Hospitals could afford RN law if they wanted

pickledpepperRN · Mar 1, 2004

Sacramento Business Journal - March 1, 2004

http://sacramento.bizjournals.com/sacramento/stories/2004/03/01/editorial4.html

OPINION

From the February 27, 2004 print edition

Another Voice

Hospitals could afford RN law if they wanted

Don DeMoro

Hospital industry critics of California's new law that requires minimum hospital ratios of registered nurses frequently rely on claims that, generally speaking, hospitals cannot afford to adhere to the law.

If we knew the right economic facts, they hold, we could resolve the healthcare crisis and provide safe RN staffing for all patients -- insofar as budgets allow.

But the core problem isn't a lack of knowledge of "economic data points." It is the demand for the impossible -- an attempt to economically legitimize the clinically illegitimate through a misplaced insistence on meeting the demands of the market rather than the needs of patients.

Ultimately, the real issue boils down to values and choices, who made them, who didn't, and who must live -- or perhaps even die -- with them.

The hospital industry is increasingly a victim of its own ideology -- the alleged magic of the market that will assure that patients will have access to the appropriate staffing and the best quality care.

That blinding ideology has been central to the industry's misreading on the limits of fiscal and clinical prudence, allowing it to squander billions on mergers, caregiver-skill-destroying technologies, and executive perks in pursuit of the elusive industry dual Holy Grails of market share and profit margin.

While awaiting market magic, the hospital industry wants to keep and enlarge on its past choices. It demands that the patient population settle for less -- less access to care, less quality of care, less dignity, less of life's pleasures, perhaps no life at all -- so that it can continue its hapless pursuit of market share and rebounding profits.

Some hospitals are more equal than others

Industry tales of universal hospital financial woe clash with data the hospitals themselves report to the state.

In 2002, the latest full year available, 427 hospitals reported data to the Office of Statewide Health Planning and Development. Of that number, 411 fall into the category of "comparable" hospitals. This excludes Kaiser Permanente, which is not required to report individual hospital data; longterm care facilities; psychiatric hospitals; and state hospitals.

Comparable hospitals held 90 percent of the acute care beds in the state, with Kaiser controlling almost all of the rest. The comparable hospitals as a group reported net income of about $3.4 billion for 2002. Kaiser reported about $476 million. Total profits for all hospital types combined was about $3.9 billion for the year.

Big hospitals and chains with lots of acute-care beds tend to do well, and smaller hospitals with fewer beds fare economically less well. Of the 380 hospitals with at least one acute-care bed (again, excluding Kaiser), the smallest hospitals, some 40 facilities with 27 acute-care beds or fewer, collectively lost about $6 million.

By contrast, most of the others made money. The 38 largest hospitals with at least 335 beds had an average profit of about $48 million, with a combined total profit of $1.8 billion, or about 48.7 percent of the statewide total of $3.9 billion.

Profits tend to get the ink, but there are plenty of other ways to judge the financial health of hospitals, such as total assets, or liquidity ratios, or bad debt, or charity care, or large one-time deductions from revenue or cash reserves. One could examine any number of "economic data points" and their interrelationships, but would still be left with a heap of economic statistics that some would like to substitute for clinical legitimization.

However, even working from the limited framework of net income, almost 4 billion California dollars in hospital profit were churned up in 2002. That would hire about 66,700 full-time RNs for a year at a $60,000 base pay, or pay for the worst-case-scenario hospital industry public display of hand-wringing over RN staffing ratio costs statewide for about the next 10 years.

Big profits

The recent hospital industry public gnashing of teeth and fiscal hand-wringing have their origins in the passage of the 1997 Balanced Budget Act, which cut hospital Medicare payments because they were at an all-time high -- hospital profits nationally totaled about $22 billion that year. Industry fiscal hysteria and dire warnings about closures had nothing to do with minimum RN staffing ratios. And still don't.

The act coincided with a rising tide of hospital profits which had hit record levels for eight of the nine preceding years. That profit "dropped" to $15.4 billion in 2000, but was still nearly double the $8.2 billion in profits in 1990. National hospital profits from 1986 through 2000 total $196 billion.

During the interim, hospitals in general, but large publicly traded for-profits in particular, went on a concerted campaign to raise their "list prices." That move enabled them to become eligible for higher payments from Medicare in the form of "outlier" payments.

Those same high list prices also netted the industry substantially more in payments for insurers in what are known as "stop-loss" payments, the corollary of Medicare outlier payments, which are meant to compensate hospitals from unusually costly cases.

California leads the nation in high list prices, charging more than $3 for every $1 they incur in costs. Nationally, hospitals charge about $2 for every cost-incurred dollar.

In 1994, the easing of the Sherman Anti-Trust Act -- specifically for the healthcare industry to build "economies of scale" -- set off a hospital merger and acquisition frenzy. From 1993 through 2003, the national value of publicly announced hospital deals alone was about $140 billion. In California for the same time period, the figure is about $20.4 billion, with an average price paid per bed of about $338,000.

That $20 billion is equivalent to hiring about 333,000 RNs for a year at very generous base salary levels. It is also enough to pay for the worst-case estimates to meet the minimum RN staffing ratio regulations for about 47 years.

Break with the past

Hospitals are both victims of a market indifferent to the intent of the original formulation of the Hippocratic Oath, with its dual emphases on doing no medical harm and promoting social justice, and victimizers of patients and society due to a lack of vision and failure to break out of their myopic mantra that the market will make everything all right in the long run.

There are some good people and good leaders in the management ranks of California's hospitals. They want to do the right thing. Now is the time for them to break with the past, to make different choices and to refashion their industry's historical legacy into one of clinical compassion and commitment to social justice.

Now is the time to find their vision, to unite over broad-based healthcare reform, to support universal coverage with a single standard of care for all, to demand safe minimum RN staffing ratios, and to help craft a solid legislative agenda for a single-payer financing mechanism.

History demands, and patients deserve, no less.

Don DeMoro is executive director of the Institute for Health & Socio-Economic Policy, a nonprofit policy and research group in Orinda.