Rx: Profit

Health and medicine explained.
Aug. 15 1997 3:30 AM

Rx: Profit

Can hospitals serve both patients and stockholders?

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The ways to make profits are limited. In theory, for-profits are equipped to do it through greater efficiency--economies of scale, easier closure of failing operations, and better access to capital. But hospital consultant Larry Lewin finds no evidence for-profits are more efficient. Indeed, 58 percent of Columbia/HCA's beds lie empty, compared with 35 percent of nonprofit beds. Another way to generate profits is to buy up hospitals cheap--though regulation and competition have made it harder to lowball purchase prices.

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For-profits also keep billings up by avoiding the uninsured, sticking to affluent suburbs, and avoiding obstetric, pediatric, and emergency services. Charity care at for-profit hospitals is half that of nonprofit hospitals. But with for-profit chains buying Tulane and George Washington university medical centers and other big city hospitals, these tactics won't be available much longer.

And, of course, hospitals have squeezed as much profit as possible out of insurers, billing for everything they can. Columbia/HCA managers had targets of 15 percent to 20 percent annual growth in charges. They even tried to make profits on blood provided by Red Cross charities. Increasingly, however, managed-care insurers and the government are refusing to go along.

Ultimately, that leaves one alternative--cutting corners on care. And NME/Tenet's "bounty hunters" show how far care providers may be willing to go.

Medicine never used to be like this. For a long time, insurers gave doctors carte blanche to run up charges. Some did. But the dominant professional ethic to do right by patients kept most from exploiting the system. For-profit hospitals have no ethic beyond making a buck. Their doctors are imbibing that spirit. That's what worries me.

Atul Gawande, M.D., writes a regular column on science and policy for Slate.