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California and the West

Poor Hurt by Hospital Sales, Study Suggests


Charitable care has plunged among California hospitals that converted from nonprofit to for-profit status, translating into millions of dollars in lost community health services, according to a consumer watchdog group's controversial report, released today.

Consumers Union, publisher of Consumer Reports magazine, contends in its report that four of five hospitals studied--three of four in Southern California--showed dramatic decreases in charity care after being sold to for-profit chains between 1993 and 1998.

According to the report, such care dropped 94% at United Western Medical Center of Santa Ana within the first year after the sale; 88% at Good Samaritan Medical Center in San Jose; 84% at United Western Medical Center of Anaheim and 31% at Riverside Community Hospital. It increased at only one hospital--by 71%, at Pacific Hospital of Long Beach.

At the same time, the report stated, what hospitals call bad debt soared, suggesting that for-profit institutions are billing patients, and pursuing payment, for care that used to be offered as charity.

Hospital trade groups and investor-owned chains said the watchdog group's analysis is "badly flawed" and based on a fundamental misunderstanding of hospital accounting.

Harry Anderson, a spokesman for Tenet Health Care, which now owns United Western medical centers, said hospitals these days generally don't provide much charity care in the classic sense--for which no bill is generated and there is no expectation of payment from the outset.

A better measure of hospitals' generosity is "uncompensated care," he said, which means care that wasn't paid for, even if a bill was generated. By that standard, he said, Tenet hospitals do better than average.

If investor-owned hospitals generate more "bad debt" than "charity"--both of which fall under uncompensated care--it is because that unlike nonprofits they have an incentive to keep track of how much debt they incur for tax purposes, said Tom Scully, president and chief executive officer of the Federation of American Health Systems.

"It's just an accounting issue," he said, not a difference in the level of free care provided. "I'd be stunned if a true academic study came up with those results."

In fact, he said, several other studies already have indicated that conversion to for-profit status does not significantly alter provision of care to the poor.

The Consumers Union report, "White Knights or Trojan Horses," examined for-profit conversions between 1993 and 1998 in California to determine whether charitable assets and community health were properly protected in the transactions, said staff attorney Julio Mateo Jr.

Such deals have received increasing scrutiny in recent years as stand-alone hospitals in California and elsewhere seek to hook up with chains to ensure financial viability in a competitive marketplace.

A state law passed in 1996 sought to tighten oversight of for-profit conversions by mandating that the attorney general ensure that a fair price is paid by the buyer, hold at least one public meeting to get community input and see that health effects are evaluated.

While acknowledging that the new law was an improvement, many consumer advocates are concerned that the public, which has nurtured and supported these tax-exempt institutions over the years, still is not getting a fair shake in the changeovers.

"These transactions raise concern because millions of charitable dollars that belong to the public are at stake," the Consumers Union report states. "Particularly in transactions of nonprofit hospitals, the very health care of the community will also be affected."

Consumers Union said it only had enough information to measure the level of charitable care at five institutions in the first year after the sales to for-profit chains, but it provided some analysis of 10 nonprofit to for-profit conversions between 1993 and 1998, including the sales of Centinela Hospital and Queen of Angels-Hollywood Presbyterian medical centers in Los Angeles County.

The group found that in all cases, the sales proceeds--often set aside in charitable foundations--did not compensate for the loss of "community benefits" that the nonprofit hospital had provided.

"In many cases these conversions haven't gone on long enough to make these comparisons," Anderson said. "Like a lot of not-for-profits, [foundations] take a while to get off the ground."

Anderson also took issue with the consumer group's focus on for-profit conversions, noting that the vast majority of hospital sales in California and elsewhere involve sales to nonprofit health care chains.

Mateo said sales of hospitals to nonprofits ought to be better scrutinized as well, as provided under a bill now pending in the state Legislature. In addition, his group recommended improved public participation in hospital sales, better analysis of health care impacts, guarantees that charity care will not be cut, and a requirement that hospitals be purchased for their "full market value."

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