What that New York Times Magazine story missed about the Memorial Medical Center tragedy.

Forty-five people died at New Orleans' Memorial Medical Center during and after Hurricane Katrina. Sheri Fink's amazing, 13,000-word piece in last Sunday's New York Times Magazine set out to explain why a group of doctors decided that at least 17 patients needed to be dosed with lethal amounts of morphine and other drugs.

Most of those 17 people had something in common: They were housed at a "hospital within a hospital," an 82-bed long-term-care facility called LifeCare that leased space from Memorial Medical Center. As Fink explained, LifeCare "credentialed its own doctors … had its own administrators, nurses, pharmacists and supply chain." This separation of authority and personnel caused chaos in the days after Katrina and probably contributed to the death toll at the hospital. Fink reports that LifeCare's patients allegedly weren't part of the original evacuation plan put together by Memorial's owner, Tenet Healthcare Corp. And the doctors who ultimately administered lethal drug cocktails to LifeCare patients were Memorial staffers who, in Fink's telling, seemed unfamiliar with the needs of the patients in the "hospital within a hospital." One Memorial doctor told Fink that some of his colleagues didn't believe in LifeCare's mission: They thought "excessive resources [were] being poured into hopeless cases."

Fink's story is a remarkable feat of investigative journalism, but there's one piece she left out. Why did LifeCare exist in the first place, and why would a "hospital within a hospital" have a separate staff? It turns out that there is a very interesting answer to this question, one that reveals the peculiar and complex financial relationships that make the American health care system so difficult to reform.

Long-term-care hospitals like LifeCare were created to take advantage of the way Medicare payouts work. The requirement that LifeCare and its ilk have separate administrative control is an attempt by the federal government to ensure that they aren't taking too much of an advantage—that they aren't scamming Medicare.

LifeCare was what's known as a long-term-care hospital. (The facility inside Memorial Medical Center never reopened after Hurricane Katrina.) A "long-term-care hospital" is not to be confused with a "long-term-care facility"—common parlance for a nursing home. An LTCH specializes in patients with major health problems: people who need ventilators to breathe, people with neuromuscular damage, and people with organ failure. Under Medicare regulations, an LTCH is defined as a hospital where the average Medicare inpatient stays more than 25 days.According to testimony at a 2006 congressional hearing (PDF), Medicare patients make up 83 percent of the LTCH caseload.

America's oldest long-term-care hospitals developed out of former tuberculosis hospitals. The LTCH boom, however, came in the 1980s, after the Centers for Medicare & Medicaid Services (CMS) devised a new payment system in the hopes of controlling health care expenditures. Rather than paying a hospital's actual costs, Medicare's inpatient prospective payment system, or IPPS, implemented in 1983, paid a consistent rate for patients in given "diagnosis-related groups." Long-term-care hospitals—where the costs per patient were much higher and the average length of stay much longer than in their acute-care brethren—were excluded from the new IPPS system, along with psych, cancer, rehab, and children's hospitals.