Profits in hospital care: how good an Rx? . Big merger of hospital, supply firms sparks a debate on the private route
It was billed as the ``great debate'' -- a verbal shoot-out pitting the chief executive of the largest hospital company in the United States against the leading critic of for-profit hospitals. The debate was held here earlier this week in the wake of the biggest health-care merger to date: the union of Hospital Corporation of America of Nashville and the American Hospital Supply Corporation of Evanston, Ill. Both are the largest in their respective fields.Skip to next paragraph
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The merger, which represents a vertical integration of the medical-supply business with the hospital-care business, comes at a time when occupancy rates in United States hospitals are falling and earnings growth of some private medical corporations is slowing.
Dr. Arnold S. Relman, editor of the New England Journal of Medicine, debating Dr. Thomas F. Frist Jr., head of Hospital Corporation of America (HCA), contended that not all for-profit hospitals are more efficient or charge less:
``What they save on the [hospital] `hotel' functions they spend on the headquarters functions, on acquisitions and marketing and advertising and everything else big corporations do. . . .''
Dr. Relman cited industry- and state-sponsored studies to show that charges in for-profit hospitals on average were 10 to 20 percent higher. He also pointed to potential conflicts arising from meeting earnings expectations of investors and providing good-quality health care to the poor.
Dr. Frist retorted: ``I have never said we were a low-cost provider nor a high-cost provider. The question is, can we continue to uphold the standards of a quality product . . . and still survive and prosper in this new pro-competitive environment?''
Frist agreed he was ``uncomfortable'' with aspects of the commercialization of medical care and with some of his company's marketing strategies. But he said that ``the real world'' is competitive and ``we have to position ourselves to continue to provide the quality health-care product.''
Last Sunday HCA announced the plans to merge with American Hospital Supply Corporation (AHS). The $6.6 billion friendly merger is the largest outside the oil industry. The merger is seen as strengthening both companies at a crucial time.
In the last decade or two, investor-owned health-care companies have been proliferating and snapping up hospitals. Some 15 to 20 percent of all US hosptials are now owned or managed by for-profit companies. The payment structure of medicare (federal medical support for the elderly and the young) and medicaid (federal medical support for the poor and disabled of any age) has enabled these companies to flourish.
Even critics of for-profit hospitals say their success has brought improvements to a health-care system with massive problems. Dr. Stanley Wohl, in his 1984 book, ``The Medical Industrial Complex,'' writes that health care had become ``a haphazard unaffordable compendium'' of ``ivory tower . . . decaying . . . mismanaged'' government-supported hospitals.
But competition has brought change. The for-profit hospitals are often credited with forcing the non-profits to run tighter ships. More important, the medicare system no longer pays a percentage of medical costs. Instead, hospitals get a fixed fee for designated procedures. If they can perform the services for less, they make a profit. If not, they absorb the loss.