Archive for March, 2003

The End of the Community Hospital

Thursday, March 6th, 2003

The community hospital has had a good run. A century or so is a good innings (call it a half century really because hospital care and medical care generally in the pre-World War II era was apparently pretty miserable). Non- Profit community hospitals, competing with one another to build better services in their local communities across a wide range of clinical conditions may become a thing of the past. Why?

The Atrium of Dreams. The Field of Dreams effect is “if you build it they will come” (historically it was Roemer’s law: a built bed is a filled bed). Hospitals are investing millions in technology and facilities upgrades to attract the well-heeled and the well-insured. As Uwe Reinhard of Princeton University has always argued, the atrium is both the symbol and the key to economic success for hospitals. But the combination of a medical arms race and the Four Seasoning of the facilities has made hospitals a big source of cost inflation in healthcare once again, and the payers know it.

Tiered Networks. Many private payers and CMS (which thinks and acts more like a private payer every day) will push for networks that make hospital prices more transparent to consumers. Perversely, this will favor those hospitals with the best atriums (the best insured have light diseases and high incomes), but if you have an ugly lobby, indifferent quality, and a low-end clientele, you are toast.

Economic Evisceration of the Cost Shifting Engine. Entrepreneurial proceduralist physicians armed with imaging technology, catheters, and laser devices are fueling the economic evisceration of the community hospital. Doctors see the opportunity to take the hospital’s most profitable lines of business in cardiac catheterization, orthopedics, and cosmetic surgery and start competing in stand-alone surgical facilities and clinics. Healthy competition, eh? Maybe, but the result is the complete undermining of the economic cost shifting engine that powers most hospitals: profitable DRGs and per diems subsidize unprofitable ones. There are no physicians opening stand-alone clinics and hospitals for the unprofitable DRGs unless these doctors are do-good lefties with a big trust fund.

Swamped by the Undercovered. Basket case community institutions with a bad patient mix will be swamped by the undercovered over the next two years. The perilous state of Medicaid and state budget’s for health care will mean that cuts in both eligibility and payment rates are an inevitability. Can Medicare be far behind?

Government funded ICUs. Taken to the logical conclusion these trends will make many community hospitals government funded ICUs, only the sickest and the poorest will be left as inpatients. The well-heeled ambulatory patients will drive-thru their surgeries and be oblivious to the plight of St. Elsewhere.

How to respond? Two ideas: wherever you can become a benevolent monopolist, own everything in a 30 mile radius, and convince your medical staff that together you can do better than in a battle over the outpatient environment. If monopoly is impractical like in New York or Los Angeles, then build Community Care Cartels with enough local scale, clout and cross subsidy to keep the community-based institutions in the phone book.

Ian Morrison is an author, consultant and futurist based in Menlo Park, California. This column was published in the Spring 2003 Issue of the Health Forum Journal.