Municipal Teaching Hospitals Said to Face an Unhealthy Financial Future : Takeovers by For-Profit Firms Noted; Poor Seen to Be at Risk

The financial future of two dozen of the nation’s most prominent municipal teaching hospitals--including County-USC Medical Center and Harbor-UCLA Medical Center here--is gravely threatened, along with the health care of masses of poorer people, according to several new studies.

At the same time, teaching hospitals across the country that have accepted or are considering takeover bids from for-profit hospital firms face the prospect that endowments commonly set up in such purchases--to provide care for the poor--will probably be exhausted by the year 2000.

Common Result Feared

The problems that face both municipal teaching hospitals and academic facilities that have become the targets of for-profit entrepreneurs are different, but a wide variety of nationally respected experts fear they may eventually have a common result: the essential unavailability of high-quality medical care to anyone who lacks comprehensive private insurance.

Research published last week and new survey results obtained separately by The Times imply that, even in a field accustomed to financial near-emergencies, what is happening now to municipal hospitals is more dire and threatening than anything in recent memory. Still, there are indications of scattered efforts, including one in California, to head off the pending crisis by providing additional funding for the care of those who cannot pay.

Problem of ‘Dumping’

The problem centers largely on the fact that, increasingly, public facilities are being forced to care for patients who are transferred to municipal hospitals by private centers because they cannot pay.

While the practice of shifting patients to public hospitals for strictly economic reasons--commonly called “dumping”--has long been thought to be widespread, experts now fear that economic pressures for better cost control and more stringent limitation of insurance benefits may be forcing an even greater burden on municipal facilities than ever before.

These are among the conclusions of five new studies of the plight of teaching hospitals and the possible influence on them of buy-out pressures from for-profit health-care concerns. (Teaching hospitals are facilities that train the nation’s doctors, care for many of the most difficult and complex cases and provide treatment to millions of poor people.)

Release of the new studies comes at a time when hospital administrators are watching the changing economics of teaching hospitals in general--and municipal hospitals, in particular--with a growing sense of alarm.

The squeeze, many of these experts believe, is almost certain to grow worse before it gets better. And, argues a team of researchers at the Rand Corp. in Santa Monica, the situation is so serious that the resemblance of modern-day publicly owned teaching hospitals to turn-of-the-century charity institutions may be starkly evident in as little as three or four years.

Some more cynical experts say there is little new in the gaps in health care between the poor and those who can pay. “There is the question of whether things have (ever) been very different,” contended Robert A. Derzon, former director of the federal government’s Health Care Financing Administration and now a private consultant.

Evidence Is Mounting

But, across the country, public hospital officials say there is growing evidence that the total number of patients in municipal hospitals--as well as those transferred there by other centers--is increasing and money available to pay for their care is on the decline. At Los Angeles County hospitals, for instance, the 1985 patient census is at least 6% higher than expected--in large part, said county health director Robert Gates, because of the growing number of economic transfers.

In Chicago, some doctors have estimated transfers for strictly economic reasons have increased by 300% to 400% in the last year and Illinois Gov. James R. Thompson has appointed a special commission to try to find a solution to the problem. In Florida, the legislature, responding to cries of alarm from teaching hospitals there, has passed a special bill that imposes what amounts to a tax on hospitals that do not care for the poor, the proceeds of which go to public hospitals that do.

The quintet of research papers was published in the current issue of the New England Journal of Medicine. The Rand study and an assessment of the financial implications of for-profit teaching hospital takeovers by a team at Johns Hopkins University in Baltimore represented the two most apparently significant pieces of the new work.

And separately in Washington, the National Assn. of Public Hospitals released to The Times preliminary results of a study of patient transfers to municipal teaching hospitals that begins to quantify--and for the first time confirm--the extent to which private hospitals are ridding themselves of economically questionable patients in apparently wholesale numbers.

41% of Cases Were Emergencies

Preliminary data from that survey--conducted over a two-week period earlier this year in 16 of 24 municipal hospitals facing what the Rand team says are the gravest threats--indicate that, of 587 transferred patients studied, nearly 41% required both emergency room treatment and admission and another 32% were sick enough to be admitted when they arrived at the public hospital. Nearly 43% of the transferred patients had no insurance and another 33% were covered only by the government Medicare and Medicaid (Medi-Cal in California) programs.

Despite the fact that the transferred patient group was dominated by people in serious condition, fully 20% of them were sent to public hospitals without any evidence of even thorough examination at the transferring private hospital, according to Dennis Andrulis, director of research and policy for the public hospital association. Harbor-UCLA was one of the hospitals responding to the survey, Andrulis said, but County-USC was not.

Among Medicare patients transferred, Andrulis said public hospitals found that half were comparatively complicated cases for whom Medicare payment to private hospitals might have been limited under new federal rules. These rules establish so-called Diagnosis Related Groups and pay a flat fee for all hospital care for a given illness, regardless of how complicated or costly the case may be to the hospital.

Consistent With Allegations of Dumping

Andrulis said that, while Medicare transfers represented only about 75 of the transferred patients in the sample, sending complex and potentially expensive-to-treat cases to public hospitals seems consistent with allegations that private hospitals are increasingly dumping their patients.

The Rand study, published Thursday with the other four papers, examined economic difficulties faced by 116 of the nation’s largest teaching hospitals--institutions with close, direct ties to medical schools. The study’s grimmest predictions, however, were reserved for a subgroup of 24 hospitals that are both owned by city or county governments and have close medical school affiliations. It is for those two dozen centers that economic pressures besetting the entire health care industry are the most potentially dangerous, according to the Rand team, which included three nationally known researchers.

The team consisted of Dr. William B. Schwartz, of the Tufts University School of Medicine in Boston, and Joseph P. Newhouse and Albert P. Williams, of the Rand staff in Santa Monica.

While their study did not identify the municipal teaching hospitals involved, the Rand researchers confirmed the list was identical to one maintained by the Assn. of American Medical Colleges, a Washington group representing medical educators. The association identified the hospitals on the list, along with the two Los Angeles area centers, as:

James M. Jackson Memorial Hospital, Miami; Tampa General Hospital, Tampa; Grady Memorial Hospital, Atlanta; San Francisco General Hospital, San Francisco; Truman Medical Center, Kansas City, Mo.; Westchester County Medical Center, Valhalla, N.Y.; Regional Medical Center (also known as City of Memphis Hospitals), Memphis; Parkland Memorial Hospital, Dallas; Harris County Hospital District, Houston; Bexar County Hospital District, San Antonio; Harborview Medical Center, Seattle; Milwaukee County Medical Complex, Milwaukee; Boston City Hospital, Boston; Bellevue Hospital Center and Kings County Hospital Center in New York; Charity Hospital of Louisiana, New Orleans; William N. Wishard Memorial Hospital, Indianapolis; Erie County Medical Center, Buffalo, N.Y.; North Carolina Memorial Hospital, Chapel Hill; Bernalillo County Medical Center, Albuquerque; Cleveland Metropolitan General Hospital, Cleveland, and Oklahoma Memorial Hospital, Oklahoma City.

In addition to the 24 hospitals named by the association, officials said at least two others, Martin Luther King Jr. General Hospital here in Los Angeles and Cook County Hospital in Chicago, were excluded for only minor technical differences in their medical school affiliations and are, for practical purposes, in the same situation as the other facilities.

The municipal hospitals involved will face the difficulties of the next few years differently and some face threats more dire than others, the Rand team concluded. But they all face a common problem, said Schwartz and Williams.

As cost-control pressures have mounted on hospitals across the country in the last five to 10 years, private insurance companies and government programs have tried increasingly to cut down on payments to teaching hospitals. Because the practice of all branches of medicine still requires a large amount of on-the-job training, teaching hospitals have always commanded higher fees than other types of health centers because of the large numbers of personnel they must employ.

Many Economic Credits Being Removed

Until now, the higher fees have been absorbed by insurers who recognize that teaching hospitals are necessary not just because a continuing supply of health workers must be provided, but because teaching hospitals, by their nature, attract exotic, difficult and unusual cases that require intense and costly amounts of care. Recently, however, government and private programs have begun to remove many of the preferential economic credits from teaching hospitals--just as the prices paid to all hospitals have come under increasing anti-inflationary pressures.

The federal government has already had limited success in efforts to cut premium rates paid to teaching hospitals and reduce their rates to the same levels as hospitals that generally do not attempt to treat difficult, complex and costly cases.

The result, said Schwartz and Williams, is that nonprofit private hospitals have, predictably, been ever more eager to dispose of patients who may be costly drains on their economic reserves and for-profit health centers have avoided such patients in growing numbers because they detract from bottom-line results.

For more and more patients, said Schwartz and Williams, the municipally owned teaching hospital has become the health center of last resort. City and county hospitals are generally precluded by charter and state or local law from denying care to anyone. As economic restraints have increased, the public hospitals have faced the same inability to recover all of their costs from paying patients--just as all hospitals have--but are now caught in the squeeze of having larger and larger numbers of patients with no ability to pay forced upon them.

‘Potentially Disastrous’ Situation

“The situation is potentially disastrous for municipal hospitals,” said Schwartz, “and that, of course, means the poor are likely to suffer.”

To Williams, what may be about to happen is a return to the days of the late 1800s and early 1900s in which large charity hospitals provided demonstrably second- or even third-class care to the poor in facilities that lacked up-to-date equipment and relied on physicians and nurses who were far worse trained than their counterparts at other health centers. Ironically, many of the threatened health centers were opened as charity hospitals and have spent the last several decades trying to upgrade their care--often with surprisingly good success.

Williams said an already bad situation is almost certain to get worse, and he and Schwartz agreed the deterioration will be even more evident within the next three or four years than it is now unless decisive action is taken at all levels of government. What will result, speculated Williams, will be evolution of a class of hospitals where the quality of care is so inferior to what is available to fully paid patients that the differences between the two systems will be astonishing.

“If you were taken to a large municipal teaching hospital, you wouldn’t have any problem knowing that you were in one,” Williams mused.

Williams said the effects of the intensified financial pressures will be unevenly felt. “The group as a whole is in trouble,” he said. “But one hospital or another, individually, may not be.” In Florida, a new tax on hospitals that do not care for very many poor patients is expected to greatly assist Tampa General and Jackson Memorial, for instance. And in California, said L.A. County health director Gates, new legislation may provide an extra $50 million in the next year for treatment of the poor in public health facilities.

An Effort to ‘Sound the Alarm’

“What they (the Rand team) are saying is pretty accurate,” Gates said. “I think the message is beginning to be heard. The general argument is that we are essentially the safety net for the system. There is a substantial effort to sound the alarm.”

Other states, including Arkansas, New York, New Mexico and Oregon, may take similar steps, according to Larry Lewin, a Washington consultant who helped draft the Florida legislation--which many officials say may serve as a pattern for other states.

At the same time as the municipally owned teaching hospitals are facing renewed financial problems, researchers at Johns Hopkins have identified what is clearly a new and different trend--the interest of for-profit health care firms in acquiring non-public teaching hospitals. Such centers, to the surprise of some observers, actually remain in comparatively good financial condition.

The Johns Hopkins team, led by Gerard F. Anderson, head of the university’s Center for Hospital Finance and Management, noted that some private teaching hospitals may actually be attractive to for-profit hospital firms because of their bottom-line performance. Two recently sold or leased teaching hospitals, for instance, the Hopkins team noted, recorded $30 million in surpluses in 1984--money that was spent on improved medical education projects and other programs.

Objects of Fascination

For public relations and bottom-line reasons, selected teaching hospitals are turning out to be the new fascination of for-profit entrepreneurs. For instance, within the last year or two:

--USC and National Medical Enterprises have agreed to construct a new for-profit teaching hospital near County-USC. It is a facility some observers suspect may draw many of the few paying patients left at the county health center.

--Wesley Hospital in Wichita, Kansas, Presbyterian-St. Luke’s Health Care Corp. in Denver and St. Joseph Hospital in Omaha have all been sold to management companies.

--The University of Louisville leased its teaching hospital to Humana, Inc.

--George Washington and Georgetown Hospitals in Washington have been courted by for-profit concerns.

--According to Anderson, 15 to 20 other teaching hospitals are known to be engaged in discussions with for-profit concerns. In a telephone interview, he declined to name any of them.

In most cases, said Anderson, the sale and lease agreements have included provisions for establishment of trust funds that would apply profits to the care of the poor and medically unserved. But the Hopkins team said its own analysis concluded that the trust funds will likely be depleted by the year 2000.

To Dr. Quentin D. Young, a politically active Chicago physician who serves on the state commission pondering the fate of that city’s Cook County Hospital, the plight of public hospitals and the increasing interest in teaching facilities of entrepreneurs are simply two parts of a single issue.

“There is a move toward tiering (providing one type of care for people with money or good insurance and another, far worse, type for everyone else) is moving with enormous momentum,” Young said.

“The engine is not government policy, but the rise of corporate medicine.

“This process is well under way.”