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California and the West

Hospital Study Shows Money Lost on Care

Half the facilities in the report spent more on patients than what was collected for their treatment in 2004.

February 28, 2006|Lisa Girion | Times Staff Writer

Half of the hospitals in a six-county region including Los Angeles lost money on patient care in 2004, according to a report to be released today.

Of 212 hospitals in the region that year, the latest for which figures are available, 107 spent more treating patients than they were able to collect for that care, according to the report by the Los Angeles County Economic Development Corp.

State-mandated nurse-staffing ratios, high property taxes and high numbers of uninsured patients make it "very hard to do business in Southern California," said David Langness, a spokesman for Tenet Healthcare Corp., which operates 12 hospitals in the region, down from 28 hospitals three years ago.

The Hospital Assn. of Southern California commissioned the report, the first of its kind, to gauge the role hospitals play in the region's economy.

The association highlighted the finding that hospitals and related services contributed $85.5 billion worth of wages, purchases and taxes -- about 12% of all goods and services produced locally.

The report also found that hospitals in the region -- defined as Los Angeles, Orange, Riverside, San Bernardino, Santa Barbara and Ventura counties -- had capital improvement projects worth more than $8 billion on tap for the next five years.

Association spokesman Jim Lott said that despite the financial strains on their operating budgets, many hospitals were borrowing or dipping into capital accounts to build facilities. He said hospitals could use the report to explain the building boom at a time of great concern about healthcare costs.

"There's a need for support for that expansion," Lott said. "We wanted to balance the idea people have about the cost of hospitals with the value of hospitals."

Lott said the building spree was spurred largely by mandated earthquake improvements. But many of the projects are going far beyond what it would take to make an old building earthquake-safe, said Greg Freeman, one of the report's authors.

"A lot of hospitals have looked at it really closely and said, 'If we are going to spend X amount retrofitting, there's a good case to be made to spend X-plus and build a whole new facility,' " he said.

Glenn Melnick, a health economist with USC and the Rand Corp., agreed that hospitals were big contributors to the regional economy, noting that they were especially good at bringing federal dollars into the community through reimbursements for the care of seniors and the poor.

But Melnick said the report, a single-year snapshot, might exaggerate the challenges facing hospitals.

A longer perspective would show hospitals are in better financial shape now than in 1999 because they've been able to substantially raise prices.

If hospital margins are tight, he said, it's because "they are spending like crazy."

Melnick said some of the increased spending was inescapable, such as rising labor costs, but much of it was more discretionary, such as information technology systems.

"Hospitals have learned that if you've got it, you spent it," he said. "You can build up your cost structure. If you get hit later on, you can always cut back."

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