FOR-PROFIT HOSPITALS: Have Higher Medicare Costs, Study Says
A study appearing in today's New England Journal of Medicine concludes that when it comes to spending on Medicare patients, areas served entirely by for-profit hospitals are significantly more expensive than those served by not-for-profits. The study found that in 1995 alone, for-profit regions cost Medicare $732 more per patient, amounting to an extra $5.2 billion for the year, as compared to regions dominated by not-for-profits. The study, conducted by researchers at the Dartmouth Medical School, compared costs of four types of care -- hospital services, physician services, home health care and ancillary services. The team found for-profit region spending to exceed not-for-profit and mixed service area spending in all three years examined: 1989, 1992 and 1995. In 1989, adjusted Medicare spending totaled $4,006 per capita in for-profit regions, while not-for-profit regions' spending per patient was $452 less -- $3,554 per patient. By 1995, for-profit costs reached $5,172 per patient while not-for-profit costs were $4,440 per patient. Further, the study found that spending in the 33 areas where all hospitals converted from not-for-profit tofor-profit ownership between 1989 and 1995 grew 50% faster: $1,295 vs. $866 (Silverman et al., 8/5 issue). Dartmouth Professor Elliot Fisher, who co-authored the study, attributed the higher costs of investor-owned hospitals to "higher rates of hospitalization, testing, and other health care services."
The For-Profit World
Currently, for-profit systems comprise 15% of the nation's hospitals, the biggest of which is Columbia/HCA Healthcare Corp., currently under ongoing investigation for Medicare fraud. Despite a growth in the overall number of for-profit hospitals across the last decade, Columbia's troubles have reduced the influence of for-profit systems and led hospitals to be "much more conservative in their Medicare billing practices." While the authors note that not-for-profit hospitals often behave like for-profits, "insisting on shorter lengths of stay, aggressively focusing on profit and hiring consultants to improve their Medicare reimbursements," Fisher notes that investor-owned hospitals have the added pressure of accountability to shareholders (Lagnado, Wall Street Journal, 8/5). The authors estimate that Medicare would have saved $5 billion in 1995 if enrollees had lived in not-for-profit service areas, while if all U.S. hospitals had been for-profit, "Medicare's annual tab would have been $24.3 billion higher." They also note, "for decades, studies have shown that for-profit hospitals are 3% to 11% more expensive than not-for-profit hospitals" (Emery, AP/Nando Times, 8/4).
For-Profit Witch Project?
In an accompanying NEJM editorial, Harvard Medical School's Dr. Steffie Woolhandler and Dr. David Himmelstein write, "For-profit hospitals spend less on personnel, avoid providing charity care and shorten stays. But because they spend far more on administration and ancillary services than not-for-profit hospitals, their total costs are higher." Woolhandler and Himmelstein point to other studies revealing lower quality among for-profit institutions (they co-authored a controversial study, published last month, pointing to superior quality among not-for-profit HMOs), and note that "Successful executives at for-profit hospitals reap princely rewards, and these rewards raise their personal stake in 'gaming' the payment system." The authors conclude that their "main objection to investor-owned care is not that it wastes taxpayers' money, not even that it causes modest decrements in quality. The most serious problem with such care is that it embodies a new value system that severs the communal roots and samaritan traditions of hospitals, makes doctors and nurses the instruments of investors, and views patients as commodities" (Woolhandler/Himmelstein, NEJM, 8/5 issue).
Dr. Quentin Young, national coordinator of Physicians for a National Health Program, stated, "The editorial and study conclusively demonstrate -- if there was any doubt left -- that marketplace medicine is a failed experiment. ... The good news is, there's an obvious solution to this chaos, and one we must study hard: a single payer not-for-profit national health program" (PNHP release, 8/4). Dr. John Roark, president of the California Physicians Alliance, said, "Physicians are concerned that for-profit medicine is threatening our patient's health." Dr. Jennifer Malin, alliance board member, added, "For-profit hospitals and for-profit HMOs are driving up health care costs and not delivering quality health care that our patients need" (CAPA release, 8/4).
Not So Fast
But Federation of American Health Systems President and CEO Tom Scully blasted the study, noting, "The Journal has failed to uphold its usual standards of academic impartiality. This is the second time in a month they have published a study attacking investor-owned health entities, without the substantive backing evident in other research." (Note: the Journal of the American Medical Association, not the New England Journal of Medicine, published last month's study on HMOs). Scully questions the "statistical merit" of the hospital study, noting, "what worries me the most is the zeal with which the authors promoted their agenda." He questions the study's failure to account for "the hospital wage index," its exclusion of "Medicare HMO enrollee data and the authors' determination of which service areas are for-profit and which are not." Scully concludes, "But more importantly, its editorial bias is incredibly transparent and can only serve to erode the Journal's credibility" (FAHS release, 8/4).