For those who forecast healthcare trends, finding reasons to tell people what they want to hear is a constant temptation. Stuart Altman and David Shactman gave in to this temptation when they told readers in their March 8 commentary ("More beds for boomers," p. 32) that "conservative" utilization estimates will cause an almost 20% increase in inpatient hospital capacity in the next seven years.
Certainly to extrapolate utilization increases based on the 1999-2002 surge makes some dangerous and unrealistic assumptions. The most dangerous assumptions: the willingness of employers to continue funding 12% to 15% annual increases in benefits indefinitely without changing benefits strategy and the assumption that most health services will remain, as they are today for many consumers, essentially "free" to the user.
The 1987-1998 period Altman and Shactman cite as foretelling future bed need also witnessed a sharp reduction in the consumer's share of the total healthcare bill, a trend that coincided with (or indeed resulted in) sharp managed-care enrollment growth. Consumers paid 21.4% of the nation's healthcare bill out of pocket in 1988, and only 13.7% in 2002.
With sharp increases in copayments for hospital care and the cost of family coverage in 2003 and 2004, this fire sale on health services is clearly over. Consumers will pay more of the healthcare bill directly, and the rise in bad debts of hospitals all across the country is a direct result. Any employer movement toward "consumer directed" health plans will only increase consumer sensitivity to health costs and retard hospital use. The demographics Altman and Shactman cite are a powerful force but glacial in their effects. Even making allowances for the impact of the obesity epidemic, the real hospital inpatient use pressures of the baby boom generation are still two decades away.
Altman and Shactman are correct that technology will absolutely increase the use of health services, but the vast majority of that demand increase will be ambulatory in nature. Other than bariatric surgery (only 100,000 procedures in 2003), it is difficult to name a single emerging technology that is increasing the demand for inpatient hospital use.
Clearly, some hospitals are going to need increased inpatient bed capacity in the next decade. They include facilities in rapidly growing Sunbelt communities and facilities that are beneficiaries of closure or consolidation of competing facilities. Also, if health plans pay more for high-quality care, or provide economic incentives to patients to shift their care to higher-quality hospitals, those hospitals will probably need to expand capacity to accommodate new patient volume. However, these institutions will be the exceptions, not the rule. Building beds based on shoddy planning assumptions will only exacerbate an already serious capital shortfall.
Owning up means selling out
In December 2003, Modern Healthcare examined the practice of operators "owning up," wherein hospital management firms acquire the hospitals they are managing ("Operators are owning up," Dec. 8, 2003, p. 28). This practice has recently been employed in North Carolina's Harnett County where Good Hope Hospital has become the target of Triad Hospitals. The rub? Good Hope is managed by Quorum Health Resources, a subsidiary of Triad.
Good Hope, like many hospitals managed by Quorum, is a not-for-profit hospital. As such, its assets are public and belong to the community. Under state law, the sale or other disposition of public assets is a public process. Where a seller and buyer are largely indistinguishable from each other, the public nature of this process is compromised.
When an operator contemplates owning the nonprofit healthcare facility it is managing, its first priority should be to ensure transparency of the acquisition process. If the process lacks transparency, the public is unable to discern whether the transaction best serves its needs and ensures access to healthcare. In view of the many questions raised by community members in Harnett County, Triad has evidently failed in this crucial mission.
Healthcare consumers in Harnett County know relatively little about the process that led Good Hope to enter a joint venture with Triad. What they do know is what has been relayed to them via a less-than-objective local media, Triad-led forums and Triad-commissioned polls. Triad plans to relocate Good Hope from Erwin, N.C., to Lillington, N.C. According to Good Hope's chief executive officer, Don Annis, this replacement-hospital project has garnered local support because of the clear need to replace the Erwin hospital and because of the economic benefits from the 64-acre development in Lillington. But when Annis speaks of benefits, one might ask for whom?
Furthermore, moving Good Hope may benefit the facility's balance sheets at the expense of the community. According to 2000 census data, the median home value in Lillington was $91,000, compared with $68,400 in Erwin. The median household income is also higher in Lillington than Erwin. Erwin is marked by a slightly older population as well. While it may make "business sense" for a hospital to cater to a younger, wealthier population, it does not make sense from a healthcare perspective that a hospital will relocate in such a way as to make it more difficult for the older, poorer and likely sicker populations to access needed hospital services.
Finally, placing Good Hope under the day-to-day management of a for-profit interest may put needed services at risk. Good Hope houses the only psychiatric beds in Harnett County. Psychiatric beds are largely unprofitable for hospitals, leaving them vulnerable to cuts.
It is imperative that a not-for-profit board examines these issues. A not-for-profit board's fiduciary duties in an "owning-up transaction" extend beyond merely obtaining fair market value for the tangible assets. The board must also conduct open bidding and seek to obtain the fair value of the community benefits provided by the facility. That value is best defined by the community served by the healthcare facility. A not-for-profit hospital board cannot fully establish these benefits unless it allows community members to participate in the decision to transfer ownership.
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