University of Cincinnati Hospital is considering becoming the first hospital of its type in more than 10 years to convert to a private, not-for-profit facility.
The 695-bed hospital wants freedom from rules governing state agencies that it says raise its costs and prevent it from being a full partner in the Health Alliance of Greater Cincinnati, a consortium of four hospitals.
The alliance, which University of Cincinnati Hospital joined last year, wants to consolidate purchasing and other services and unify employee benefits and human resources policies among its members.
Several university hospitals have changed their legal structures in recent years to eliminate red tape or to access capital (See chart). However, no public teaching hospital has switched permanently to a private corporation since 1984, according to MODERN HEALTHCARE research.
University of Cincinnati Hospital receives no state funds but still must follow rules designed to oversee spending by state agencies, said Donald Harrison, M.D., senior vice president and provost for health affairs.
As a result, he said, it costs 25% to 30% more to treat a patient at the hospital than at others in the alliance. Some of the difference is medical education costs, which are reimbursed by Medicare and Medicaid. The remainder, a gap of 15% to 18%, must be reduced to make the hospital a viable contracting partner, Harrison said.
Executives believe the hospital can save money by running its own retirement plan, avoiding state approval procedures for construction, and moving labor grievances to the National Labor Relations Board rather than the state's labor board. Harrison said using the NLRB would be less time consuming.
"Those things cost us a lot of money and cost us a lot of grief," Harrison said.
The hospital is the only one in the Cincinnati area that's unionized. Unions representing the hospital's workers, fearing pensions and benefits could be cut, have opposed the restructuring. Unlike a state institution, a private corporation would not be required to recognize the Committee of Interns and Residents, which represents about 530 hospital house medical staff members, CIR organizer Jeffrey Rugg said.
The unions have joined with community and religious groups to form the Coalition to Preserve Public Health Care, an opposition group working to protect indigent care in the community. The coalition contends the hospital has no financial need to privatize.
The hospital reported net income of $18.4 million on revenues of $338 million in the fiscal year ended June 30, 1995. It has $401 million in assets and ranked ninth among the top 10 cash-rich acute-care hospitals in 1994, with $226.3 million in cash or cash equivalents (Oct. 23, 1995, p. 40).
Opponents argue that privatizing would make the hospital less accountable to the public by releasing it from the state's open records act. However, such confidentiality also offers a business advantage because it shields managed-care contracts from competitors.
Robert Dickler, senior vice president for healthcare affairs at the American Association of Medical Colleges, said teaching hospitals can't wait for a financial crisis to restructure.
"Nobody says a lot when a current not-for-profit organization reorganizes to become more effective," Dickler said. "We give a lot of scrutiny to public hospitals that want to do the same thing."
He said restructured teaching hospitals have upheld their teaching and indigent-care missions through legislative statutes and bylaws.
The university hospital in Cincinnati receives about 10% of its revenues from a special tax levy for indigent care. That levy is up for renewal by voters of Hamilton County, Ohio, in November.
The hospital is trying to convince the public that wresting control from the state will help it use those tax dollars more efficiently. But opponents of privatization say voters might defeat the levy if they see the money going to a private institution.
Deborah Schneider, regional director of District 925 of the Service Employees International Union, said public oversight might be maintained if the hospital was instead transferred to a public authority, with board members appointed by elected officials.
Harrison said he explored both transferring the hospital to a private corporation, which would lease the assets, and creating a public authority. He said the hospital opted for a private corporation when it learned it wouldn't require approval from the state Legislature.
The hospital hasn't said who would appoint the corporation's board members.
At least two other public university hospitals in the country have privatized: Shands Hospital at the University of Florida-Gainesville in 1979 and West Virginia University Hospitals at Morgantown in 1984.
A public hearing on the Cincinnati privatization is scheduled for May 28. The university's board of trustees is expected to vote June 25, in time for implementation by Jan. 1, 1997.