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‘Medical Arms Race’ Jeopardizes Safety Net Hospitals

SoRelle, Ruth MPH

doi: 10.1097/01.EEM.0000365876.30679.99
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The proposed sale of a southwest Houston nonprofit hospital run by Memorial Hermann Healthcare System to the county tax-supported Harris County Hospital District stunned the local medical community last August. The resulting furor scotched the deal before anyone understood it.

It was clear, though, that the hospital district's three hospitals — Ben Taub General, Jefferson Davis, and Quentin Mease Community — and the 12 clinics the district operates could not meet the burgeoning needs of 1.2 million uninsured and some 500,000 underinsured in the county. The district's plan to run the hospital as a public-private enterprise that would accept paying and indigent patients would add capacity to the overtaxed system while providing some income. On the other hand, the deal would free up space in the public system so that hospital systems such as the nonprofit Memorial Hermann could transfer indigent patients more easily. With the hospital district overburdened, such transfers are difficult to achieve.

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The district's hope that private physicians would stay with the hospital — Memorial Hermann Southwest — was dashed when members of the medical staff refused and publicly denounced the plan. Most said they would leave the hospital's staff if the sale went through. In the end, the hospital district pulled out of the deal that would have seen it pay $165 million for the Memorial Hermann Southwest complex: a 629-bed hospital, four office buildings, and vascular, cancer, surgery, and outpatient imaging centers. Under the proposal, the hospital district also was to pay Memorial Hermann $10 million a year for five years to serve patients who had qualified for district care.

Clearly beset by competitive and social pressures in the hot local health care market, two safety net systems — one nonprofit, the other public — tried to change the landscape and failed. With health care reform in the offing, the outcome of that failure remains to be seen.

Those kinds of pressure are building in the safety net of hospitals, community health centers, and free clinics across the nation, however, where many are finding their original missions sidetracked by the need to focus on more profitable services. A report in the journal Health Affairs (2008;27[5]: w374) found that competitive pressure in the health system has a double whammy on the safety net system. They increase the demand for safety net care and tax the system's ability to serve people without regard to ability to pay.

“The safety net is made up of a mixture of not-for-profit and public hospitals,” said Gloria Bazzoli, PhD, an author of the study and a professor of health administration with the department of health administration at Virginia Commonwealth University. They are confronted by hospital circumstances because of the market, the payer environment, and the financial problems affecting state and local governments, she said. Those problems affect the support the institutions receive from public sources.

“Because of that they have to develop strategies to expand revenues,” Dr. Bazzoli said. “I think it's simply survival. If they are not able to create some level of balance, then these institutions are at risk of disappearing. There have been communities across the country where safety net institutions have been forced to close or convert ownership.”

She and her colleagues, Peter J. Cunningham, PhD, of the Center for Studying Health System Change (CSHSC) in Washington, DC, and Aaron Katz, PhD, a principal health policy lecturer at the University of Washington in Seattle, used data from the Community Tracking Survey funded by the Robert Wood Johnson Foundation and conducted by CSHSC to evaluate how the market affects safety net hospitals in Boston, Miami, Orange County (CA), northern New Jersey, Cleveland, Indianapolis, Phoenix, Seattle, Lansing, Syracuse, Greenville (SC), and Little Rock. In previous studies, they had found that a “new medical arms race” was under way as hospitals built up and renovated to provide more profitable services or to move to suburban areas where they could attract more paying patients. Physicians had begun building their own outpatient facilities to compete directly with hospitals. At the same time, some safety net systems wanted to change their images to attract more paying patients.

The federal and state governments also began ratcheting down payment increases for public programs such as Medicare and Medicaid, making it difficult for hospitals and physicians to pass on the costs of their capital investments. As more of their margins go to servicing a growing amount of debt, they allocate less of their budgets to indigent care.

Yet in their interviews with hospital chief executive officers, head of community health centers, and other opinion leaders, the researchers found that the costs of uncompensated care in hospitals continued to rise, mainly because more people are uninsured. The percentage of the total hospital budget accounted for by uncompensated care actually decreased by seven percent in the past decade, the researchers found.

“Hospitals’ efforts to limit growth in uncompensated care may be occurring indirectly, by concentrating their expansion activities in more affluent communities and by downsizing or eliminating unprofitable services, such as inpatient psychiatric units, as observed in Little Rock and Orange County,” the researchers wrote. In three of the communities surveyed, major safety net hospitals have restricted non-emergency care for uninsured people outside the local area. Others have made patients without insurance wait longer for appointments than those who have coverage.

The researchers noted that EDs at some safety net hospitals have reduced crowding and prevented additional increases in volume by shifting some care to other hospitals, outpatient clinics, or community health centers. “This latter strategy appears, in some cases, to be part of an explicit effort to better coordinate care for low-income patients. Respondents in Boston, Cleveland, Greenville, Indianapolis, Little Rock, Miami, Orange County, and Seattle noted agreements between hospitals and community clinics to facilitate the referral of nonemergent patients to clinics for more appropriate care and to establish ‘medical homes,’” they wrote.

Emergency departments “become the default primary care providers for people who have no source of primary care,” said Daniel Hawkins, a senior vice president for policy and programs at the National Association of Community Health Centers. Across the nation, he said, money allocated by Congress to community health centers has extended their reach to 20 million people, but he noted there needs to be a concurrent increase in the availability of primary care providers. Health care reform promises to boost reimbursement for primary care providers, a fact that he said he hopes will change the career paths of many doctors now in the pipeline.

“If we can do that, we can restore hospital emergency rooms to their true purpose, providing care to people who have urgent or emergency conditions. I think we can restore a kind of balance to a system that never fully existed but that we were closer to 20 years ago than we are today,” Mr. Hawkins said, adding that moving non-emergency cases out of the ED and into appropriate primary care settings can help preserve safety net hospitals.

Safety net hospitals are forced to confront a bad choice, said Dr. Bazzoli. “They can cut back on services on the uninsured, which is one evil. But it is a greater evil if they are forced out of existence,” she said.

In some communities, the health care system exists in a sort of homeostasis. “The safety net hospitals depend on other hospitals to do at least something for indigent patients. The non-safety net hospitals rely on their safety net counterparts to take a lion's share of the indigent care. If they were not in the market, the situation would be horrible. Each is dependent on the other to pay a role. In some communities, the biggest supporters for the safety net institutions are the non-safety net hospitals because their financial existence is dependent on the safety net institutions,” Dr. Bazzoli said.

In the Health Affairs article, Dr. Bazzoli and her colleagues said expanding insurance coverage is the most direct way to relieve some of the financial pressure on safety net providers. If patients obtain insurance, however, they may seek care at other hospitals, denying the safety net hospital their newfound dollars. Yet, if everyone is not covered, the need for a safety net continues.

“There is always going to be a need for safety net institutions,” said Dr. Bazzoli. Even health care reform will leave many people uninsured, and many of those will be the most vulnerable, the homeless and those in the country illegally, she said.

Comments about this article? Write to EMN atemn@lww.com.

© 2010 Lippincott Williams & Wilkins, Inc.