Depending on who's talking, for-profit healthcare companies are seen as financial saviors, roguish profiteers or something in between.
Consumer and public health advocates worry that for-profit chains are robbing local communities of charitable assets and sacrificing mission for the monetary gain of a few. Meanwhile, defenders of investor-owned companies praise their fast and efficient reaction to market changes.
More than two dozen healthcare experts argued the merits and demerits of not-for-profit and for-profit sponsorship at a conference late last month on the future of healthcare in the state of New York. The meeting was sponsored by the Hospital Trustees of New York State.
What emerged from the daylong discussion were a number of thorny issues concerning the market's ability to ensure access to care to the poor and uninsured, and the government's role in establishing the framework in which not-for-profits and for-profits will compete.
Worries about the erosion of not-for-profits' mission were summed up in one memorable line delivered by Monsignor Charles J. Fahey, a senior associate at Fordham University. Said Fahey, "The hidden hand of Adam Smith...is the hand of a proctologist as far as the poor are concerned."
But when it comes to capital, for-profit sponsorship is clearly an advantage. Like it or not, for-profits are financing an ever-expanding slice of the healthcare pie.
Wall Street is giving the for-profit side all the capital it needs, said Michael R. Irwin, a director in the public finance department of Smith Barney in New York.
Because of its monetary value, healthcare is different from other not-for-profit charities, observed California Assemblyman Phillip Isenberg (D-Sacramento), the author of state legislation to require not-for-profit healthcare corporations that convert to for-profit status to reimburse taxpayers for years of tax-free benefits. "Nobody wants to sell the Boy Scouts or Girl Scouts on the market," he said.
But plenty of investor-owned companies are scouting for healthcare opportunities to increase shareholder value, and they can easily do it by entering inefficient markets such as New York state, experts said. As the state prepares to deregulate hospital rates, there's also talk of lifting the Empire State's longstanding prohibition against investor-owned chains owning hospitals.
Some observers believe for-profit chains will latch onto the opportunity as soon as the state topples legal barriers, but Thomas Scully, president and chief executive officer of the Washington-based Federation of American Health Systems, said that may take two to three years.
Even if New York changed the law tomorrow, "I don't think you'd see Columbia (enter the market) for a long time," said Scully, whose association represents 1,700 investor-owned and managed hospitals and healthcare systems. He believes plenty of acquisition opportunities remain for the big for-profit chains in the West and Southwest, where there is less resistance to for-profit corporations doing business.
Columbia/HCA Healthcare Corp., the nation's largest for-profit healthcare chain, recently has expanded into the Northeast, taking an 80% stake in MetroWest Medical Center, a two-hospital system based in Framingham, Mass. The company also has entered discussions with Jersey City (N.J.) Medical Center.
To many it's a question of when, not if, state government will allow for-profit corporations to enter the fray in New York.
"You people are suffering from mural dyslexia-inability to read the handwriting on the wall," Isenberg quipped. Society's ability to do good in the healthcare field is likely to be focused on what to do with the charitable assets remaining "after the inevitable conversion" of many not-for-profits, he said.
In deciding whether to sell to a for-profit, not-for-profit hospital trustees must weigh the impact on tax status, charity care, community programs and services, cost of care, availability of services, quality and other factors, said Molly Joel Coye, M.D., who served as senior vice president of San Jose, Calif.-based Good Samaritan Health System until January, when it was acquired by Columbia.
When Good Samaritan's board went through the exercise of weighing not-for-profit ownership against for-profit control, few substantive differences emerged. For example, there was no reason to believe that quality would deteriorate, Coye said. And since Good Samaritan offered very little charity care compared with the area's public hospitals, no change was expected. On the positive side, selling to Columbia would net $7 million a year for the community, she said.
Ultimately, Good Samaritan's decision to sell to Columbia was swayed by the need to have more leverage in the market, the need for capital and the need for economies of scale, Coye said.
"One of the facts of life for the next 10 years is going to be eliminating excess capacity," she said. If hospitals don't sell to for-profits, they'll have to align with other not-for-profits, she said. With not-for-profits, it takes longer to get things done, and boards will have to struggle with the politics of naming the new organization and deciding how to invest assets, she said.
In general, hospitals' net worth will decline over time "because we need fewer hospitals," Coye asserted. If hospital boards delay action, they may lose an opportunity to capture the value of those assets and put them to work for the community before the value erodes, she said.
Harry Snyder, co-director of Consumers Union's West Coast regional office, rejected the argument that Good Samaritan's value would be nil unless it made a deal. He charged that the CEO and board of trustees were not up to the task of turning around the system, which lost more than $40 million in fiscal 1995. Columbia paid $185 million for Good Samaritan, including $129 million to repay debt.
Reflecting on the board's decision to sell, Coye acknowledged that in severely overbedded markets, "the greater community benefit" might come from shutting one or more hospitals, enabling competing systems to become stronger.