Hospitals Cut Costs, the Poor Bleed : ‘Competitiveness’ Works Only With Paying Patients

Hospital costs in California have been rising with such staggering velocity over the last decade that any let-up in the pace is likely to be viewed as cause for elation.

A survey recently released by the California Health Facilities Commission suggests that the rate of hospital cost inflation in 1985 climbed by less than half the 1982 rate. A second study, by the Office of Statewide Health Planning and Development, shows a mere 1% rise in the average amount that Californians spent on hospital care between 1983 and 1984. So welcome were these reports that they were trumpeted in front-page headlines and hailed by the budgeteers in Sacramento as proof that Gov. George Deukmejian’s “competitive model” for health-care financing is really working. But what is the price paid for this apparent check on the rate of hospital-cost inflation? And who is this approach really working for?

The cornerstone of the “competitive model” is a hands-off policy toward hospital expansion. Whereas the state once held hospitals to a stringent certificate-of-need process designed to thwart unnecessary or inappropriate construction, that process now results in what one health-financing expert calls a “certificate of want”: If you want to expand, all you have to do is file the necessary papers and the state gladly gives you the go-ahead. Consequently, the profit-oriented chains, which are rapidly taking over the health-care marketplace, invest their resources in areas in which facilities may not be needed, but where they can find the greatest concentration of well-heeled, paying patients.

In effect, hospitals are being tacitly encouraged to direct capital expenditures toward the construction of ever more elaborate, technologically sophisticated facilities. Thus they can position themselves to compete more aggressively for the pool of privately insured patients who generate the greatest revenues.

But what about public hospitals and other providers that serve low-income and uninsured people? One of the easiest ways for private hospitals to cut costs is to skimp on the free care that was once their responsibility to provide to the poor. Public hospitals have no such option. As the easily diagnosed, paying patients are lured elsewhere, public hospitals are left with an increasing number of uninsured, medically indigent and non-reimbursible cases. Their patient loads multiply while their physical plants deteriorate, their operating costs go up and their revenues decline.

The state’s laissez-faire attitude toward this situation is a local version of the deregulatory spirit now emanating from Washington. According to Larry G. Meeks, director of the Office of Statewide Health Planning and Development, the governor’s “competitive model” already is succeeding in “encouraging real competition in the health-care delivery industry.” Perhaps so, but it is a competition that works only for providers willing or able to think of themselves as an “industry,” greedily vying for consumer dollars like so many auto dealers or department stores. The state’s “competitive model” does nothing for indigent patients except make their care more difficult, more expensive and more unlikely.

By causing health delivery to become further splintered between those who can and cannot afford to pay, the “competitive model” exacerbates the plight of poor consumers already victimized by other forms of belt-tightening. As state and federal entitlement programs are curtailed in the name of tax-cutting and deficit reduction, less money becomes available to public hospitals dependent on reimbursement from Medicare and Medicaid.

As health-maintenance organizations and major insurers such as Blue Cross and Blue Shield are forced to negotiate less costly contracts with big employers, they trim the surplus charges once used to pay for charity care. In some states, such as Maryland and New Jersey, where stricter regulatory policies are still being enforced, the mechanisms for fair treatment of the poor and uninsured remain intact. But in California, where the conventional means of financing care are being scuttled with no alternative methods to take their place, the ill effects of hospital competition are proving especially onerous.

Champions of the “competitive model” may take delight in statistical evidence that they are reining in hospital costs. When costs are contained at the expense of the state’s needier citizens, however, the toll is paid in human suffering. The “competitive model” is a euphemism for “survival of the fittest.” As fiscal policy it may temporarily succeed in shaking up the hospital industry. As social policy it succeeds only in offending common sense and denying common decency.