Sickly State of Public Hospitals
Sam Vaknin, Ph.D.
Published by Brussels
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Hospitals are caught in the crossfire of a
worldwide debate. Should healthcare be completely privatized - or should a
segment of it be left in public hands? As the debate infects countries adhering
to the "social model of capitalism" (e.g., Scandinavia and France)
and spreads to countries in transition in Central and Eastern Europe - it is
worthwhile to study the experience of the bellwether in privatized health care:
Of the many mutations of the hospital, most
people experience the Public Hospital. These are all-purpose, universal, and
all-pervasive (inpatient and outpatient) institutions, which service even the
indigent, criminals, illegal aliens, and members of the minorities.
Public hospitals are the descendents of
almshouses, poorhouses, correction facilities, and welfare centers. Like other
modern fixtures - the university, the school, the orphanage - most hospitals
were originally run by the church and included a medical school.
Later on, local communities established their
own hospitals. As the functions (and area) of these initially modest facilities
expanded, hospitals were gradually taken over by regional authorities and state
governments. Federal funding for hospitals - in the form of Medicaid and
Medicare - is relatively new and dates back only to LBJ's (President Lyndon B.
Johnson) Big Society in 1965.
Hospitals are now reverting to communal
management. Bruce Siegel, President and CEO of Tampa General Hospital, notes in
"Public Hospitals - A Prescription for Survival" that between 1978
and 1995 the number of government-owned acute care public hospitals declined by
Most hospitals were or are being transformed
into small, communal, suburban or rural facilities. In the USA, less than one third of hospitals are in
inner cities and only 15% have more than 200 beds. According to the American
Hospital Association, the 100 largest hospitals averaged a mere 581 beds in
Public hospitals are in dire financial
straits. Even in the USA, one third of their patients do not pay for medical
services (compared to less than 5 percent in private hospitals). Medicaid
barely - and belatedly - covers another third. Yet, the public hospital is
legally bound to treat one and all.
In other countries, national medical
insurance schemes, the equivalents of Medicare/Medicaid in the USA, (e.g., the
NHS in Britain), or mixed public-private ones (e.g., Kupat Kholim or Maccabbee
in Israel) provide fairly extensive coverage. Community medical insurance plans
are on the rise in both the USA and Europe. Corporate plans cover the rest.
Still, uniquely in the USA, many potential
patients remain exposed. More than 40 million Americans have no medical
insurance of any kind. A million new disenfranchised join their ranks annually.
This despite sporadic - and oft-unsuccessful - initiatives, on the state level,
to extend insurance - in lieu of charity care - to the uninsured.
This kind of deprived patient often consumes
less profitable or loss leading services such as trauma care, drug-related
treatments, HIV therapies and obstetrical procedures. These are lengthy and
costly. Private healthcare providers
corner the more lucrative end of the market: hi tech and specialty services
(e.g., cardiac surgery, cosmetic surgery, diagnostic imagery).
In "Our Ailing Public Hospitals - Cure
them or Close Them?" published in "The New England Journal of
Medicine", J.P. Kassirer mentions that public hospitals provide
"culturally competent care". This fashion is the bane of public
medicine. Providers are expected to deliver to their patients a politically
correct package of social services and child welfare on top of the inanely
expensive - and frequently unpaid for - medical treatment.
"Essential Community" hospitals are
heavily dependent on public funding. State governments foot the bulk of the
healthcare bill. Public and private healthcare providers pursue this money. In
the USA, a majority of consumers organized themselves in Healthcare Maintenance
The HMO negotiates with providers
(=hospitals, clinics, pharmacies) to obtain volume discounts and the best
rates. Public hospitals - under-funded as they are - are not in the position to
offer an attractive deal. So, they lose patients to private hospitals.
Public hospitals derive more than half their
revenues from federal insurance schemes such as Medicaid. This is five times
the national average for all types of hospitals. They also benefit from state
and local matching funds tied to their Medicaid receipts. This addiction to
dwindling - and unreliable - federal and state financing spells doom.
Medicaid Managed Care programs - intended to
optimize the use of Medicaid funds - had the dual effect of reducing the
coverage rate of public hospitals (i.e., their income per patient) and
diverting business to ferociously competitive private ones. Public facilities
are closing at a torrential pace.
In some states, one in twenty calls it a day
every year. Many states (e.g., New York) and municipalities (e.g., Los Angeles)
seriously considered the abolition or privatization of all public hospitals. In
some states, private hospitals now enjoy almost as much Medicaid business as
public ones. HMO's (Health Maintenance Organizations) have discovered Medicaid
Yet, private, for profit hospitals,
discriminate against publicly insured (Medicaid) patients. They prefer young,
growing, families and healthier patients with Medicaid, Blue Cross/Blue Shield,
or commercial medical insurance. These clients gravitate out of the public
system, transforming it into an enclave of poor, chronically sick patients.
This, in turn, makes it difficult for the
public system to attract human and financial capital. It is becoming more and
more desolate, under-staffed, and poorly-qualified.
But public hospitals are partly to blame for
this sorry state of affairs.
There are striking similarities between these
decrepit institutions all over the world. Public hospitals in New York are
often indistinguishable from their counterparts in Ljubljana, Moscow, Tel-Aviv,
or Skopje. Their bloated management and heavily unionized staff are opaque and
non-accountable. They refuse to measure up to performance targets lest their
revenues and remuneration be linked to the results.
No one can tell how (in)effective and
(non-)productive public hospitals are. There are no reliable statistics
regarding the most basic parameters of service quality, such as wait times.
Financial reporting and network development are dismal. As even governments are
transformed from "dumb providers" to "smart purchasers",
public hospitals must reconfigure, change ownership - privatize, lease their
facilities long term - or perish.
But privatization is far from being a
It is difficult to imagine the private
sector - private hospitals and HMO's - assuming the full load of patients
now treated by the public sector. To start with, existing laws would have to be
changed in constitutionally dubious ways. It is even more difficult to conceive
of the government as a ideal and long-term "smart purchaser" of
healthcare services from the private sector. Additionally, to cover all the
uninsured would cost a fortune. The communities that phased out public hospitals
in favor of Medicaid managed care suffered greatly according to various
Siegel notes that there is no data to support
the contention that public hospitals provide inferior care at a higher cost -
and, indisputably, they possess unique experience in caring (both medically and
socially) for low income populations. He
poses the following questions:
In the absence of factual answers to these
questions, the arguments boil down to differences in worldview and politics. Is
healthcare a fundamental human right - or a commodity? Should healthcare be
left to the invisible hand and distributive justice of the market? Should
prices serve as the mechanism of optimal allocation of healthcare resources -
or are there other, less quantifiable, but pertinent parameters?
Whatever the philosophical predilection,
healthcare should be reformed. Siegel and Altman and Brecher ("Competition
and Compassion - Conflicting Roles for Public Hospitals") survey the
landscape of hospital reform in the USA:
Public hospitals are increasingly governed by
healthcare management experts who are likely to emphasize clinical and fiscal
considerations - and not by politicians. This is coupled with the vesting of
authority with hospitals, taking it back from local government.
Some hospitals are organized as (public
benefit) corporations with enhanced autonomy (e.g., Memphis Regional Medical
Center). Others organize themselves as Not for Profit Organizations with
independent, self perpetuating boards of directors.
This is often coupled with increased
transparency and accountability. Clear quantitative criteria are applied to the
use of funds. Some hospitals started by revamping their compensation structures
to increase both pay and financial incentives to the staff and thus attract
talented people. In these reformed institutions, pay is linked to objectively
measured performance and skills-related criteria. A system of bonuses,
incentives, and - more rarely - penalties has been applied to senior
The management of many public hospitals is
trained now to use rigorous financial controls, to improve customer service, to
re-engineer processes and to negotiate agreements and commercial transactions.
In some cases, staff is employed through
employment contracts with clear severance provisions that allow the management
to take commercial risks.
All this cannot be achieved without the full
collaboration of the physicians employed by the hospitals. Their very
profession is being revolutionized. Siegel:
"Most major public
hospitals obtain a majority of their physicians through affiliations with
nearby medical schools ... But the nature of these contracts and of health care
has changed. Public hospitals are now under intense pressure to improve continuity
of care, expand primary care capacity, reduce lengths of stay and meet a host
of managed care and budgetary constraints. It will be impossible for them to do
this so long as the physicians who make the bulk of the clinical decisions
practice in ways that are not aligned with the imperatives of managed care and
capitation. Physicians must adapt their styles of practice and accept an
emphasis on absolute productivity."
Some hospitals in the USA (e.g., Cambridge
Hospital in Massachusetts) formed business joint ventures with their own
physicians (PHO - Physicians Hospital Organizations). They benefit together
from the implementation of reforms and from increased productivity. Scheduling
of patient-doctor appointments, laboratory tests, and surgeries are
computerized. Obsolete information systems replaced. Long turnaround
times and redundant lab tests and medical procedures eliminated.
According to various studies published in
"Modern Healthcare", public hospitals have been downsizing for well
over a decade now. They reduced their labour costs from more than 70 percent of
their budgets 8 years ago - to less than 60 percent today. Many cut their
labour force by half. Union membership is on the decline.
Public hospitals all over the world are
transforming themselves into outright businesses.
They lease to their physicians - for use in
their private, after-hours, practice - space (e.g., operating theatres) or time
slots, or underutilized equipment. This kind of arrangement cropped up in
countries as diverse as Israel and Macedonia, Russia and Germany. The lessee
physician pays the hospital - either in the form of fixed fees or in the form
of revenue sharing (franchise arrangement).
In some countries, the physician also commits
himself to provide community-oriented, non profit or pro bono services in
return for the right to use what is, essentially, community property.
Another method of using the hospital's excess
capacity is to sell it, rent it, or lease it to entrepreneurs who are not
members of the hospital staff: small laboratories, specialty medical services,
primary care, and specialist practitioners. All these make use of the superior
infrastructure of the hospital under a concession, a franchise, or a rental
The hospital provides these professionals
with a "captive market" of patients. This is very much like the
relationship between an "anchor" in a shopping mall and the small
retail shops surrounding it.
Hospitals - mainly in eastern Europe - also
sell medical - and, sometimes, non-medical - products and services to the
community on a commercial, competitive basis. Some hospitals offer for-pay
medical legal services, or print jobs by the hospital's print shop. They
operate the hospital's social services as a profit centre, offer medical
consultancy on a fee per service basis, and even sell food from the hospital
kitchen through a catering service, or data to researchers from its archives.
A hospital is a galaxy of small (to medium)
size businesses operating under one organizational roof. Laundry, cleaning
services, the kitchen and its attendant catering functions, the provision of
television sets and telephones to patients, a business centre for the inpatient
businessmen - these are all profit or loss centers.
"Internal privatization" (or
intrapreneurship) transforms the hospital into a holding company. This holding
company owns and operates a host of business entities. Each such entity
constitutes a separate contractor which provides the hospital with a service or
Thus, all laundry is done by a company which
charges the hospital for its services. The same goes for the kitchen, the print
shop, the legal services department and so on. These corporations employ the
former staff of the hospital. This way, institutional knowledge and experience
These corporations, owned by former
employees, usually maintain a "right of first refusal" in the first
five years following the transformation. They are allowed to match the best
offers obtained in yearly tenders conducted by the hospital. They are also
allowed to offer their services to other customers. Thus, they reduce their
dependence on one client, the hospital. They become truly entrepreneurial
entities, competing for profits in a market environment.
A part of the re-engineering process is to
determine which of the roles of the hospital are "core competencies".
All "non-core" functions are outsourced in a tender to the most
competitive bidders. The hospital is likely to benefit from the transfer of
these functions, in which it has no relative competitive advantage, to expert
outsiders. This is somewhat akin to international (free) trade, where each
nation optimizes its resources and passes the (beneficial) results to its
To control this kind of transformation,
medical information management systems need to be introduced. These improve
both the quality and the quantity of data available to the management of the
hospital and, as a result, the decision making process.
This makes it easier for the management to
pinpoint which areas require doing what - for instance, what kind of incentives
should go to which members of the staff, where could costs be cut, and where
and how could productivity be improved.
Finally, a novel concept is emerging.
Universities and hospitals are two important repositories of human knowledge
and experience. Virtually every hospital somehow collaborates with an academic
institution, or with a medical school.
But, during the last two decades, hospitals
have re-cast themselves in the role of partners to the commercial exploitation
of the results of research conducted within their premises or with their
co-operation. Hospitals now collaborate in pharmaceutical, medical, genetic and
bioengineering studies. Hospitals believe that by refraining from getting
commercially involved - they give up money which really is not theirs to give
up in the first place.
Large hospitals also entered the managed care
market - where laws permit it. Some have established MCOs (Managed Care
Organizations of patients). Others insure patients outright and market their
services directly. Most hospitals now maintain their own network of suppliers.
HMO's are inevitably less than thrilled with the emergence of these new
competitors - but this process of disintermediation is thought to have
increased both the profit margins and the absolute profits of public hospitals.
Public hospitals also pool resources to
benefit from advantages of scale. They relegate services - from auditing and
accounting to political lobbying - to commonly owned or merely centralized
service providers. These providers also negotiate contracts with suppliers and
specialists on behalf of the hospitals.
Some observers decry the apparent convergence
between public hospitals and their private brethren. Such derision is
misplaced. Public hospitals still treat the destitute and the immigrant. They
still provide a medical safety net where no alternative exists. They are just
doing it better, more rationally, and more cheaply. They should do more to open
up to scrutiny. They should spin doctor. They should streamline. But one thing
they should not do is regress to where they have been in the early 1990's. This
is what the doctor ordered.
The Dying Breed -
Healthcare in Eastern Europe
Better Get Sick in Germany
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