HMOS Provide Cover
for Hospital Profits


Hospital executives must secretly give thanks to God for health maintenance organizations. The insurance companies that run the HMOs are the lightning rods for criticisms of the American health care system, but in such cities as Detroit, Chicago, Indianapolis and St. Louis, hospitals run the show.

"Hospitals are doing better financially than ever," said health care analyst Karen Roth, "but they haven't passed any of that back to the consumer, and they aren't likely to anytime soon."

Consider St. Louis as an example.

One hospital corporation, BJC, controls approximately 37% of patient revenues through its 12 area hospitals and numerous clinics and doctors' offices. The St. Louis-based not-for-profit hospital system is affiliated with and partially owned by the Washington University (St. Louis) School of Medicine. In recent months it has wrung larger reimbursements from two area HMOs by threatening to pull its doctors and facilities out of their networks.

Don't imagine it is doing it for the patients. While enjoying record profits, St. Louis hospitals--including the non-profits--have been cutting charity care and scooting recovering patients out their doors to heal at home.

According to a study by the St. Louis Area Business Health Coalition, the 39 hospitals in metropolitan St. Louis had an average profit rate of 7.1% in 1996, the last year for which full information is available. (Most of the hospitals are not-for-profit institutions, so they have another name for the excess of revenue over costs, but profit is what it is.) Their profit rate on Medicare patients was even higher, nearly 13% in 1997. In contrast, the largest HMO, United Health Care of the Midwest, had a profit margin of merely 1.1%.

The Business Health Coalition, by the way, is a lobby funded by 37 of the largest non-health care corporate employers in town. Many of the executives of those corporations sit on the board of directors of BJC.

The profitability of hospital care in St. Louis isn't unusual. A report last year by the national management consulting firm FMI concluded hospitals across the country were enjoying record profits.

That profit rate is one of the best kept secrets in the country. Hospital executives regularly cry poverty. They say HMOs force them to cut corners. HMOs supposedly force them to push patients out the door before they are healed, and increase workloads on hospital workers.

In St. Louis, hospital workers have lost vacation days and sick days to the plea that "manged care is making us do it." Blood drawers get eliminated and registered nurses lose jobs to poorly trained "patient care advocates," all to cut costs.

The underpaid and uninsured suffered, as well. In 1997, the value of charity care from St. Louis area hospitals fell to 1.6% of their patient revenues, the lowest level on record. At ten of the hospitals, charity amounted to less than one-half of 1% of revenues.

Many hospitals, by the way, have a peculiar definition of charity. In notes attached to the financial reports of all of the largest St. Louis hospitals, corporate accountants explain that two-to-three percent they claimed to spend on charity included the difference between what the hospital charges and the amount insurance companies reimburse for services. So, if an executive's generous insurance plan pays less for his gold-plated treatment than the hospital says it would customarily charge, the difference is "charity."

In plain language, working people and seniors on Medicare are subsidizing health care for the wealthy, and not only through misconceived charity. Hospitals in the inner city and working class suburbs have closed, while new hospitals opened in farther out, executive suburbs. The three new hospitals that opened in tony St. Charles County, for example, had a combined occupancy rate of less than 30% in 1996, while the established hospital, as large as the other three combined, operated at less than 50% of capacity.

Roth noted that one hospital system opened a new neonatal intensive care unit at a hospital in a wealthy suburb, though it already had an underused neonatal intensive care unit at a sister hospital only a couple of miles away. "Neonatal intensive care units are extraordinarily expensive to set-up and maintain," she said. The duplication of units within a couple of miles of each "is driven more by marketing than need," she said, and that drives up the cost of health care for everyone.

Meanwhile, infant mortality rates continued at Third World levels among the population of the inner city.

Kathy Hanold, an executive at a competing hospital system blamed the duplication of suburban hospital care sites on consumers, i.e. people with money to spend on health care extras. She acknowledged there are more cost-effective ways of delivering quality care than spending a bundle of money to put a neonatal intensive care unit in every health center, but claimed "people expect to receive the highest level of care [read most technologically advanced care] at every site."

The executives who make the decisions about where hospitals will spend and invest their money are well paid for their efforts.

Fred Brown, the president of BJC, got $1.7 million in 1997, an amount that a spokeswoman said included retirement benefits and was comparable with the compensation paid to the chiefs of similarly sized not-for-profit hospital systems around the country. Two-thirds of St. Louis area hospitals spent less on charity than BJC paid Brown.

For all their money-mongering excesses, hospitals in St. Louis are not pariahs in the industry. The two largest hospital systems, BJC and Unity (part of the Sisters of Mercy), are models for hospital systems around the country. The flagship hospitals of each system regularly are rated among the top hospitals in the country

As for Brown, he no longer is president of BJC. In February, he was installed as president of the American Hospital Association, from which he intends to lobby for more federal support to make St. Louis-style health care the national standard.

Brown tries to give market-driven health care a human face. He insisted he was not motivated by the money at BJC. Rather, as a Christian and as someone who reached adulthood in the sixties, he was motivated by the desire to make the world a better place.

At every opportunity, Brown points to the pressures from HMOs, and posits hospitals as the "community centered" alternative. In his heart, he must be thankful to have HMOs to cast as the "bad cop" to his "good cop." He is probably just as glad that Janet Reno's Justice Department is busily trying to suppress a third option: any physician organizing that is independent of hospitals or insurance companies.

Peter Downs is a writer in St. Louis.

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