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For-Profit Hospitals: Review Has Surprises : New Study Finds Entrepreneurial Chains Aren't Living Up to Their Claims of Cost-Effectiveness

June 05, 1986|ALLAN PARACHINI | Times Staff Writer

Confounding popular free-enterprise theory, a review of the nation's for-profit hospitals concludes that chains of investor-owned hospitals that have sprung up in the last 25 years not only don't operate more economically than traditional nonprofit centers but are more expensive and less cost-effective.

Moreover, the study--the product of a three-year inquiry by a special committee appointed by the Institute of Medicine in Washington--also warns that as entrepreneurism becomes more pervasive in medicine, new safeguards may be necessary to protect patients from the business self-interests of their doctors. The institute is part of the congressionally chartered National Academy of Sciences.

In fact, increasingly aggressive business practices of physicians may constitute a more serious consumer dilemma than ownership of the nearly 800 American hospitals that are now in the hands of for-profit chains, the report says. Among the alleged dangers of doctor behavior of which the report warns is the growing use of incentive bonuses by both nonprofit and for-profit centers that, in essence, financially reward doctors for not prescribing some types of costly care.

Economic Pressure

At the same time, the inquiry concluded that incursions of for-profit enterprises into medical care have been neither as insidious as critics had warned nor as beneficial as advocates had claimed. The report, which calls itself only a "snapshot" of the developing situation, concludes that all aspects of the increasingly marketing-oriented health economy must be closely watched.

But researchers stressed one point: Economic pressures brought on by past cost excesses by all branches of medicine are inexorably bringing fundamental change in the way Americans seek and get medical care.

The effects of this trend are already so pronounced that many practices that distinguished for-profit and nonprofit health centers as recently as a decade ago have disappeared and business operations and economic habits of the two sectors are increasingly alike.

The 556-page report concludes that the market penetration of for-profit ownership of hospitals may already have peaked nationwide at about 13% of all hospitals and 9.8% of the total of American hospital beds. Large for-profit chains own hospitals containing about 100,000 beds. The national total may be deceiving, however, critics of entrepreneurial medicine warn, because investor-owned chains are disproportionately prominent in a small number of Sun Belt states, including California (where 31% of all hospitals are for-profit), Florida, Georgia, Louisiana, Tennessee, Texas and Virginia.

The 22-member study committee's chairman predicts that consumer pressures for quality care and the availability of care to the 35 million Americans who lack health insurance may doom the pervasive influence of strict cost-control pressures within the next two years by focusing greater attention on the plight of people who can't get care or are forced to accept treatment that is significantly worse than that afforded people of greater means.

The Institute of Medicine study, which had been awaited eagerly both by advocates of entrepreneurial, for-profit medicine and the movement's opponents, was released in Washington Wednesday. Today's issue of the New England Journal of Medicine--whose editor, Dr. Arnold Relman, is a leading critic of the rise of for-profit health care and served on the study committee--summarizes the study.

Broad-Based Panel

The study committee was chaired by Walter McNerney, a Northwestern University health services management professor who is one of the nation's most prominent health policy observers. The committee included a wide variety of top national experts in such fields as health care financing, insurance, management, ethics and medical practice. Key executives of two of the nation's largest for-profit health center chains--National Medical Enterprises and American Medical International, both Los-Angeles-based--were also on the panel.

"The committee feels that our current path toward an increasingly competitive environment, with more investor-ownership, more for-profit activities by not-for-profit institutions and larger (hospital chains), raises enough issues to warrant careful monitoring," the study concluded.

"The general conclusion was that, as the field gets more competitive, based more and more on incentive payments, encouragement of competition and all the rest of it, our eye should be on ownership to a certain degree, but more sharply focused on quality, access, cost and whether education and research institutions remain viable," McNerney said in a telephone interview from his home near Chicago.

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