12 Florida counties that were underbedded in 1972. By 1975, they were overbedded by almost 6,600 beds. The for-profit chains that had controlled 16.7 percent of beds in 1972 had built 60 percent of the new beds by 1975. In 1984, the percentage of beds occupied in all hospitals in the South ranged from a low of 69.0 percent in Arkansas to a high of 77.9 percent in Kentucky. The occupancy rate in investor-owned hospitals was considerably lower; ranging from 55.8 percent in Mississippi to 72.5 percent in Virginia (see Table 3). 

Excess capacity is prohibitively expensive to the public in both monetary and human terms, as a 1983 Georgia certificate of need controversy demonstrates. Humana proposed to construct a 100-bed hospital near 330-bed Clayton General, a public facility that was proposing an 82-bed expansion because it was already full most of the time. The two applicants projected similar patient charges of around $600 per day for 1986 even though Clayton General is a larger, more complex facility than the hospital Humana was proposing to build. But the reasons for the charges were substantially different. 

Clayton General expected to be operating at 82 percent capacity in 1986 with the proposed addition and proposed to build into its charges around $150 a day to subsidize an unusually high 20 percent uncompensated care load (care for the uninsured poor). Humana, on the other hand, projected a 45 percent occupancy rate and planned to build into its charges about $145 per patient day to support its excess capacity. Nationally, Humana's occupancy rates hover around 60 percent. Despite their low occupancy rates, investor-owned chains are able to make profits by shifting the cost of empty beds to hospital patients. 


Hospitals with Artificial Hearts and Higher Prices . . . And for What? 

For-profit chains assert that they provide the best that medical care can offer — through the use of high technology procedures and equipment. However, there is at least some evidence that the high-tech care provided may sometimes be inappropriate. 

In Georgia, for example, a state health planning study revealed that Caesarean sections are performed in the state's for-profit hospitals substantially more often than at either voluntary or public facilities. There is little basis for believing that for-profit hospital patients (who tend to be healthier and wealthier) need this procedure more often than the poorer, sicker patients who use public hospitals. Because of the higher maternal mortality rate associated with Caesarean section, this reliance on high technology raises significant questions about quality of care. 

Pattison and Katz, as already noted, found that the for-profit chains provided a larger number of profitable ancillary service units per day and per admission than other hospitals, yet there was no evidence that the for-profits were treating more complicated cases. The authors concluded that their findings "lend credence to concerns that the tension between profit maximization and medical appropriateness may lead to different styles of medical practice in these hospitals." 

The Habersham County grand jury investigation found serious problems relating to quality of care at its HCA-managed hospital. The grand jury stated that the Joint Commission on Accreditation of Hospitals (JCAH) and the Parthenon Insurance Company had cited the hospital for a number of serious deficiencies, including staff shortages in key areas and the failure of internal committees to monitor the quality of care and to identify and correct any problems. Especially damning was the conclusion of the insurance company, a wholly owned subsidiary of HCA, that the hospital would be an "extremely high risk" for continuing coverage unless the defects were corrected. Parthenon had found that hospital committees reviewing patient care quality had uncovered no problem cases. That is, the hospital committees had stated that all patient care at the hospital was 100 percent acceptable. Parthenon Insurance said, "This appears to be indicative of paperwork medical staff assessment functions. . . . It is either a standard of care which exceeds practice patterns throughout the country or quality assurance functions which fail to identify medical staff problems." 

Unfortunately, arguments over which hospitals are providing the highest quality care are not easily resolved. Without laws guaranteeing access to data on quality, the public is heavily dependent on certifications by organizations like the JCAH. Yet, Parthenon Insurance Company's critical report on Habersham County Medical Center was issued six months after the JCAH had given the facility its full accreditation, despite the problems found with internal quality monitoring and despite significant malpractice litigation against a particular doctor. Without the grand jury investigation, the public would still be in the dark about HCA's mismanagement. 

Legislation enacted in 1983 dramatically changed the way Medicare reimburses hospitals for care of the elderly and may have a significant impact on the quality of care received by older patients. The "open checkbook" system determined by the actual cost of care was replaced with one using predetermined rates. Under the new "prospective payment" (also called DRG) system, reimbursement is based on the average cost of care for a particular diagnosis, or DRG (diagnosis related groupings). If a hospital can treat a patient for less than the payment amount, it can keep the savings. If the treatment costs more, the hospital must absorb the loss. 

With the advent of this new Medicare system, the profit maximization game changed: hospitals must now make profits by providing not more but fewer services per patient. "Recent data on the use of hospitals under Medicare appear to show that hospitals have in fact responded by reducing lengths of stay," according to a report from the congressional General Accounting Office (GAO). In each of the six communities it visited, the GAO said, "the view was expressed that patients are being discharged . . . in a poorer state of health." The report also said that it is not clear that those who provide care after hospitalization, including nursing homes, home health agencies, and community services, are equipped to deal with the patients being released sooner from hospitals. 

The new Medicare system also has raised fears that some hospitals will pick and choose the diagnoses they admit, leaving those considered unprofitable to other facilities. If this becomes standard practice, increasing numbers of older patients will face the discriminatory practices that have been reserved for the poor. Hospitals can tailor their services to ensure receiving patients with profitable ailments. Moreover, physicians with staff privileges can be encouraged to limit their hospital admissions to patients with certain diagnoses. For-profit chain hospitals may be in a better position than other hospitals to exert this kind of pressure because of the kinds of benefits they offer to doctors. For example, on April 5,1982 a Humana letter to pediatricians offered the following inducements to join a five-physician multi-specialty group in Springhill, Louisiana: 

• guaranteed income — $5,500 per month for the first six months; the lowest projected first-year income is $150,000; 

• rent-free office — absolutely no business or other overhead expenses the first year; this includes a paid, nurse, secretarial and office equipment and furniture, free utilities, and more; 

• paid health/dental/life/malpractice insurance; 

• company car; 

• paid moving expenses; 

• paid country club membership; 

• paid on-site visit. 

Continued receipt of benefits like these may depend on admitting profitable patients to the hospital. "Humana's Hard-Sell Hospitals," according to a 1980 article by that title in Fortune, monitor doctors' performances in generating revenue and let them know how they stand in the company's eyes. Humana "keeps records on every doctor's monthly admissions and the revenues these produce." Commented one Humana physician, "They let you know if you're not keeping up with expectation." 

By now, most television watchers are familiar with the extraordinary care and attention given to artificial heart transplant patients at Humana Heart Institute in Louisville. It appears, however, that patients at other for-profit facilities don't receive the same attention. For-profit chain hospitals' staff-to-patient ratios are lower than those of other community hospitals. The for-profits often claim they are merely being efficient and that the design of their facilities requires fewer personnel, but many believe the facilities are actually short-staffed. 

When AMI bought York General in Rock Hill, South Carolina, it reduced its personnel costs by changing from a fixed to a flexible work schedule. The number of nursing staff now varies, depending on the number of patients expected each day. Nurses complain they are short-staffed and that patient care has suffered. One nurse charged that AMI tries to "get the maximum amount of work from the least amount of people." On one shift, she complained that there were five staff for 38 patients. Her request for more nursing staff was turned down by her supervisor. 

Staff ratios for chain-owned and operated hospitals are set at corporate headquarters and each hospital in the chain is expected to conform to these ratios. 

Following the management transfer or sale of a public hospital, a for-profit chain will survey the hospital's nursing staff and other employees to determine where staffing reductions can be made. Bob Brand, director of health policy for the National Union of Hospital and Health Care Employees, has found a consistent pattern following for-profit management takeovers: "There is an immediate and significant layoff of workers concentrated in areas directly related to patient care." One of HCA's first acts after taking over management of Memorial Medical Center in Savannah, Georgia was to fire 75 staff without notice. 

Some companies, in order to maximize profit, match staffing patterns with the daily fluctuations in occupancy by using nursing registries and part-time employees. Regular staff sometimes complain that the registry nurses do not know the facilities or the patients well; thus they contribute to confusion and do not carry their fair shares of the workload. Use of registry nurses and part-time employees can also inhibit union organizing by regular staff to promote their own interests and those of patients. 


Hospitals with Artificial Hearts and Higher Prices . . . May Be All There Is 

"We could wake up in a few years with a few Exxons controlling half the hospitals," predicted Dr. William Shonich of the UCLA School of Public Health in 1979. Unfortunately, this prediction is coming true. The ownership of our hospitals is being consolidated into a few hands. In 1982 Business Week reported that American Medical International (AMI) had a "12-person team scouting 750 hospitals that it would like to acquire to increase its size." In 1983 HCA acquired 33 hospitals and the firm predicted it would do half a billion in hospital acquisitions during 1984. 

Chains are expanding vertically as well as horizontally, buying up nursing homes, establishing HMOs (health maintenance organizations), PPOs (preferred provider organizations), home health agencies, independent surgi-centers, and free-standing emergency clinics. 

The concentration of our health care system in a few monolithic companies is anathema to any notion of competition. This appears to be the sentiment of the Federal Trade Commission (FTC). On July 27, 1983, an FTC judge ruled that AMI had attempted to monopolize the delivery of hospital services in San Luis Obispo, California, when it purchased its chief competing hospital. FTC judge Ernest G. Barnes determined that AMI's acquisition of its "largest and most direct competitor," which increased its hospital market share to 87 percent of inpatient days and 82 percent of gross revenues, was sufficient "to infer an attempt to monopolize the market." 

The judge also found AMI guilty of price fixing: "AMI took steps to make charges uniform at all its hospitals in the San Luis Obispo area" after it acquired the third hospital. Following an appeal to the FTC's full commission, AMI was ordered to sell its recently acquired hospital. 

The FTC also filed an antitrust complaint against HCA in August 1982, charging that the firm's acquisition of Hospital Affiliates and Health Care Corporation in 1981 had resulted in a noncompetitive situation in the Chattanooga, Tennessee area. In November 1984 FTC administrative law judge Lewis F. Parker ordered HCA to divest itself of two of its acute care hospitals in the Chattanooga region. HCA is appealing the order. 

Despite rhetoric to the contrary, for-profit chains do not welcome competition. Contracts between the counties and the chains for purchase of county hospitals sometimes contain a clause prohibiting counties from operating hospitals for the next 10 or more years. 

In self-defense, voluntary hospitals are acting more and more like their predatory brothers — forming their own chains, instituting or increasing preadmission deposits, transferring the uninsured to public hospitals, closing services that are heavily utilized by the uninsured, and instituting rigorous collection practices. As for-profit hospitals attract greater numbers of "profitable" patients, the voluntary and public hospitals find themselves with an ever-increasing indigent care load and spreading red ink. 

Voluntary and public hospitals serving the poor are at a distinct disadvantage in any competitive game because they are, according to policy analysts, playing on an "unlevel playing field." From her study of for-profit hospitals' behavior, Lou Ann Kennedy, professor at Baruch College in New York City, concludes: "When proprietary interests obtain a dominant share in a hospital market, their practices vis-à-vis the poor become the norm. Neighboring voluntary and public hospitals are forced to act like the for-profits in order to survive." Because of this "domino effect," she believes, the "uninsured will not get care and the insured will pay higher costs. This may be good business, but it is certainly bad health care." 


Policy Makers Seek Solutions 

Several states are looking for ways to level the playing field. Concerned with the rapid growth of for-profit hospitals, the North Carolina legislature passed a one-year moratorium on the sale of public hospitals to for-profit entities. When the moratorium expired on July 1, 1984, the North Carolina General Assembly passed a bill requiring significant public notice and hearing rights before and following the sale or lease of a public hospital to a for-profit hospital corporation. This "Act to Protect the Public Interest in the Sale or Lease of Public Hospital Facilities" also requires any new for-profit owner to continue providing indigent care and prohibits the new hospital owners from enacting financial admissions policies that have the effect of denying patients services because of their "immediate inability to pay." 

Florida passed the "Health Care Access Act of 1984," which taxes hospitals (1 percent the first year and 1.5 percent in subsequent years) both to help fund an expansion of Medicaid and to improve coverage of indigent hospital care. The September 1984 Preliminary Report of the Texas Task Force on Indigent Health Care recommended that "as a condition of licensing and relicensing, all hospitals should participate in the provision of health care to the medically indigent under a fair-share formula. This hospital obligation could be discharged by providing services to indigents or by contributing funds to a pool used for health care for indigents." 

Georgia and South Carolina have toughened their health planning standards to increase control over for-profit entities and to protect the provision of indigent care. In Georgia, a for-profit entity that buys a public hospital must allocate 3 percent of the gross revenues of the hospital (exclusive of bad debt and Medicaid and Medicare adjustments) to fund indigent care, to provide emergency care to residents of the county, and to participate in Medicare and Medicaid. South Carolina now requires certificate of need applicants to address in detail the degree to which they now, or plan to, provide care to indigents. Applicants who either fail to provide this information or whose statements "reflect an inadequate commitment to meeting this identified community need" will be denied the certificate of need. 

Finally, states are looking for ways to increase medical coverage for the uninsured poor, primarily through an expansion of Medicaid. The degree to which they can accomplish this depends on their fiscal health and on what happens to Medicaid when Congress and the President attempt to reduce the federal deficit. 

The need to provide care for the uninsured poor is particularly acute in the South, where the proportion of people living below the poverty line reached 18.2 percent in 1984 and where the plight of the remaining hospitals serving this population has reached a crisis. Communities and public hospitals cannot wait for federal and state action. They must work to protect their own interests. In both Texas and Georgia, public and voluntary hospitals have formed their own associations to voice their special needs. Communities must also understand that public hospitals are not the property of local governing boards to sell as they please. These hospitals are held in trust for the communities that financed and built them. Unfortunately, all too often hospitals are sold without genuine public debate and without so much as a whimper of community protest. 

No one argues that some communities aren't in difficult straits with their hospitals, but there are short-run options available. Hospitals can work together to advance their political goals; they also can establish consortia to share expertise and equipment and take advantage of bulk-purchasing arrangements. 

The reality, however, is that many public hospitals will not survive without outside help. Poor communities with small tax bases are being asked to pay an ever-increasing amount for care to the poor as for-profit chains and some voluntary hospitals shut their doors to this population. The playing field is indeed uneven and public hospitals and those they serve will lose the game unless state governments make their survival and the provision of indigent care priority issues. 

"We are," says professor Alan Sager, "steadily moving toward more care for fewer people at greater cost and that's not what health care is all about." Hospitals serving the elderly and the poor can and must be saved. The siphoning off of health care dollars needed for patient care to the profits of multi-million dollar corporations is inconsistent with the human compassion upon which our health care system was built. 



* Thousands of hospitals have received federal funds for capital improvements under the Hill- Burton Act of 1946 on the condition that they provide a specified minimum amount of free care to the poor for a period of 20 years. But if such a hospital is sold to an investor-owned company, the federal government gets only part of its money back — and the hospital, until 1984, was always relieved of its legal obligation to provide free care. Now, for-profits can choose to retain the Hill-Burton obligation in return for waiver of repayment. 

** In addition to reimbursement payments for the medical costs of patient care, Medicare has reimbursed hospitals for a portion of their capital-related costs, including depreciation and interest on the large loans they take out in order to pay high prices for community hospitals. When the chains buy a hospital, they therefore are able to use the sale price and the expenses associated with the sale to obtain increased Medicare reimbursements. Medicaid reimbursement policies vary from state to state but generally include similar outlays to hospitals.