Hospitals Bled Dry by Cost of Caring for the Poor : Chicago Institution Loses Average $159 Per Welfare Case

An asthma victim, sucking on a breathing device, rests quietly in a chair. Nearby, a woman soaks her right hand in a bowl of purple-colored antiseptic. Someone stabbed her with a pocket knife between the index and middle finger.

An ambulance wheels in an elderly nursing home patient who suffered a seizure. Another woman, clutching her abdomen, is screaming at the reception clerk because she can’t get immediate attention.

That’s because the doctors and nurses now have their hands full with George, a drunk brought in by paramedics after he slashed a palm on a whiskey bottle, and Harold, who took way too much of something he shouldn’t have but somehow managed to walk in under his own power.

“What did you take?” Debbie Fernon, one of the doctors, shouts to arouse the glassy-eyed Harold, whose body is strapped to a gurney but whose mind is floating somewhere else. “Do you know what day it is today Harold? Do you know where you are Harold?”

Bad for Bottom Line

Business is booming in the emergency room at Chicago’s Loretto Hospital, but that’s bad for the balance sheet of the 212-bed medical facility in the decaying Austin neighborhood.

Like many inner-city health care centers across the country, Loretto--the only hospital still serving a run-down West Side neighborhood of more than 200,000 residents--is being bled fiscally dry by caring for the impoverished patients who need it most.

Sweeping federal and state controls have helped check what, not too many years ago, had been runaway inflation in health care costs. But the changes, coupled with a sharp increase in the number of Americans who fall between the cracks of government and private insurance programs and therefore have no medical coverage at all, have squeezed hospital profit margins and thrown many into the red.

The situation is most acute for hospitals in poor urban and rural settings, which, by virtue of their locations, cater to the poor and elderly. According to the Chicago-based American Hospital Assn., an industry trade group, half of all urban hospitals and two of three rural hospitals now lose money caring for patients.

On average, Loretto loses $159 every time someone on welfare is carried or walks in the emergency room door, and that’s a sizable majority of the cases.

Such losses contributed to the closing of a record 81 community-based hospitals nationwide last year, about double the number of three years ago. Most were in low-income urban areas or rural communities with aging populations.

There are 5,800 general care hospitals in the United States, and most are far from going under. Still, many are shedding vital but costly programs to stay afloat. Such moves, for example, have terminated trauma center operations at several emergency rooms in Southern California and Chicago, prolonging ambulance rides and reducing the odds of survival for gunshot, stab and car crash victims.

And health experts say the pace of closures and service cutbacks is likely to quicken in coming years, significantly diluting the availability of quality medical care for those who can afford it the least.

Leo Slovacek, Loretto’s chief financial officer, said: “The sick industry is sick.”

The crisis can be traced to the early 1980s, when Congress, struggling to contain rising health care costs, began revising a grab bag of government programs.

In Medicare, a generous “cost-plus” reimbursement formula was replaced by a system of flat payments for 468 different medical procedures.

The problem is that reimbursement levels have lagged far behind inflation in medical prices. Although patient care costs have risen an average of 28% since 1983, federal Medicare reimbursements have gone up less than 15%, according to the American Hospital Assn.

The same has proved true for Medicaid, the primary source of health care for welfare recipients. The program, known as Medi-Cal in California, is funded partly by the federal government but is administered by the states.

Depending on the state, the reimbursement deficit can be stark. Hospital industry groups in Illinois and California assert that their members, on average, get only 67 cents from those states for every $1 they spend on welfare recipients.

Darkening an already gloomy outlook is a dramatic rise in the number of working poor and others who have no private insurance but, because of tightened restrictions, are also ineligible for government coverage. The American Hospital Assn. estimates that these so-called medically indigent now number 37 million and are growing at the rate of 1 million a year.

Once, hospitals covered losses in some operations by simply hiking rates to patients covered by commercial insurance. But many institutions in low-income areas see so few privately covered customers that such arithmetic no longer adds up in the black.

Take Loretto, which originally was an alcohol rehabilitation hospital but has been run for the last 50 years by a Roman Catholic order of Lithuanian nuns. Nearly four of every five patients admitted to the hospital are on Medicare or Medicaid or are indigent--in effect, money losers. Medicaid pays a flat $14 for most outpatient visits, regardless of what is done. The flat Medicaid rate for a trip to the emergency room--the primary source of medical care for many in poor neighborhoods--is $69. The hospital estimates that its average expense per visit is $228.

The financial pressure tightened last September when the 437-bed St. Anne’s Hospital, 2 miles east of Loretto, succumbed to the cash crisis and shut down. The Loretto emergency room has logged 200 to 300 extra patient visits a month since St. Anne’s closed its doors.

Rumors that Loretto might follow St. Anne’s into oblivion regularly ripple through Austin, much to the anguish of residents like 70-year-old Minnie Moore, who has sought treatment for everything from arthritis to bladder cancer at Loretto. “This is my hospital, and I don’t want to go to no other one,” said Moore, a retired cook, during a recent checkup.

Indeed, Loretto officials insist that the hospital is not closing and that financial problems have bottomed out. Still, the facility loses more than 4 cents for every $1 it spends on patient care, a record that is actually better than the city average of losing 10 cents on the dollar.

Sen. Paul Simon (D-Ill.), sponsor of a Senate resolution urging President Bush to restore $5 billion in planned Medicare cuts to his fiscal 1989 budget, said in an interview that he knows of at least three more Chicago hospitals that “are teetering on the brink.”

Meanwhile, Craig Bouchard, a hospital industry analyst for the First National Bank of Chicago, predicted that 100 to 120 more hospitals would close across the nation this year.

” . . . Our gut feeling is that 15% of the hospitals are going to be gone in five to six years,” he said.

The quality of health care offered by many surviving hospitals may suffer as they cut back on manpower, machinery and experimental drugs and treatments to save money. “I use the term brownout ,” said Carol McCarthy, president of the American Hospital Assn. “It isn’t exactly a blackout. If you think of what a brownout means when we have an electrical cutback, that’s exactly what’s happening in health care across the United States.”

Such brownouts are clearly rolling through deep Southern Illinois, where several rural hospitals have eliminated obstetric services--one of the most costly facilities to run at any hospital. Now, many expectant mothers are driving 50 miles or more to have their babies at Carbondale’s 150-bed Memorial Hospital.

George Maroney, the administrator of Memorial, said he expects the facility to handle more than 1,800 births this year, up from fewer than 800 a decade ago. Nearly half of those maternity cases are paid for by Medicaid, the main reason why the hospital is running its first-ever operating deficit, Maroney said.

In a move to restore profitability, the hospital has canceled plans to replace its aging CAT scanner with a new $1-million model. It has also jacked up rates to paying customers. “I tax people that the government of the state of Illinois doesn’t have the guts to tax,” Maroney said. “It’s a very poor way of doing business.”