Slate's Bizbox
medical examiner: Health and medicine explained.

Rx: ProfitCan hospitals serve both patients and stockholders?

By Atul Gawande
Posted Friday, Aug. 15, 1997, at 3:30 AM ET

When a motorcyclist was hit broadside by a car on a local road, ambulance workers stabilized his neck and back and whisked him over to the nearest facility--a suburban for-profit hospital. The 35-year-old construction worker had multiple fractures, including to his vertebra. Though the doctors did every X-ray and blood test in the book, they somehow overlooked the critical step of keeping him flat to protect his fractured spine. They did, however, figure out that his HMO preferred he be treated at another center. So they transferred him to a local nonprofit hospital where I sometimes work. He arrived sitting up in his stretcher, cringing in pain and risking paralysis.

It was probably an honest mistake. But I was disturbed that the transferring hospital was so thorough with tests and so lax with basic care. The nurses with me blamed the hospital's for-profit status. Driven by the almighty dollar, the center was slick at doing billable tests but had slashed staffing to the point that it couldn't provide good care. "I wouldn't take my cat to that hospital," one nurse said.

For-profit chains now own 15 percent of American hospitals. They say they are transforming a bureaucratic industry into an efficient provider of better quality care. But the expanding federal investigation of $20-billion hospital giant Columbia/HCA raises concerns that the pursuit of profits is leading to fraud and poor care.

Investigators believe the company overstated costs and deliberately ordered unnecessary tests to increase Medicare payments. Last month, three midlevel executives were indicted for criminal fraud, and agents raided offices and hospitals in seven states. Rep. Pete Stark, D-Calif., who sparked the probe, points to previous scandals as evidence that for-profit hospitals will cheat insurers, avoid the needy, and sacrifice quality to produce profits. A decade ago, Paracelsus Health Corp. was forced to drop kickbacks for doctors who sent Medicare patients to its hospitals. In the last few years, several for-profit hospitals have paid steep fines for dumping uninsured patients on other hospitals. This February, Medicare forced Sutter Hospital Corp. to return $1.3 million in fraudulent billings.

In the most outrageous case, in 1993, the government accused National Medical Enterprises of paying "bounty hunters" to obtain patients for its psychiatric hospitals. Its doctors then gave wrong diagnoses to increase billings and held patients as young as 8 against their will until their insurance ran out. NME pleaded guilty and paid $379 million in penalties. Last month, under its new name, Tenet Healthcare Corp., it paid over $100 million to settle patient claims. Yet, Tenet is now the nation's second-largest chain.

For-profit hospitals defend themselves fiercely. They argue that 1) nonprofits face the same scandals, too. (Indeed, they point out, inspectors are investigating dozens of prestigious university hospitals for fraud. So far the University of Pennsylvania and Thomas Jefferson University medical centers have paid over $40 million to settle charges of double-billing Medicare.) And 2) the affluent suburban hospitals they have bought never had much charity care in the first place, so what's with the "dumping needy patients" charge?

On quality of care, they ask, where's the beef? There are anecdotes, like mine, of poor treatment, but critics admit there's no evidence that for-profit hospitals compromise quality. One study of 214,000 patient records found no differences in death rates between for-profit and nonprofit hospitals.

People in the for-profit hospital business are stupefied when asked to defend profit in medicine. "It may come as a surprise to you, but your car is made by a for-profit company. Every family is a for-profit operation. Every doctor is for-profit," says Wall Street health-stock analyst Ken Abramowitz. "Health care is no different from buying a car." Competition will produce increased efficiency and better quality in health care, just as in cars.

But health care is not like buying a car. You can shop around for a car, but the motorcyclist I saw couldn't choose his hospital. Also, it's much harder to judge whether your care is good than whether your car is good. Terrible things happen to people in hospitals all the time: infections, bleeding, and other complications of care. Studies show a quarter of these events are avoidable, but it is rarely obvious to patients which ones are. If the motorcyclist, delirious with pain and a severe blow to the head, had lost sensation in his feet, he wouldn't have known if we could have prevented it. He had to trust with his life that making money was not our priority. (He did fine, by the way. He'll wear a full-body brace for six weeks.)

Illustration by Scott Cunningham

For-profit hospitals, however, face intense pressure to make money the top priority. They must answer to stockholders demanding rising profits, while nonprofit hospitals answer to a charitable board. Some boards do run hospitals like for-profits. But a board is nothing like Wall Street. One sees you once a month and tells you to do better for your own good. The other holds a gun to your head every day.

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.

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.

Print This ArticlePRINTDiscuss this in The FrayDISCUSSEmail to a FriendE-MAIL
Share on FacebookPost to MySpace!Share with MixxDigg ThisShare with RedditShare with del.icio.usShare with FurlShare with Ma.gnolia.comShare with SphereShare with Stumble Upon
Atul Gawande, M.D., writes a regular column on science and policy for Slate.
Join the Fray: our reader discussion forum
What did you think of this article?
POST A MESSAGE | READ MESSAGES
Washington Post
The Washington Post
OPINIONS
What's Fair Game?
Anne E. Kornblut | What questions would Hillary Clinton have to answer if she were in Sarah Palin's shoes?
Editorial: Disappointment '08
PLUS » Stumped: More Nonsense From McCain