Medicine Takes on a New Look : Some Fear Aggressive Marketing Practices Will Hurt the Poor

A half dozen years ago, Northridge Hospital was just another medium-size community hospital in a Los Angeles suburb, one of many competing for the same patients. Northridge is now the thriving center of a system called HealthWest Foundation, including eight hospitals and a swirl of associated enterprises with such names as CarePLUS, CliniShare, ElderMED, LifePLUS, HealthStop and MobilMedical. It has doctors, too, of course, but such “product lines” are developed, says HealthWest President Paul Teslow, by “key managers,” people with “a market perspective.”

Nowadays, this market perspective is shared by even the biggest, most established medical centers, which are seemingly above such competition.

Not far from Northridge, UCLA Medical Center is continuing its miracle medicine--its kidney, bone-marrow and heart transplants--but it’s also doing more on a mundane level, beefing up its outpatient care, running an obesity clinic, offering home care for the elderly across town and building a $5-million Center for Health Enhancement that advertises such non-critical care as stress-management and smoking-cessation programs and “Parenting in the ‘80s.”

This may be the age of “heroic care,” when miracle medicine can sustain all life, but un heroic care and more limited, if catchily named, services are becoming the hospitals’ greater interest.

Packaging Treatments

Hospitals are no longer just doing good and saving lives: They’re packaging treatments that seem to sell well and marketing them aggressively, guided by what the prestigious New England Journal of Medicine’s Editor Arnold Relman calls the “commercial imperative.” In other words, they need the money.

“Commercial” means that they advertise their wares, cater to fashionable concerns and drop programs that aren’t profitable. They hire administrators trained in “new patient development;” they try to attract not just sick but upscale patients. Some are becoming boutiques, giving up costly full-service care and concentrating on lesser treatments. Many are merging or affiliating, and big hospitals are buying up little ones, promising a field that might soon be dominated by a few huge, profit-making chains.

Traditionally, these hospitals have operated with little consideration for costs or pricing, fairly sure that some third party--government, often through Medicare and Medicaid, or an insurance company or employer--would pay a generous percentage of almost any bill. So they got bigger, their escalating charges reflecting their uncontrolled growth--more beds, equipment, treatments.

In response, insurers and employers started cutting back medical coverage in the 1970s, and people cut down their visits. By the end of the 1960s, for example, every 1,000 people in California gave hospitals almost 1,000 patient days a year; by the 1980s, it was only 800 patient days. It’s the end, says San Francisco hospital consultant Wanda Jones, of “the golden days for hospitals, when everything was done on-site, patients stayed longer, and payment was easy.”

Insurers Fixing Fees

Now, the big insurers, starting with Medicare, are trying to control prices by fixing the fees they’ll pay. Similarly, insurers and employers are contracting to send their patients to “preferred providers” who will guarantee certain rates. Thus, Jones says, “if a hospital is losing money on some service, it can’t just adjust its prices.” It will have to scale down costs and beef up traffic, or it’ll be out of business.

The combination of ministering and marketing to the sick seems odd to people used to thinking of hospitals as hushed places with healing attitudes, although the trend may guarantee that when they need a hospital, they’ll still find one in business.

However, they may no longer have their choice of hospitals, and the availability (and price) of their treatment may depend on how frequently it’s used. Some experts also express concern over what will happen to teaching and research, to indigent or uninsured patients and to the quality of health care.

As the health care industry shakes out, the edge is expected to go to investor-owned, for-profit hospital chains. By 1982, they operated 7% of the nation’s total hospital beds--about a fifth of the beds of all medium-size community hospitals--in some cases doing very well while competitors suffered occupancy rates as low as 50% and 60% (with the upper 70% level considered healthy).

Designed for Affluent

Admired for “making medicine pay,” successful for-profits are also criticized for making it pay by careful picking, pushing and pricing. Usually smaller than 200 beds and suburban, they’re generally designed for more affluent and less seriously ill patients. They probably treat more pneumonia than cancer and do more breast biopsies, hernia and gall bladder operations than bypass surgery and transplants; such procedures are simple and profitable, the traditional bread-and-butter of even the biggest medical centers.

For-profits energetically advertise to both consumers and doctors. Nu-Med Corp., for example, almost immediately increased occupancies 8% to 10% at five Los Angeles hospitals acquired in 1983 “by bringing in doctors who were not at our hospital, and getting staff doctors to utilize it more,” says Executive Vice President Liston Witherill. “Doctors are the ones that order the services.”

For-profits may also charge more for services, at least the so-called ancillary services--radiology, pharmacy, medical supplies, clinical lab tests--if not the basic room rate, which is just “the most visible part of the bill,” says Dr. Sandra Greene at North Carolina’s Blue Cross/Blue Shield.

San Francisco’s Western Consortium for the Health Professions found in a 1983 study that total inpatient charges per admission could run from 5% to 24% higher at for-profit hospitals, with the profit on radiology and supplies as much as double that at some nonprofit hospitals.

Average Charge Higher

Similarly, North Carolina’s Blue Cross/Blue Shield found that the overall visit charge for several common surgical procedures averaged 20% higher at local for-profit hospitals than at comparable nonprofits. The average charge, for example, on uncomplicated hysterectomies was $3,217 at one for-profit compared to $2,368 at the nonprofit hospitals, Greene says, with medical-surgical supplies running $637 at the for-profit (compared to $267) and pharmacy costs running $595 (compared to $329).

The fundamental difference is that for-profit hospitals, charged with returning their stockholders’ investment, carefully analyze what makes money and what doesn’t. Nu-Med has discontinued its pain program and may ax a hospice program because insurance reimbursement will never make it profitable, Witherill says. However, the company is expanding its programs for eating disorders, which draw “basically young people who tend to be insured.”

This attitude is roundly criticized in nonprofit circles, but it’s also widely copied.

Indeed, today’s nonprofit might better be called a “ like profit” hospital. Community nonprofits, too, are reviewing their services, “selecting those they can provide profitably and marketing them,” editor Relman says, while “many of the bigger-volume and teaching hospitals are undergoing corporate restructuring and setting up holding companies. One affiliation is the hospital; the others may be real estate, ambulance services, pharmacy.”

Do ‘Strategic Planning’

Most insist that they’ve kept their nonprofit philosophy, using the extra money to provide more services: There may be “changes in packaging and some of the trappings, but the guts of the organization are the same,” says Richard Norling, executive director of California Hospital in downtown Los Angeles. Still, nonprofit hospitals have plunged into “strategic planning” and are talking “about target markets, service lines and patient mix,” says John Stavros, vice president of marketing at Berkeley’s Alta Bates Hospital.

For one thing, they’re repackaging, then promoting, existing services. Obstetrics packages are common; HealthWest has a geriatric package. The subscriber gets a “whole spectrum of services for seniors coordinated under one umbrella called ElderMED,” from home care to screening for Alzheimer’s disease, says HealthWest’s Teslow.

Many services are new and replace expensive in-patient acute care. Alta Bates, for example, bought and converted the nearby 39-bed Albany Hospital into a stroke and rehabilitation center.

The hottest development is outpatient care, which means lower overhead, lower prices and more convenience.

Day surgery centers now handle a third of the surgeries at many hospitals, says the Chicago-based American Hospital Assn. Hospitals are also starting drop-in care centers (so-called docs-in-a-box) and home health care agencies.

Aggressive Growth

The outpatient business, it is said, is “in a very aggressive growth mode.” Consumer convenience aside, hospitals find it a good “feeder to inpatient” care, Witherill says.

A natural extension is “wellness” services. Los Angeles’ Daniel Freeman Hospitals have an interest in nine weight-control centers, and California Hospital runs a fitness center with the nearby Los Angeles Athletic Club.

Critics say such services--advertised directly to consumers--trivialize medicine. Promoters retort that they may save hospitals because, as one hospital executive says, “they’re things people will pay for even if they’re not covered by insurance.”

Ironically, the “commercial imperative” that forces many hospitals to cut their services may also favor those that have managed to stay full-service, even as they add outpatient, fitness and other trendy services. California Hospital, located in a decayed area of downtown Los Angeles where redevelopment now promises an improved customer base, suddenly finds an advantage in its range of medical-surgical services, pediatrics, obstetrics, orthopedics, emergency and trauma centers.

“In the new marketplace,” director Norling says, “the purchasing agents for health care--the corporation and the insurer--are contracting for volumes of patients in health maintenance and preferred provider organizations, and it’s appropriate to look at full-service hospitals.”

Those that can’t offer everything are drawn into larger systems--for-profit health care chains or networks of independent institutions functioning as a whole just to service big contracts.

Employers Prefer System

Employers buying health care, Witherill says, “want to deal with a system” that offers everything, inpatient and outpatient, acute or convalescent, pediatric to geriatric. In return, system members are guaranteed a customer base.

Systems are so crucial now to the business that by 1983, according to American Hospital Assn. figures, a third of non-federal hospitals had joined them, up from 14% a decade earlier.

All this networking may result in health care that is not just birth-to-death but coast-to-coast. Already systems are madly allying themselves. They range from the local PPO that the Lutheran hospitals offer in conjunction with HealthWest and Adventist Hospitals around Los Angeles, to the vast new American Healthcare Systems, a national 26-system network. Right now, network members only share certain resources, but with a little time and a lot of marketing, they could be running a cross-country health care system, a kind of medical AAA.

But what happens to health care in the new hospitals? A strictly commercial retail business may not easily accommodate certain aspects of health care--specifically, poor patients, education and research.

“The poor and indigent may get lost in the shuffle with everyone trying to cut the best deal for themselves,” says Stanford University economist Victor Fuchs. “The whole idea of communal responsibility is about to go down the drain.”

Community Obligation

Inner-city hospitals just don’t have enough upscale patients and services to cover their deficits. Suburban hospitals (particularly for-profits) get very few indigents. Even some nonprofits “are forgetting that they have a community obligation to provide care to indigent patients,” Relman says. “Many are transferring and not admitting them, thereby increasing the burden on (those that do).”

Few people advocate a two-tier system of health care, in which the poor must go to government hospitals, although current reality comes close. Some observers suggest that the cost of their care be built into everyone’s taxes or everyone’s health insurance or hospital bill--and that’s fine as long as the funds and the paying population are adequate.

Florida, for one, is already taking a small percentage of every hospital’s revenue to create a pool, so that even hospitals that don’t treat indigents help cover the cost. Finally, hospitals are starting to sell themselves to big investor-owned chains, putting the proceeds into foundations to fund all the unprofitable services they continue to provide.

The costs of teaching and research are equally expensive. At the moment, new reimbursement schedules may include an allowance for teaching hospitals, recognizing that residents’ salaries and levels of service make “the average cost of a routine case a lot more expensive there,” says Richard Knapp of the Assn. of American Medical Colleges in Washington. There is, however, no allowance for the severity of the case, although such hospitals tend to treat sicker patients.

Unsure of Future

Many teaching hospitals seem unsure of their future. “The difference between us and a community hospital,” says Jacqueline Kuhn, director of finance for the University of California, San Francisco, Hospital and Clinics, “is that we can’t make decisions on whether to have a program depending on whether it supports itself. If it’s not financially viable, we still have to have it to teach future doctors.”

“Basically, everyone’s feeling their way around and trying to find better ways for providing a broader spectrum of health care,” says David Willman, a health-care expert at the accounting firm Ernst & Whinney in Los Angeles. No one even knows what will happen when the new reimbursement system meets the new drive for profit. Fixed prices “will hold down the cost per admission, “but not necessarily the number of admissions,” Fuchs says. “In fact, it may encourage multiple admissions.”

The industry may also exhibit what Norling calls “the Jello syndrome: push here, pull out there.” If inpatient charges are controlled, outpatient tests and procedures may proliferate. If unheroic care gets too competitive, heroic care may come back, aggressively promoted: Hospitals will “market bone marrows and liver transplants,” one administrator says.

Whatever the fashion, there promises to be a new attitude, even in nonprofit hospitals. Worries Arnold Relman, “People are going to get only the kind of health care that’s profitable.”

At the moment, hospital consultant Jones says, the basic shift from inpatient acute care is still a step in the right direction. “Some hospitals are going to die,” she says, “some will convert space to new programs; some will merge with neighbors. Hospitals will have fewer but sicker patients.

“And even if some hospitals don’t have enough patients, look at it as good news: All those people aren’t in the hospital. They’ve benefited from a less costly form of care.”

U.S HOSPITALS OFFERRING ALTERNATIOVE SERVICES

1983 1984 Home Health Care 25% 42% Occupational Health 22 28 Wellness Centers 20 21 Birthing Centers 25 23 Primary Care Centers 21 18 Rehabilitation Centers 21 22 Nursing Homes 19 27 Ambulatory Care 14 18 Urgent Care Centers 11 100

Source: California Hospital Association - Includes trratment of work-related injuiries or illnesses and safety and wellness programs, either on or off company premises. Offer basic physician services, usually with extended hours. Offer immediate care offer minor illnesses and injuries, usually with extended hours. Many are also becoming primary care centers to compete.

DECLINE IN USE OF CALIFORNIA HOSPITAL BEDS

Admissions Patient Days* per 1,000 per 1,000 Year Population Population 1969 134.8 995.6 1974 144.3 962.2 1979 132.5 869.0 1980 132.0 872.9 1981 134.2 882.1 1982 129.3 845.2 1983 124.8 803.7

Source National Research Corp. * Days for which inpatients are billed. GROWTH OF MULTI--HOSPITAL SYSTEMS IN THE U.S.

Total Number of Percentage of Percentage of Non-Federal Hospitals in Multi- Beds in Multi- Year Community Hospitals- Hospital Systems Hospital Systems 1979 5,851 30.7% 35% 1980 5,842 32.1 35.7 1981 5,813 33 35.8 1982 5,801 33.8 36.1 1983 5,783 35.5 37.2

Source: American Hospital Association - Includes acute-care, short-term facilities,excluding all federally operated hospitals, such as Veterans Administration and military hospitals.