PNHP

Administrative Costs in Market-Driven U.S. Health Care System Far Higher Than in Canada's Single-Payer System

Administrative Costs in Market-Driven U.S. Health Care System Far Higher Than in Canada's Single-Payer System

EMBARGOED UNTIL: 5 PM EDT, AUGUST 20, 2003

Contact: Steffie Woolhandler, M.D., M.P.H � (518) 794-8109
David U. Himmelstein, M.D. � (cell) (617) 312-0970; (hospital office) (617) 665-1032
Sidney M. Wolfe, M.D. � (202) 588-1000

To read the full report please click here

Administrative Costs in Market-Driven U.S. Health Care System Far Higher Than in Canada�s Single-Payer System, New Research Shows With National Health Insurance, United States Could Cover the Uninsured

WASHINGTON, D.C. � Bureaucracy in the health care system accounts for about a third of total U.S. health care spending � a sum so great that if the United states were to have a national health insurance program, the administrative savings alone would be enough to provide health care coverage for all the uninsured in this country, according to two new studies.

The studies illustrate the failure of the private, fragmented and business-oriented U.S. health care system to control administrative costs, as compared to Canada�s single-payer system. One of the studies, in seeking to answer whether the ascendancy of computerization, managed care and more businesslike approaches to health care have decreased administrative costs, answers the question with a resounding �no.�

The second study provides a state-by-state breakdown of savings each state could achieve if the United States adopted a national health insurance program.

�Hundreds of billions are squandered each year on health care bureaucracy, more than enough to cover all of the uninsured, pay for full drug coverage for seniors, and upgrade coverage for the tens of millions who are under-insured,� said Dr. Steffie Woolhandler, co-founder of Physicians for a National Health Program and lead author of the studies. �Americans spend almost twice as much per capita on health care as Canadians, who have universal coverage and live two years longer. The administrative savings of national health insurance make universal coverage affordable.�

New England Journal of Medicine Study Shows U.S. Health Care Paperwork
Cost $294.3 Billion in 1999, Far More Than in Canada

The first study, which is to be published Thursday in The New England Journal of Medicine, finds that health care bureaucracy cost U.S. residents $294.3 billion in 1999. The $1,059 per capita spent on health care administration was more than three times the $307 per capita in paperwork costs under Canada�s national health insurance system. Cutting U.S. health bureaucracy costs to the Canadian level would have saved $209 billion in 1999, researchers found. [The study was conducted with grant support from the Robert Wood Johnson Foundation. The Foundation does not endorse the analyses or findings of this report or those of any other independent research projects for which it provides financial support.] The study, the most comprehensive analysis to date of health administration spending, was conducted by researchers at Harvard Medical School and the Canadian Institute for Health Information, Canada�s quasi-official health statistics agency. The authors analyzed the administrative costs of health insurers, employers� health benefit programs, hospitals, nursing homes, home care agencies, physicians and other practitioners in the United States and Canada. They used data from regulatory agencies and surveys of doctors, and analyzed Census data and detailed cost reports filed by tens of thousands of health institutions in both nations.

The authors found that bureaucracy accounted for at least 31 percent of total U.S. health spending in 1999 compared to 16.7 percent in Canada. They also found that administration has grown far faster in the United States than in Canada. Between 1969 and 1999, administrative and clerical personnel in the United States grew from 18.2 percent to 27.3 percent of the health work force. In Canada, those personnel grew from 16 percent in 1971 to 19.1 percent in 1996.

Harvard/Public Citizen Report Finds National Health Insurance Would Save $286 Billion on Administration in 2003 – Enough to Cover All Uninsured and Seniors� Drug Costs

The researchers also released a second report co-authored with Dr. Sidney Wolfe, director of Public Citizen�s Health Research Group. This report, based on data adjusted to reflect estimates of 2003 spending, found that health bureaucracy now consumes at least $399.4 billion annually and that national health insurance could save about $286 billion in administrative costs. This is equivalent to $6,940 for each of the 41.2 million people uninsured in 2001 (the most recent figure available for the uninsured). In addition to providing health coverage for the uninsured, these savings could provide drug coverage for the nation�s seniors.

The researchers found wide variation among states in the potential administrative savings available per uninsured resident. Texas, with 4.96 million uninsured (nearly one in four Texans), could make available $3,925 per uninsured resident if a national health plan were implemented. Massachusetts, which has very high per capita health administrative spending and a relatively low rate of uninsured, could make available $16,453 per uninsured person.

The high U.S. administrative costs can be attributed to three factors. First, private insurers have high overhead in both nations but play a much bigger role in the United States than in Canada. Second, doctors and hospitals in the United States must deal with hundreds of different insurance plans (at least 755 in Seattle alone), each with different coverage and payment rules and referral networks that must be tracked. In Canada, doctors bill a single insurance plan, using a single simple form, and hospitals receive a lump sum budget.

�Only national health insurance can squeeze the bureaucratic waste out of health care and use the money to give patients the care they need,� said Dr. David Himmelstein, co-founder of Physicians for a National Health Program and lead author of the studies. �Republicans are pushing to move seniors into HMOs, whose overhead is three times higher than Medicare�s. National health insurance could cover everyone without any increase in costs.�

Added Wolfe, �These data should awaken governors and legislators to a fiscally sound and humane way to deal with ballooning budget deficits. Instead of cutting Medicaid and other vital services, officials could expand services by freeing up the $286 billion a year wasted on administrative expenses. In the current economic climate, with unemployment rising, we can ill afford massive waste in health care. Radical surgery to cure our failing health insurance system is sorely needed.�

Drs. Woolhandler and Himmelstein are co-founders of Physicians for a National Health Program, a 10,000-member organization that advocates for Canadian-style national health insurance in the United States. Public Citizen is a non-profit, member-supported, consumer advocacy organization.

Insurers provide a "price point" for everyone

American Medical News
Aug. 25, 2003
Insurers post robust profits for the second quarter
By Robert Kazel
Springtime brought a bumper crop of profits for most of the nation’s large,investor-owned HMOs, and several even reported record-breaking financial
results for the second quarter.
Just about all of the leading health care payers met or surpassed their stated profit goals by raising premiums, redesigning products to shift costs to patients and cutting overhead. All insurers also benefited from an apparent decrease in medical cost acceleration.
Insurers are increasing profits as they learn how to succeed in tailor-making health plans to employers, which today typically means selling companies budget-minded products that require patients to pay more,said Ken Abramowitz, an analyst with the Carlyle Group, a New York investment firm.
“In the old days these companies used to sell one HMO at one price point, and the client would buy or didn’t buy,” he said. “Now there is a broad [range] of products and prices. There is a price point for everyone.”
http://www.ama-assn.org/sci-pubs/amnews/pick_03/bisc0825.htm
Comment: Now there is “a price point for everyone.”
Private health plans have ratcheted down rates for providers, wringing that sponge dry. They have pushed up premiums for employers and otherpurchasers
to the maximum tolerated. That leaves only the patient as the source of increased health plan net revenues. By reducing benefits and increasing cost
sharing, the insurers are able to create a “price point” that may appear to be affordable for moderate and low income individuals, but it purchases a Swiss cheese product that is marketed in yet smaller and smaller packages.
And it can only get worse. The tragedy is that most proposals for reform continue to use these evolving plans in the health care marketplace as the basis for reform. What good does it do to have “universal” coverage if the plans fail to make health care affordable for the individual with significant health care needs?
Our policymakers urgently need to shift from policies that protect and
nurture the private health plans to policies that would ensure affordable, comprehensive coverage for everyone. The Physicians’ Proposal (JAMA, Aug.13) would do just that.

Time for strong medicine

Time for strong medicine
8/19/2003

AMERICANS SPEND more than anyone else in the world on health care, but with 41 million people uninsured, they are paying for a system that is both unjust and inefficient. It is refreshing that at a time of retrenchment, the prestigious Journal of the American Medical Association has published an article urging that the United States adopt a single-payer system that would cover every American.

This approach represents a major contrast with the incrementalism that has resulted in a few improvements in coverage since the Clinton health plan died in Congress nine years ago. Now states are cutting back their Medicaid programs, employers are shifting more health costs directly to workers, and the Bush administration is showing little interest in expanding coverage.

The article by the Physicians’ Working Group for Single-Payer National Health Insurance asks, in effect, “Why keep paying for a dysfunctional system that costs $1.4 trillion a year?” The physicians propose replacing it with an expanded Medicare program for every American but adding a drug benefit, which Medicare lacks, and other improvements.

A single-payer plan would affect the interests of powerful economic lobbies. Private health insurers would not be needed if the government paid for all care directly to providers. Drug companies would be less able to charge exorbitant prices if they had to deal with one powerful customer, the US government. Income for some physicians might go down as more money was devoted to primary care and less to some procedures that are not as demonstrably beneficial.

The American Medical Association — which treats JAMA as an autonomous publication — promptly disassociated itself from the article. The AMA said it feared the prospect of rationing, as occurs in some countries with single-payer coverage. But other nations spend far less per capita on health care than the United States. Enough money sloshes around the US system to provide excellent care for everybody if it is spent wisely.

Costs are hidden and fragmented in the US system to such an extent that individuals rarely know what their health insurance costs. The physicians’ plan would replace this with a single revenue stream generated by taxes. That would cause the antitax lobby to howl, but it is better to confront the costs directly and debate them in a democratic process rather than having decisions diffused among government, employers, drug companies, and private insurers.

The physicians’ plan will have to contend with distrust of big government expressed by many Americans. Yet a majority believe that health care should not be a market commodity. The popularity of Medicare suggests that at least here, government is doing a creditable job.

“Access to comprehensive health care is a human right,” says the physicians’ group. A hodgepodge health care system is failing too many Americans. It’s time for a new approach with a goal of universal coverage. Single payer is a prominent option.
© Copyright 2003 Globe Newspaper Company.

Universal Health Plan is Endorsed

Published on Wednesday, August 13, 2003 by the Boston Globe
Universal Health Plan is Endorsed
Thousands of doctors back proposal in JAMA
by Liz Kowalczyk and Amber Mobley
Thousands of US physicians have endorsed a broad proposal that would abolish for-profit hospitals and insurers and transfer all Americans into an expanded and improved Medicare program for all ages, reigniting the debate over universal health care a decade after President Clinton’s failed plan.

While the four physicians who wrote the plan — three of whom are affiliated with Harvard Medical School — are members of a nonprofit organization that has long pushed for universal health coverage, the new proposal is important for two reasons: It was published today in one of the country’s most prestigious and its most widely circulated medical journal, the Journal of the American Medical Association, and because of the large number of doctors — nearly 8,000, including two former surgeons general — who endorsed it.

The doctors said they hope to spark a debate over national health insurance that essentially ended with the death of the Clinton health plan.
Of the Democratic presidential candidates, only Rep. Dennis Kucinich is advocating a single-payer system.

Americans spend $1.6 trillion on health care, which the doctors say is more than enough money to cover every American. The doctors contend that there will be at least $200 billion in administrative savings in a single-payer, national insurance plan.
.
The Associated Press
JAMA officials said it is unusual for the journal, which has a circulation of about 700,000 worldwide, to publish an article endorsed by such a large number of physicians. JAMA’s editor, Dr. Catherine DeAngelis, said that an editorial accompanying the article represents the journal’s viewpoint that it is time for the country to grapple more seriously with major problems in the health-care system.

“Look, if you don’t agree with this plan, it’s not a foolproof plan, there are plenty of problems with it, come up with something better,” she said in an interview. “Let the debate resume. It’s sort of been on the back burner and it’s time we get on the stick with this. We are the only developed country in the world that doesn’t have a specific health plan for our people. It’s a disgrace. We have too many people not insured, and this is wrong.”

In the editorial accompanying the proposal, Rashi Fein of Harvard Medical School said one drawback of such a comprehensive plan is that it may be too radical to pass the US political system, but that the doctors’ proposal “should re-energize the debate.”
The plan, developed by the Physicians for a National Health Program, based in Chicago, differs from Clinton’s 1993 initiative in fundamental ways. Clinton sought to avoid large new taxes, instead seeking to require all companies to offer health insurance with federal subsidies helping small employers, Fein said. The country’s basic system — employers buying health insurance from nonprofit and for-profit insurance companies — would have remained intact.
The physicians’ plan is more radical and more encompassing, including coverage for the 41 million uninsured Americans as well as incorporating ways to control costs by setting a national budget, providing a set amount of money to hospitals for day-to-day operations and major expansions, paying for nursing home and home care for the elderly, and developing a national list of drugs the program would pay for.

The government would pay for health care through an expanded version of traditional Medicare, the federal health insurance program for the elderly. Most hospitals and clinics would remain privately owned and operated, and the national health insurance program would pay them a monthly budget for operating costs. Investor-owned facilities would be converted to nonprofit status. Private insurance companies would be virtually eliminated. The plan is endorsed by former surgeons general Dr. David Satcher, who served under Clinton, and
Dr. Julius Richmond, appointed by Jimmy Carter.

One of the doctors’ arguments is that for-profit companies and multiple insurers are diverting money from clinical care for the demands of business. The physicians estimate that the country would save $200 billion annually by eliminating profits of investor-owned hospitals and insurance companies and by reducing administrative costs for hospitals and doctors who must bill dozens of different insurance companies. Private health insurers now consume 12 percent of premiums for overhead, while Medicare and the Canadian national health insurance system have overhead costs below 3.2 percent, the doctors reported.
Taxes, the doctors said, would increase. But except for the very wealthy, higher taxes would be offset by the elimination of insurance premiums and out-of-pocket copayments and deductibles, they argued.

Lead coauthor Dr. Marcia Angell, a senior lecturer at Harvard Medical School and former editor of the New England Journal of Medicine, said during a news conference in Washington, D.C., that the doctors want to curtail the entrepreneurial aspects of medicine, where insurers and providers avoid unprofitable patients and try to shift costs back to patients. But she said they also sought ways to control costs amid skyrocketing insurance premiums.

Dr. Steffie Woolhandler and Dr. David Himmelstein, both physicians at Cambridge Hospital and associate professors at Harvard Medical School, were coauthors.
Critics and even advocates of universal health insurance said the doctors’ proposal has major shortcomings. Susan Pisano of the American Association of Health Plans said private industry, not the government, has led the way in adopting disease management programs and prescription drug coverage. “Political pressures on Congress make change and innovation very difficult,” she said.
Giving hospitals a set monthly budget is similar to a form of managed care called “capitation,” in which insurers paid doctors and hospitals a set amount of money to treat patients. If they kept under the budget, providers made a profit; if they exceeded the budget, they lost money.

But capitation is now being called a failure by many providers, because it creates a financial incentive to limit care, and many insurers are moving away from it.
Further, many health-care economists questioned whether the proposal is realistic in the United States, given that even Clinton’s more modest plan failed.

© Copyright 2003 Globe Newspaper Company

Insurers provide a “price point” for everyone

American Medical News
Aug. 25, 2003
Insurers post robust profits for the second quarter
By Robert Kazel
Springtime brought a bumper crop of profits for most of the nation’s large,investor-owned HMOs, and several even reported record-breaking financial
results for the second quarter.
Just about all of the leading health care payers met or surpassed their stated profit goals by raising premiums, redesigning products to shift costs to patients and cutting overhead. All insurers also benefited from an apparent decrease in medical cost acceleration.
Insurers are increasing profits as they learn how to succeed in tailor-making health plans to employers, which today typically means selling companies budget-minded products that require patients to pay more,said Ken Abramowitz, an analyst with the Carlyle Group, a New York investment firm.
“In the old days these companies used to sell one HMO at one price point, and the client would buy or didn’t buy,” he said. “Now there is a broad [range] of products and prices. There is a price point for everyone.”
http://www.ama-assn.org/sci-pubs/amnews/pick_03/bisc0825.htm
Comment: Now there is “a price point for everyone.”
Private health plans have ratcheted down rates for providers, wringing that sponge dry. They have pushed up premiums for employers and otherpurchasers
to the maximum tolerated. That leaves only the patient as the source of increased health plan net revenues. By reducing benefits and increasing cost
sharing, the insurers are able to create a “price point” that may appear to be affordable for moderate and low income individuals, but it purchases a Swiss cheese product that is marketed in yet smaller and smaller packages.
And it can only get worse. The tragedy is that most proposals for reform continue to use these evolving plans in the health care marketplace as the basis for reform. What good does it do to have “universal” coverage if the plans fail to make health care affordable for the individual with significant health care needs?
Our policymakers urgently need to shift from policies that protect and
nurture the private health plans to policies that would ensure affordable, comprehensive coverage for everyone. The Physicians’ Proposal (JAMA, Aug.13) would do just that.

NABE Panel: Federal deficit a risk, monetary policy about right,health care needs major reform

National Association for Business Economics
NABE Economic Policy Survey
NABE Panel: Federal deficit a risk, monetary policy about right,health care
needs major reform
August 2003

From the Survey Details:Health Care
NABE introduced a special topic into this economic policy survey and questioned our panelists about healthcare in the United States. Given the choice of high cost or the large number of uninsured Americans, 57% felt high cost was the most important issue to address and 42% were more concerned with the increasing number of uninsured. That a survey of economists did not escalate the issue of high cost to a greater degree may indicate that most people in America, even economists, are conditioned tothink of healthcare differently from other choices we make each day,i.e.,noneconomically.
Regarding high costs, the most blame was assigned to insurance and third-party payer systems that left consumers with little or no incentive to hold costs down. Reasons of medium importance for high and rising healthcare costs were that healthcare providers lacked incentives to economize,improved technology allowing better outcomes, and excessive liability costs.
Costs were indeed seen as harmful to companies’ profitability. More than 90%
of respondents said escalating healthcare costs would be at least somewhat significant to companies’ profit margins over the next two years.
What’s the answer?
Two-thirds of respondents felt the answer to the problems in our healthcare
system needed to involve fundamental changes in both healthcare delivery and
its financing.
We asked panelists to identify specific changes to the U.S. healthcare system that would provide for improvements in cost, access, or quality.There was an overwhelming response against government involvement; neither nationalizing the healthcare system nor government regulation of insurance premiums and drug prices received much support. Most panelists advocated the spread of consumer-directed health insurance, which would give more incentives, choices, and responsibility for their healthcare to consumers.
http://www.nabe.com/publib/pol/03/pol0308.pdf
Comment: It is fully expected that economists employed by the business community would conduct surveys and make recommendations that would enhance corporate performance. It is their responsibility to assess costs,including the costs of employee health benefit programs, and make recommendations to control those costs. Making recommendations to improve the social welfare of employees is not in their job description. So it is not surprising that business economists support shifting costs of health benefit programs to employees.
The reason that this report is important is that it is being used by advocates of “consumer-directed” health care to support their cause, as if the findings and resulting recommendations of this survey represented the moral imperative. It does only if you believe that greater corporate profit is a higher moral goal than ensuring the welfare of workers. On the contrary, many of us advocating for improved access and coverage believe that worker welfare must first be ensured, and only then corporate financial adjustments be made to ensure adequate profit. (Of course, the best way of ensuring affordable worker access to health care would be to eliminate employer-sponsored health programs, and to establish a universal system of publicly-funded and publicly-administered social insurance.)
But the NABE economists must bear responsibility for supporting policies
that are clearly insensitive to the health care needs of the workers.When asked for recommendations to improve cost, access and quality, they respond by opposing government involvement and by recommending dumping the problem onto the employees (using the highly deceptive “consumer-directed”rhetoric). Their solution is not responsive to the problems. It shifts cost to individuals, thereby impairing access with an inevitable decline in quality.
When you hear reports that the “nation’s economists support consumer-directed health care,” be prepared to expose the potential impact of these cruel and inhumane policies being supported by the -anti-government sector of economists from the right.
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America's 100 Most and Least Expensive Hospitals

June 11, 2003
Contact: Charles Idelson, 510-273-2246, 415-559-8991 (pg/cell) or the IHSP at 510-267-0634.

h2. New Study Links High Hospital Charges to Higher Profits

The full 48-page report and summary graphs and charts are available on the CNA website at http://cna.igc.org/top200

The nation’s most expensive hospitals are also the hospitals which are racking up the highest average profits, according to a comprehensive new research report by the Institute for Health and Socio-Economic Policy (IHSP) commissioned by the California Nurses Association.

Included in the report is a listing of the 100 most expensive and 100 least expensive hospitals, based on just released federal cost reports with aggregated data for millions of patient discharges in fiscal years 2000-2001 filed for nearly 4,300 U.S. hospitals.

Surveying all hospital charges for all in-patient and out-patient services and other financial categories, the nation’s 100 most expensive hospitals mark up their gross charges an average of 525% over their costs, a significant contributor to skyrocketing health care costs that are pricing increasing numbers of families out of health care coverage, according to CNA and the IHSP.

For the first time ever, the report also documents a direct correlation between high hospital markups over costs and higher hospital profits or net income. The 100 hospitals with the highest average gross charges also had the greatest average profits, while the bottom 100 on average reported financial losses.
Additionally, the report found links between high charges and the growing corporatization in the health care industry. Only five hospitals in the Top 100 were not part of hospital chains, while 69 of the nation’s least expensive 100 hospitals were not system affiliated.

Size also matters. The larger a hospital as measured by average number of beds, the higher the markup on gross charges over cost, the report found.

Troubled Tenet Healthcare dominates the expensive list, owning the top 14 slots, and 64 of the top 100. Doctors Medical Center in Modesto, Ca., placed first with a sticker price of 1,092% above its costs on hospital services. That means Tenet Doctors would bill $10,920 for a patient’s case where the costs were $1,000. Nearby Doctors Hospital of Manteca was the next highest with average markups of 920%.

HCA – The Healthcare Company ranked second among the top 100 with eight hospitals, followed by Saint Barnabas Health Care System, a New Jersey-based chain with four hospitals in the top 100. Overall Tenet’s hospitals averaged gross markups of 477% over costs. Of some 280 U.S. hospital chains, only Crozer-Keystone, a small system in the Philadelphia area, had a higher average markup than Tenet for its hospitals, with a charge to cost ratio of 585%.

“These numbers, and the wide chasm in billing practices, suggest that some hospitals, particularly those that command large market share, may be inflating gross charges to make windfall profits or net income, while many other smaller facilities are struggling simply to keep the doors open,” said IHSP director Don DeMoro.

Following previous reports by the IHSP/CNA and others, some hospital executives have said that high gross charges were unrelated to net income, DeMoro noted. “This data, reported by the hospitals themselves, identifies a direct association between what the hospitals charge and their bottom line.”

Some hospitals have also contended that their charges are fixed by Medicare or other payers, but a report by the California Public Employees Retirement System earlier this year found that Blue Cross, which administers claims for CalPERS, paid Tenet almost three times more for bypass surgery than it paid to non-Tenet hospitals in California.

CNA President Kay McVay, RN, said the huge markups in hospital bills “drive up overall health care costs for everyone. Patients and consumers are being priced out of our health care system. When we see growing numbers of uninsured and underinsured families, and double digit health care premium increases that encourage employers to drop or reduce health benefits, these outrageous markups are a major contributor to our national health care crisis.”

“While Tenet is not the only offender, these numbers clearly demonstrate that Tenet’s pricing practices encourage other hospitals in the same markets to jack up their prices as well,” said McVay. For example, the highest ranking non-Tenet hospital on the list, Sutter Health’s Memorial Hospital in Modesto, Ca., with an average 597% markup, competes with two nearby Tenet hospitals, Doctors Modesto and Doctors Manteca – the top two among the top 100.

Three states, California, Florida and Pennsylvania accounted for about 64% of the top 100. All three states are dominated by corporate hospital chains. By contrast, New York State, with 194 hospitals in the data set, 188 of which were non-profits, had a statewide average charge-to-cost ratio of 181%, significantly below the national average of 206%.

Tenet’s dominance on the current list is notable for other reasons. Previous reports on Tenet’s billing practices have been on earlier years of public data. Tenet has said in investor conferences that it’s most aggressive pricing strategy did not go into effect until after 2000. “This is the first year of federal data that reflects the effect of the increase with Tenet facilities so far above other hospitals in gross charges,” DeMoro said.

The full 48-page report and summary graphs and charts are available on the CNA website at http://cna.igc.org/top200

America’s 100 Most and Least Expensive Hospitals

June 11, 2003
Contact: Charles Idelson, 510-273-2246, 415-559-8991 (pg/cell) or the IHSP at 510-267-0634.

h2. New Study Links High Hospital Charges to Higher Profits

The full 48-page report and summary graphs and charts are available on the CNA website at http://cna.igc.org/top200

The nation’s most expensive hospitals are also the hospitals which are racking up the highest average profits, according to a comprehensive new research report by the Institute for Health and Socio-Economic Policy (IHSP) commissioned by the California Nurses Association.

Included in the report is a listing of the 100 most expensive and 100 least expensive hospitals, based on just released federal cost reports with aggregated data for millions of patient discharges in fiscal years 2000-2001 filed for nearly 4,300 U.S. hospitals.

Surveying all hospital charges for all in-patient and out-patient services and other financial categories, the nation’s 100 most expensive hospitals mark up their gross charges an average of 525% over their costs, a significant contributor to skyrocketing health care costs that are pricing increasing numbers of families out of health care coverage, according to CNA and the IHSP.

For the first time ever, the report also documents a direct correlation between high hospital markups over costs and higher hospital profits or net income. The 100 hospitals with the highest average gross charges also had the greatest average profits, while the bottom 100 on average reported financial losses.
Additionally, the report found links between high charges and the growing corporatization in the health care industry. Only five hospitals in the Top 100 were not part of hospital chains, while 69 of the nation’s least expensive 100 hospitals were not system affiliated.

Size also matters. The larger a hospital as measured by average number of beds, the higher the markup on gross charges over cost, the report found.

Troubled Tenet Healthcare dominates the expensive list, owning the top 14 slots, and 64 of the top 100. Doctors Medical Center in Modesto, Ca., placed first with a sticker price of 1,092% above its costs on hospital services. That means Tenet Doctors would bill $10,920 for a patient’s case where the costs were $1,000. Nearby Doctors Hospital of Manteca was the next highest with average markups of 920%.

HCA – The Healthcare Company ranked second among the top 100 with eight hospitals, followed by Saint Barnabas Health Care System, a New Jersey-based chain with four hospitals in the top 100. Overall Tenet’s hospitals averaged gross markups of 477% over costs. Of some 280 U.S. hospital chains, only Crozer-Keystone, a small system in the Philadelphia area, had a higher average markup than Tenet for its hospitals, with a charge to cost ratio of 585%.

“These numbers, and the wide chasm in billing practices, suggest that some hospitals, particularly those that command large market share, may be inflating gross charges to make windfall profits or net income, while many other smaller facilities are struggling simply to keep the doors open,” said IHSP director Don DeMoro.

Following previous reports by the IHSP/CNA and others, some hospital executives have said that high gross charges were unrelated to net income, DeMoro noted. “This data, reported by the hospitals themselves, identifies a direct association between what the hospitals charge and their bottom line.”

Some hospitals have also contended that their charges are fixed by Medicare or other payers, but a report by the California Public Employees Retirement System earlier this year found that Blue Cross, which administers claims for CalPERS, paid Tenet almost three times more for bypass surgery than it paid to non-Tenet hospitals in California.

CNA President Kay McVay, RN, said the huge markups in hospital bills “drive up overall health care costs for everyone. Patients and consumers are being priced out of our health care system. When we see growing numbers of uninsured and underinsured families, and double digit health care premium increases that encourage employers to drop or reduce health benefits, these outrageous markups are a major contributor to our national health care crisis.”

“While Tenet is not the only offender, these numbers clearly demonstrate that Tenet’s pricing practices encourage other hospitals in the same markets to jack up their prices as well,” said McVay. For example, the highest ranking non-Tenet hospital on the list, Sutter Health’s Memorial Hospital in Modesto, Ca., with an average 597% markup, competes with two nearby Tenet hospitals, Doctors Modesto and Doctors Manteca – the top two among the top 100.

Three states, California, Florida and Pennsylvania accounted for about 64% of the top 100. All three states are dominated by corporate hospital chains. By contrast, New York State, with 194 hospitals in the data set, 188 of which were non-profits, had a statewide average charge-to-cost ratio of 181%, significantly below the national average of 206%.

Tenet’s dominance on the current list is notable for other reasons. Previous reports on Tenet’s billing practices have been on earlier years of public data. Tenet has said in investor conferences that it’s most aggressive pricing strategy did not go into effect until after 2000. “This is the first year of federal data that reflects the effect of the increase with Tenet facilities so far above other hospitals in gross charges,” DeMoro said.

The full 48-page report and summary graphs and charts are available on the CNA website at http://cna.igc.org/top200

AMA opposes single payer health system

Date: Thu, 14 Aug 2003 12:46:12 -0700
Subject: qotd: AMA opposes single payer health system

American Medical Association
August 12, 2003
AMA opposes single-payer health system
Reiterating the AMA’s position on health insurance, AMA President Donald J.
Palmisano, MD, today said, “A solution to the problem of the uninsured is
desperately needed – but a single-payer health care system is not the answer.”
The AMA strongly disagrees with an article arguing for a single-payer health
care system published in the Aug. 13 issue of the Journal of the American
Medical Association (JAMA), which is editorially independent from the AMA,
and has long-standing policy opposing a single-payer health care system. A
JAMA editorial accompanying the single-payer opinion piece encourages
the exploration and discussion of various new solutions.
http://www.ama-assn.org/ama/pub/article/2403-7951.html
The AMA proposal for reform:
http://www.ama-assn.org/ama1/pub/upload/mm/363/expandinghealthinsur.pdf
Comment: The AMA proposal eliminates employer-sponsored coverage and provides tax credits to “empower individuals and families to choose and control their own coverage.” They propose “promoting a health insurance market that is affordable for individual and family coverage.” They concede that this market model will not result in universal coverage, but instead adopted simulation models that define “full coverage” as 95% of the population.
Rashi Fein, PhD, in the editorial cited by the AMA, called not only for a discussion of alternatives; he called for those who do not join in support
of the Physicians’ Proposal to “develop and propose something better,more
effective, and with fewer untoward side effects.” The AMA proposal is worse,
less effective, and has greater untoward side effects.
The AMA needs to go back to the start of the policy prices by first accepting the essential goals of universality, comprehensiveness,accessibility and affordability. We challenge their policymakers to come up with any model that meets these goals other than a universal, publicly funded, publicly administered, single payer system of social insurance. But we are not going to wait much longer; we need reform now!

How One Hospital Benefited on Questionable Operations

This article from NYTimes.com
How One Hospital Benefited on Questionable Operations
August 12, 2003
 By KURT EICHENWALD

Could it possibly be, Dr. Patrick Campbell wondered, that doctors at his hospital in Redding, Calif., were cracking open the chests of perfectly healthy people?
Dr. Campbell, an internist, first suspected trouble in Redding Medical Center’s cardiology program soon after joining the hospital in 1993, according to papers obtainedby federal investigators. That year, one of his patients underwent open-heart surgery even after the surgeon told Dr. Campbell the procedure was unnecessary. Two years later, another patient received a coronary bypass,though the cardiologist’s report said it was not necessary.
Then there were the numbers – tens of thousands of diagnostic tests, thousands of surgical coronary procedures. The totals seemed more likely for a major
university medical center than for a hospital in a rural community of about 90,000 people.
Dismayed, Dr. Campbell brought his concerns to Stephen E.Corbeil, the hospital’s chief executive at the time. Though Dr. Campbell declined to comment on the meeting and Mr.Corbeil did not return telephone calls, the papers obtained by federal investigators indicate that the administrator’s response was succinct: The young internist, he said, should mind his own business.
Ultimately, Dr. Campbell’s concern proved to be everyone’s
business. Last week, the hospital’s owner, Tenet Healthcare, agreed to pay $54 million to the government to resolve accusations that Redding Medical doctors conducted unnecessary heart procedures and operations on hundreds of healthy patients. Tenet did not admit any wrongdoing and agreed to cooperate with further investigations.
As disturbing as the accusations may be, there would have been a logic to what a patient called Redding’s “little house of horrors” – a logic born of the twisted finances of American health care, which may have made the hospital less willing to hear concerns about two of its highest-billing doctors.
Until federal agents raided Redding last fall, Tenet’s business model was based on maximizing the dollars it could collect from Medicare, the nation’s biggest buyer of healthcare. And Medicare’s complex formulas – the template for private insurers, as well – reward some kinds of healthcare more richly than others, and few more richly than cardiac care.
So it was that two heart doctors at Redding – Dr. Chae Hyun Moon, the chief cardiologist, and Dr. Fidel Realyvasquez,its top cardiac surgeon – became immensely powerful, people who worked there said. Tenet promised investors growing profits, and at Redding, these people said, that required steady growth in cardiac care.
Together, Dr. Moon, who also sat on the hospital’s board,and Dr. Realyvasquez directed the California Heart Institute, the cardiac program that Redding had started in the 1970’s, and it proved to be a bonanza.
`We were constantly being pushed to bigger budgets, and there was no way to do it without the heart institute,” one former Redding administrator said. “People were terrified that Moon would go on vacation, because of the effect a few days would have on the hospital’s financial performance.”
While few doubt the hospital would have responded to explicit evidence of problems in the heart program, like high death rates, the financial pressures created a disincentive to pursue less specific suspicions, people who worked at Redding said.
And there were many suspicions. Besides Dr. Campbell, more than half a dozen doctors, along with medical technicians and patients, expressed concerns to multiple administrators, according to people interviewed and records obtained by investigators. There were also questions of competence: one former executive said that two years ago, a representative of the company whose ultrasound machine Dr.Moon relied on for many of his diagnoses warned that he was misusing it.
But the hospital never conducted the peer reviews that might have confirmed the critics’ doubts. “I sometimes just shake my head at the American system,where the financial intent is almost cleverly designed to create mischief,” said Uwe Reinhardt, a PrincetonUniversity health care economist. “For administrators, it
creates a conflict of interest when they’re trying to deliver the numbers at the same time that doctors are saying the hospital is doing too much cardiac surgery.”
Tenet’s $54 million settlement with the government – the largest ever for accusations of billing federal health programs for unnecessary care – means that the company will not face criminal or civil charges. But the company has been upended by the scandal, the first in a series of events to raise questions about the company’s finances.
Numerous executives, including Jeffrey C. Barbakow, its longtime chief executive, have resigned, and its stock has lost almost three-quarters of its value.
A criminal investigation of Drs. Moon and Realyvasquez is continuing, though no charges have been filed. Their work at the heart institute has been suspended, and Dr. Moon has surrendered his medical license pending resolution of the
matter. Lawyers for each of them say that, while other doctors’ opinions about their decisions may differ, neither did anything illegal.
“Certainly physicians can and do have differences of opinion,” said Matthew Jacobs, a lawyer in Sacramento representing Dr. Moon. “But to base a fraud prosecution on such differences with no other evidence of fraud just doesn’t work.”
Malcolm Segal, a lawyer for Dr. Realyvasquez, said that his client’s decisions to operate were justified. “Dr.Realyvasquez is an outstanding, well qualified surgeon,”Mr. Segal said. “He did everything he was supposed to do and believes that when he provided the surgery to the patients, it was needed.”
For its part, Tenet says that as part of its settlement with the government, it has imposed new checks and balances to ensure that no future problems could occur at Redding.
Harry Anderson, a Tenet spokesman, said the company’s new management had agreed to heighten monitoring and education programs “to rebuild the reputation and services of Redding Medical Center so it may continue to serve that community for years to come.”
Meanwhile, there are hundreds of former patients of the two doctors who now must wonder whether there was any reason for their operations. They are like Shirley B. Wooten, 78, who sought care last year for back and arm pain. After
several tests, she was told she needed emergency bypass surgery, which was conducted by Dr. Realyvasquez.
Complications followed, and Mrs. Wooten, who loved to attend dances with her husband, Bob, and take long driving trips around the California countryside, can no longer write or walk steadily. An independent expert has deemed the surgery unnecessary, and she is suing.
“I had to quit my job to take care of her,” Mr. Wooten said. `Our lives came to a screeching halt after that surgery, I’ll tell you.” Push for Higher Profits
By the winter of 1998, Redding Medical Center was virtually bursting at the seams. A conference room was converted into a patient care area. The emergency room was running overcapacity.
“We were beyond full,” one former administrator said. “We were flying.”
That fiscal year, officials said, the hospital exceeded its budget for pretax profit by almost 50 percent, bringing in more than $50 million. And then at a budget meeting with senior Tenet officials, the order came down: Do better next year.
“We said `We don’t know how to do it unless we have extra capacity,’ ” the former administrator said. “They were pushing for what I thought was ridiculous financial results.” Tenet agreed to invest millions of dollars to complete rapidly the construction of a five-story addition to the hospital. People in town came to call it “the tower,” a symbol of how a once sleepy hospital, founded by a single
local physician in 1945, had truly entered the big time.
The project only heightened Redding’s dependence on Dr.Moon and the California Heart Institute. The son of a family practitioner, Dr. Moon told associates that his
decision to become a doctor had been dictated to him by God when he was a boy. He graduated in 1972 from the Medical College at Yonsei University in Seoul, and completed his internship and residency at Metropolitan Hospital in New
York.
After setting up practice in Redding in the early 1980’s, Dr. Moon rapidly developed a reputation for aggressively pursuing evidence of coronary disease. He also was known for being quick to recommend a cardiac catheterization, in
which a small tube is passed through a blood vessel to examine how a patient’s heart is working.
“His philosophy has always been if you know the anatomy of the diseased heart, you are going to be able to make informed decisions,” said Dr. Bruce Kittrick, an internist at Redding who does not believe the accusations against Dr.Moon. “That is what made him really investigate anatomically most of the people he took care of.”
That willingness to conduct catheterizations and other invasive procedures also helped fuel Dr. Moon’s success within Redding Medical Center. Over time, he became one of the hospital’s biggest money-makers, conducting more than
35,000 catheterizations during his years there, which other cardiologists say is easily many times the number that they would expect in such a time frame.
In the last fiscal year he collected more from Medicare than all but one other cardiologist in Northern California,figures compiled by the program show, billing for almost $4 million in the 12 months ended June 30, 2002. In that year,
Medicare records show, he billed for 876 catheterizations for the left side of the heart, at least four times the number performed by any of his colleagues in Northern California.
By the early 1990’s, Dr. Moon’s success gave him enormous power in the organization. At one point, according to several Redding doctors, a former administrator and investigative records, Dr. Moon earned the reputation for
having been instrumental in persuading Tenet to dismiss one of Redding’s chief executives. The event, which became the stuff of hospital legend, only increased Dr. Moon’s influence, said one former administrator.
“No one would ever want to take him on,” he said. “Moon was Redding Medical Center, and he knew it.” Indeed, Dr. Moon became fond of making that point himself.”Who is Redding Medical Center?” he said in a recorded presentation in the mid-1990’s. And then, participants said, Dr. Moon pointed to himself.
Administrators’ pay grew if Redding’s profits exceeded Tenet’s expectations, so the financial performance of Dr.Moon, Dr. Realyvasquez and their cardiac program was reviewed intently.
As part of a companywide procedure, Redding’s chief financial officer prepared a report each month describing important events affecting the hospital’s returns.
“They noticed everything,” one former administrator recalled. “If Moon’s numbers were off a little bit, they asked about it.”
In turn, Redding did all it could to keep its heart specialists happy. The hospital began an advertising campaign, with mailings and billboards that used tombstones and other images invoking death to persuade Redding residents to be checked for heart disease. It paid nurses to dictate charts for Dr. Moon, who colleagues and former administrators said made little time for record keeping. It
sponsored golf tournaments to promote the heart institute, and sometimes offered Dr. Moon use of its helicopter to fly to the golf course, administrators and doctors said.
The doctors also received particular attention from senior Tenet executives, particularly Thomas Mackey and Neil Sorrentino, according to former Redding executives, doctors and documents obtained by investigators. Mr. Mackey was
ultimately the chief operating officer of Tenet, while Mr. Sorrentino was the head of its California hospitals.
Topping it off were the financial rewards. Former Redding administrators said that, around 1997, Dr. Realyvasquez demanded and was given a lucrative contract, paying him huge sums of money.
“He told us the number he wanted, and we had to work backwards to figure out a way to get it to him,” one administrator said.
Normal checks and balances did not seem to apply to Dr.Moon, Redding physicians said. He was not only head of the cardiology program but also a hospital director. And though he was not board certified in cardiology or internal
medicine – a credential he dismissed as insignificant – he was also head of the hospital’s Cardiology Care Committee, in charge of conducting peer review of his own program’s quality of care.
Court records say that committee rarely, if ever, met.Others Saw Trouble Signs
Across town, Redding’s chief rival, Mercy Medical Center,also took admissions from Dr. Moon. But the staff there was far less impressed with him.
In 1996, one of his patients at Mercy, Charles K. Brown, a 67-year-old man from Anderson, Calif., suffered a stroke while Dr. Moon was performing a catheterization and soon died. Staff members in Mercy’s catheterization lab
complained to the hospital’s medical division, saying that Dr. Moon’s care had fallen below appropriate standards.
According to court records, the staff members said that Dr.Moon left the hospital while the patient was unstable,leaving nurses without clear instructions. A review of the medical chart found no indication that Dr. Moon had taken basic preparatory steps to ensure that Mr. Brown was well enough for the procedure, according to written findings of the medical division.
As a result, the medical division ruled that Dr. Moon would have to be monitored by another doctor. “Leaving the nurses to deal with the complication was inappropriate and a serious quality of care issue,” read aletter to Dr. Moon from the medical division. `You will not jeopardize patient safety.”
Dr. Moon objected, saying in a letter that he had alerted Mr. Brown’s other doctors to his problems and had been assured they were handling his care. The division revised its decision, saying that the monitoring would be limited to two cases and that a letter would be placed in his file.Dr. Moon struck back, announcing in an advertisement in the local newspaper that he would no longer admit patients to Mercy. He then sued the hospital, claiming defamation and
financial harm. The suit was later dismissed.
About the same time, Dr. Campbell, the internist, brought his concerns about Redding Medical Center’s heart program to Mr. Corbeil, then the hospital’s chief executive.
Dr. Campbell arrived at Redding in 1993 and quickly benefited from Dr. Moon’s influence; the cardiologist helped him and three other doctors form a group practice, and pledged that Tenet would provide more than $100,000 toward the group’s start-up costs.
The same year, Dr. Campbell’s worries about the heart center began.. Dr. Moon recommended that a patient, Mary Rosburg, receive immediate coronary surgery, according to papers obtained by federal investigators. A surgeon working with Dr. Realyvasquez telephoned Dr. Campbell, vehemently arguing that no surgery was needed. Dr. Moon’s view prevailed, and the once-reluctant surgeon performed the operation. Ms. Rosburg died from complications several
months later.
In 1995, another of Dr. Campbell’s patients, Emma JeanMontgomery, came under the care of Dr. Moon’s team. An associate of Dr. Moon informed Dr. Campbell that the patient had severe coronary disease and needed immediate surgery, which Dr. Realyvasquez performed. Afterward, whenDr. Campbell reviewed the medical chart, he found none of the evidence of serious heart problems that Dr.Realyvasquez had described, according to records obtained by federal investigators.
Dismayed, Dr. Campbell took Ms. Montgomery’s records to another local cardiologist, Dr. Roy Ditchey, who was astounded to hear that the patient had undergone surgery, according to information obtained by federal investigators.
It was then that Dr. Campbell approached Mr. Corbeil, but the administrator dismissed his concerns, papers obtained by the investigators say. Dr. Campbell, who still practices in Redding, has since filed a suit on behalf of the government, under the federal whistle-blower statute, which remains under seal.
When faced with credible concerns about a program, health care experts said, it is commonplace in the hospital industry to bring in an outside group to conduct a review.
“Most hospital administrators are very responsible,” said Evelyn Baram-Clothier, executive director of the American Medical Foundation for Peer Review and Education. “I have administrators who call us to review departments just to be
sure they’re O.K.” In the fall of 1996, Mr. Corbeil was succeeded by Kenneth Rivers. The following spring, according to court documents and records obtained by federal investigators, a group of doctors including Dr. Campbell, Dr. Kittrick and two others approached him to discuss the cardiac program.
According to the papers, Dr. Kittrick spoke for the group and asked for an independent peer review of the cardiology program, to determine if the catheterizations were reliable. Mr. Rivers replied that he would have to ask
Tenet’s lawyers whether such a study would violate patient confidentiality, the records say.
No such study was ever done, according to doctors at thehospital. As new administrators arrived, the same pattern was repeated. According to court papers and other records, Dr.Roy Pick, a local cardiologist, approached Mr. Rivers’s successor, Stephen Schmidt, and Mr. Schmidt’s replacement,Hal Chilton, the current chief executive. Each time, Dr.Pick, who had reviewed the records of some of Dr. Moon’s patients, raised concerns about the heart program and asked
for an independent peer review. None was undertaken.
Dr. Pick and Mr. Chilton did not return calls seeking comment. A phone number for Mr. Schmidt, who has since retired, could not be located. Phone numbers found through a computer search for Mr. Phillips, Mr. MacKay and Mr.Sorrentino were all disconnected.
Dr. Thomas Drakes, a board-certified oncologist who worked at Redding for two decades and taught at the University of California at Davis, said he, too, raised his concerns withMr. Schmidt, with little result.
“Here I am, a guy on his staff who has some credibility,and I go to Schmidt and tell him he’s going to have a `60 Minutes’ episode on your hands here if you don’t dosomething,” Dr. Drakes said. “He just said, `Don’t worryabout it.’ ”
But, by 2002 the secrets at Redding Medical Center were about to burst into public view. Differing Diagnoses Last year, the Rev. John Corapi decided, at 55, to have acardiac stress test at Redding. He passed the test, but Dr.
Moon still suggested a trip to the catheterization lab. While Father Corapi, a Roman Catholic priest, was still on the table, Dr. Moon broke the news: He needed an emergency triple bypass. According to Father Corapi, the doctor said
he had three dissecting arteries, a critical condition. Still, Dr. Moon suggested waiting for surgery until the next week, when Dr. Realyvasquez returned.
Anxious, Father Corapi said that he telephoned a friend in Las Vegas, Joseph F. Zerga, an accountant who had close contacts with a cardiac unit at a local hospital. He persuaded Father Corapi to come to Nevada for the emergency
surgery. But when he got to Las Vegas, the heart specialists were confused. “While I was being processed in, the cardiologist there said, `Excuse me, what are we bypassing?’ ” said Father Corapi, who, like Dr. Campbell, has filed a
whistle-blower suit.
Back in Redding, Father Corapi and Mr. Zerga met with hospital officials, who said that two cardiologists had reviewed the records and agreed with Dr. Moon’s findings, though they declined to name the doctors. “I expected the hospital to be extremely concerned over this situation,”Mr. Zerga said. “But they weren’t.”
When further discussions with the hospital proved unsatisfactory, Mr. Zerga contacted the Federal Bureau of Investigation. Within days, agents found their way to Robert G. Simpson, a lawyer in Redding for whom Dr. Moon had recommended a four-way bypass last summer. Mr. Simpson had challenged Dr.Moon’s diagnosis after getting a secondand a third opinion. Mr. Simpson has since been interviewed by federal investigators and is now representing numerous patients suing Redding.
Four months after being contacted about Father Corapi,federal agents raided the hospital. For Tenet, it was as if the roof were suddenly falling in.Near the time of the Redding raids, the company was hit with other financial body blows that raised the same question: Was Tenet really as successful as it had long appeared? Or had it just profited from multiple methods -including unnecessary surgery at Redding – of gaming the Medicare system?
On Oct. 28, Kenneth Weakley, an analyst with UBS Warburg, reported that Tenet was heavily dependent on special Medicare payments for particularly sick patients. These”outlier” payments accounted for about 24 percent of Tenet’s base Medicare payments for overnight stays, Mr.Weakley wrote, triple the amount three years earlier.
That same day, the federal Department of Health and Human Services notified Tenet that it would be auditing its hospitals to see if the company had been improperly manipulating its outlier payments. The company failed to disclose the information publicly for more than a week, later saying it had waited until it had more specifics.(The overpayment allegations were not covered by the $54
million settlement.)
As the events unfolded, the nature of the outlier problem became clear. Tenet hospitals had been rapidly increasingtheir retail charges – amounts actually paid by very few people who have procedures without insurance. But those
numbers are used in determining outlier amounts. In essence, Medicare was paying Tenet more for treating sicker people, when in fact all Tenet was doing was charging higher prices.
Under pressure from investors, Tenet in early November disclosed that it received $763 million in outlier payments in the 2002 fiscal year, much of it from 11 hospitals that had ramped up retail charges. Seven of those 11 hospitals
are in California.
Among that group is Redding Medical Center. According tofederal data, outlier payments to Redding were off the charts. Medicare projected that it would pay 5.1 percent of its total standard payments for inpatient care at all hospitals to outliers. At Redding, in fiscal 2002, the payments instead reached 118.6 percent, or $55.7 million.
Indeed, the problems at Redding seem to infuse the repeated scandals at Tenet. Two of the company’s biggest allies of Dr. Moon and Dr. Realyvasquez were soon gone. Mr. Mackey, the company’s chief operating officer, left in November
amid reports that he was an architect of the company’s pricing strategy. Then, in March, Mr. Sorrentino, head of the company’s California hospital operation, also departed.
As the scandals unwound, with pricing strategies changing and the cardiac program suspended, Redding’s finances fell apart. According to data filed with the State of California, total net patient revenue at Redding for the first quarter of
this year (the latest data available) dropped almost in half from the period last year, falling from $61.1 million to $31.2 million. All told, more than 75 percent of that decline came from the drop in Medicare payments, which fell by $23 million. Indeed, the numbers at Redding raise questions about how problems at the hospital could have been missed. The state filings show, in the 12 months ended June 30, 2002, Redding Medical Center generated pretax net income of $94 million, more than any other of Tenet’s 40 hospitals in California.
Just down the street, the larger Mercy Medical Center reported pretax net income of about $5 million in the same period.
“When those types of numbers get reported back to the home office, does everyone stay willfully blind and declare a holiday, or does someone say, `Let’s postpone the celebration and take a hard look at these,’ ” said Neil Getnick of Getnick & Getnick, which specializes in business integrity counseling. “Part of business integrity is creating reasonable expectations amongst shareholders of
what kind of profits you can achieve, and what we have seen with Tenet indicates that the company departed from that basic model.”
In that, analysts say, is the essence of the problem.Different hospitals can be run more efficiently, but ultimately, health care is a commodity; the science
available at one hospital is the same across the street. The industry itself is more than a century old. Yet Wall Street expects and rewards double-digit earnings growthfrom hospital companies, something analysts say is unsustainable.
“The hospital industry is by its very nature a mature industry,” said Mr.Reinhardt, the Princeton economist. “Itis not a high-margin business. It can’t be a growth
industry like some Internet company. That is just unreasonable.”