The sale of teaching hospitals to for-profit chains will erode free care for the poor and medical research that teaching hospitals finance out of profits, according to a study in the New England Journal of Medicine.
The study added that the decline in research and in care for the poor would occur even if special endowments were set aside, which sometimes is done as a condition of sale of teaching hospitals in order to fund such activities.
As one example, the authors cited Wesley Hospital in Wichita, Kan., which was sold to Hospital Corporation of America (HCA) for $265 million, $170 million of which was set aside as a trust fund to pay for treatment for indigents and research. The authors have calculated that because of medical cost inflation, the entire trust fund will be depleted within 17 years.
The study, by five researchers at the Johns Hopkins Center for Hospital Finance and Management and reported in the latest issue of the journal, included a detailed review of several recent transactions in which teaching hospitals were sold to corporations.
Because any new profits from hospital operations go to the purchaser, no funds would be available to support care for the indigent and research unless the purchaser voluntarily agrees to continue such contributions, the authors said.
The argument that for-profit chains can run large teaching hospitals more efficiently and therefore have something left over for charity is questionable, the authors say, because studies suggest that investor-owned hospitals charge more for identical services.
Michael D. Bromberg, director of the Federation of American Hospitals, representing 1,200 for-profit hospitals, challenged these predictions. "The companies are going to lean over backwards to make these hospitals their flagships and to continue indigent care and teaching programs," he said.
There is a growing trend for huge for-profit hospital chains such as Humana Inc., HCA and American Medical International (AMI) to acquire large nonprofit teaching hospitals with the expertise, equipment and staffing that enables them to handle the most complicated cases, the authors said.
Contrary to popular notions, some of the teaching hospitals are operating at an annual surplus and have traditionally used that surplus for community services. For example, the study said, Wesley, a 760-bed facility, produced a $13 million surplus in 1984 and was using about half of that to subsidize free services to the poor and research and training.
The 1,000-bed Presbyterian-St. Luke's Medical Center in Denver, purchased for about $175 million by AMI, was expected to show a surplus of $17 million, the study said.
The authors found that the trustees of teaching hospitals agree to sell because of fear that in the current national campaign to squeeze hospital costs and limit new building, they may have difficulty in maintaining profitability and obtaining capital.
The study said chains buy such facilities because teaching hospitals usually are large and have high occupancy rates and high gross revenues. These numbers boost the chain's overall growth figures and thus buoy prices for the chain's stock and enhance its ability to obtain capital. "The big thing for the hospital holding companies is buying earnings," said Gerard Anderson, principal author of the study.
In addition, the study said, it is good public relations for a for-profit chain to be associated with a prestigious teaching hospital.
Also, the chain gets a first-class facility for handling complex cases within its own system, instead of having to lose patients with complex medical problems to other hospitals.