Money once was rarely a problem for Cedars-Sinai Medical Center, the prestigious Westside hospital that has catered to Saudi princesses, Hollywood stars and the city's affluent.
Relying on its reputation for first-rate care, the largest private hospital in the West could charge top dollar and count on insurers to pay the bills.
When it wanted a new building or a new wing, Cedars could call upon Southern California's rich and powerful--names such as Spielberg and Sinatra--to help raise millions.
But today, Cedars--a half-billion-dollar-a-year business--is barely profitable. About a quarter of its 850 private rooms are empty on average. It has laid off hundreds of workers, shut down some patient wings and cut programs. An ambitious plan to expand the hospital by 50% has been put on hold, seen as outdated and too costly.
The problems are largely a consequence of the managed health care revolution taking place even before President Clinton and Congress strike a deal on national health care reform.
Cedars' efforts to respond to the changes have met with great resistance from many among its 2,300 physicians--a cleavage that some doctors liken to a civil war.
The hospital and a key group of doctors have squared off in a bitter lawsuit. Doctors spurned the hospital's recommendation for a new chief of staff. And hundreds of worried physicians have joined various groups that eventually could redirect patients to rival hospitals.
Across the nation, insurers--at the urging of employers, who pay most medical bills--are taking dramatic steps to rein in medical spending. Health maintenance organizations and other managed-care firms are sharply reducing the time people stay in hospitals--or averting hospital stays altogether by sending people to outpatient clinics, where surgery can be performed as safely and more cheaply. From hospitals and doctors, they are demanding deep discounts.
The changes are striking hardest at elite teaching hospitals such as Cedars, a training site for the UCLA School of Medicine. Although the teaching and research such hospitals perform make them valuable to the community, they also render them expensive and inefficient.
Faced with shrinking revenues, such hospitals must find a way to respond to market pressures while maintaining the quality care that draws patients and assures their prestige. Cedars, one top doctor there has warned, faces the kind of calamity that has rocked hidebound IBM and General Motors if it fails to change.
So Cedars is struggling, painfully, to do nothing less than reinvent itself. "The transition period is very turbulent, very tough, because you're giving up old ways of thinking," said Thomas Priselac, Cedars' chief executive officer.
The marketplace, said Berkeley health care consultant Peter Boland, "is forcing tremendous consolidation and the largest hospitals in metropolitan areas will have to radically downsize and refocus. Academic health centers are not immune. There's going to be a lot of bloodshed before this is settled."
More is at stake than Cedars' institutional pride in being a world-class facility. Some doctors fear that managed care may jeopardize the hospital's standards. But hospital officials insist that quality will not be sacrificed--and may improve--as the changes unfold.
Dr. John Block, president of The Johns Hopkins Hospital, worries that the spread of managed care will result in teaching hospitals losing their medical edge. "Hospitals like Cedars or Johns Hopkins that have a sophisticated capacity to deal with the very sick will be functioning in a system where everyone involved will have a profound economic incentive not to use them, and that's just not good for health care," Block said.
Johns Hopkins is among dozens of elite teaching hospitals--including UCLA School of Medicine, Stanford Medical Center and Massachusetts General Hospital--wrestling with similar concerns.
Mass General stunned Boston's medical community this year by agreeing to merge with longtime rival Brigham and Women's Hospital to create the nation's biggest hospital.
The steps proposed by Cedars' management are less dramatic. They want the hospital to slim down. But more important, they say, Cedars must be reorganized to increase its clout in the managed-care environment.
Like most teaching facilities, the hospital--which sprawls over eight city blocks--has a large staff top-heavy with well-paid specialists, lots of costly, high-tech equipment and a sluggish bureaucracy.
"Cedars has not been one of the most cost-effective hospitals," said the chief executive of a major Southern California health maintenance organization who asked not to be identified. "They've catered to attracting high-quality specialists and told them: 'We'll do whatever you want. You can have any equipment, any service, any nursing ratio you want.' Given that dynamic, it's hard to manage your costs effectively."
In the past year, Cedars has slashed $50 million from its $570-million budget, reduced its staff by 700, to 6,500 employees, and closed two patient wings.
Cedars' board of directors has considered--but rejected--other efficiency measures, including a significant reduction in its teaching and research activities. Such a move would likely be highly unpopular with the hospital's powerful physician-researchers, doctors say. Described by one industry consultant as a "loss leader" for Cedars, some experts say the hospital's teaching and research efforts hamper its ability to compete in a managed-care era.
Beyond cutting costs, Cedars is also trying to form closer alliances with its doctors and with other health care providers--including hospitals and HMOs. It wants to create a "physician-hospital organization" whose main purpose would be capturing managed-care contracts. The complicated plan would make the hospitals and doctors equal partners--a much closer relationship than in the past.
It would also mean they would share more of the financial risk of providing care, which insurers increasingly are passing on to providers.
Cedars also wants to expand its outpatient facilities and branch out into in-home and long-term care.
"The driving forces for what we are doing are the same things that are affecting the entire industry--principally the pressure to provide as high a quality service as you can at the lowest possible cost," said Priselac, a 15-year veteran of Cedars who was promoted to the top job in January after the resignation of Sheldon King, now an executive with Salick Health Care, a Los Angeles-based operator of cancer treatment centers.
Personable and pragmatic, Priselac, who at 43 is one of the youngest executives running a major U.S. hospital, will try to steer Cedars through one of its most turbulent periods in a job he said is "as difficult as anything I've had to deal with in 20 years."
One of Priselac's more delicate tasks: prepping the hospital for managed care while preserving the upscale image that has enabled Cedars to attract substantial support from the city's glitterati. While uniformed valets park patients' cars, management exhorts doctors on the staff to become "more like Kaiser," the pioneering HMO that has thrived with no-frills, quality care.
It is a tricky balance. Few hospitals enjoy the kind of community support that Cedars does. Its "Campaign for the 21st Century" fund has collected more than $70 million in donations in two years. The support is also evident in the hospital's collection of (donated) art, which includes works by Picasso, Lichtenstein and Hockney. Cedars says the 8,000 pieces represent the largest private collection of modern art that is not in a museum. A Robert Rauschenberg lithograph hangs just outside the coffee shop.
Cedars' gilded image has, over the years, been carefully polished by its marketing staff. Ron Wise, the lanky vice president and chief publicist, has Kirk Douglas in his Rolodex; the actor and his wife, Anne Davis, are honorary chairs of Cedars' fund-raising drive.
Wise appears frequently in the media, giving health updates on celebrities admitted to Cedars--he was called to the hospital at 5 a.m. Thursday to handle media calls regarding O.J. Simpson's surgery. Sometimes he announces celebrity deaths. Lucille Ball, Danny Thomas, Sammy Cahn and River Phoenix are among those who spent their last hours at the hospital. (Though Cedars does attract a healthy share of well-heeled clients to its hotel-like, eighth-floor VIP rooms, most of its patients are ordinary folks. The hospital also spent $14.2 million last year in providing uncompensated care for patients who lacked insurance.)
Cedars can also boast of solid medical achievements. It consistently ranks high among the top hospitals in U.S. News & World Report's annual surveys.
In the most recent ranking of hospitals that deliver sophisticated care to the sickest patients, Cedars placed among the top in three of 16 medical specialties, down from six in 1993. UCLA School of Medicine, with which Cedars shares training of UCLA medical students, was among the magazine's "Best of the Best," achieving high rankings in 12 specialties.
In 1992, Cedars doctors were the first to use a pig's liver to sustain a woman while a human organ was found. Unfortunately, the patient died during the wait, but the technique helped lead to a so-called "bio-artificial" liver, which includes pig cells and fibers that mimic a human liver. Cedars' efforts gave doctors techniques to use while they wait for human organs.
The excimer laser, now used worldwide for non-invasive surgical procedures, was pioneered by Cedars doctors in the 1980s.
Cedars' efforts to trim costs without shortchanging quality can be seen in 7 Northeast, the seventh-floor orthopedic wing. Here the hospital is testing "patient-focused care," a concept catching on at such prestigious medical facilities as Yale-New Haven Hospital and Stanford Medical Center.
Geraldine Popolow, a vice president in charge of patient care, said a Cedars study showed that a cardiac patient may see as many as 105 hospital workers during a weeklong stay. That's not only inefficient, but can be disconcerting to patients who see a string of unfamiliar faces passing through their rooms to deliver food or transport them to the radiology lab. The hospital wants to slash the figure to about 40 workers.
So Cedars is cross-training its nurses, clinical technicians and other support staff to handle more tasks and it is forming teams to care for small groups of patients. Desktop computers are placed outside each "quad" of four hospital rooms, allowing nurses to look up medical records without walking to the main nursing station.
"The person who draws your blood can also take your cardiogram, make your bed or bring you a glass of water," Popolow said. "It's not appropriate for anyone to say, 'This is not my job.' "
The program, which Cedars wants to expand hospital-wide, should cut costs about 5%, officials said. Another cost-reduction move: The hospital got its orthopedic surgeons to agree on a single company to supply prosthetic devices such as artificial hips, saving $400,000 last year.
For Cedars management, getting that agreement was easy compared to selling more fundamental changes to its reluctant doctors.
Managed care is bitter medicine for many doctors--particularly specialists already facing sharp drops in income. Many see it as a threat to the level of care they are accustomed to providing their patients, to their autonomy and to their financial survival.
The intensity of the internal debate was evident when hundreds of physicians gathered in December at the Wilshire Ebell Theater to discuss the hospital's plans.
Supporters of Cedars' proposed physician-hospital organization argued that the hospital must get its act together or lose patients to more efficient competitors like Kaiser.
"Without this (physician-hospital organization)functioning well," one of the doctors said in support of the plan, "the hospital is dead." Many other doctors remained unconvinced.
The plan has stirred tensions dating back to Cedars' first foray into managed care.
In 1985, the hospital backed the formation of a medical group known as the Cedars-Sinai Physicians Assn. The hospital wanted to place thousands of hospital employees in a lower-cost HMO plan that would utilize Cedars doctors. The group initially was managed by the hospital and relegated to a tiny basement office.
Many Cedars physicians detested the idea.
"We were looked at as radicals, as people who were going to destroy medicine," recalled Dr. Seymour Levine, a founder of the group. At the time, he said, many doctors figured that a prestigious place such as Cedars need not be concerned about the managed care movement that was gaining momentum in California.
Some physicians who joined got blunt warnings from colleagues: Quit the group or you'll get no more patient referrals.
After a few years, the medical group, unhappy with Cedars' handling of its affairs, essentially fired the hospital as its manager. In 1992, the hospital sued the medical group it had created, naming Levine as a defendant. The physician group later countersued.
The lawsuit is pending, though some issues have been resolved. The hospital got Levine's group to drop "Cedars-Sinai" from its name; it recently was renamed Health Source Medical Group. But the hospital lost something as well. Health Source, which oversees care for 65,000 HMO members--a large block of patients the hospital doesn't want to lose--no longer admits its members exclusively to Cedars. It is sending more patients to other Westside hospitals, including Midway Hospital about a mile from Cedars, where costs are lower.
Priselac calls the suit "sadly unavoidable"; both sides say they are trying to resolve their dispute.
That the bitterness lingers was evident this year when Cedars' medical staff broke a two-decade precedent by refusing to reelect Dr. Burton Fink--the hospital's recommended candidate--as chief of staff.
The hospital refused for several weeks to disclose the results of the election to either the staff or Dr. Stephen J. Uman, the internist who defeated Fink. Uman has encouraged doctors to accept the inevitability of managed care.
"It doesn't matter whether this change is 'fair' or in the best interest of our patients (and these issues are debatable)," Uman wrote in a letter to doctors in April. "To ignore the change coming will place you in the position of IBM or General Motors, which ignored changes in their businesses and suffered as a consequence."
While 750 doctors have sought membership in Cedars' new physician-hospital organization, other Cedars doctors--many of them unhappy with the hospital's plan--have formed rival medical groups that may compete with Cedars for managed care contracts.
Dr. William Young has organized the 65 African American doctors on Cedars' staff into a group called the Physician Integrated Health Network, saying that black doctors have little voice in the hospital's leadership. Noting that about 22% of patients admitted to Cedars are African Americans, he said: "Clearly we are not represented (in similar numbers) on the physician staff or in the administrative structure of the hospital."
The lack of unity among Cedars doctors could prove a detriment to the hospital, said Dr. Barry Rosenbloom, a leader of the new physician-hospital group. "With the doctors being split, the insurers or employers could use one faction against the other to negotiate lower rates," he said.
"We've sent out the olive branch to all of the groups," Rosenbloom said, "but people are still wary."
Dr. Leon Bender, a urologist and former chief of staff at Cedars, is among the skeptical doctors. He does not accept HMO contracts now, but figures that soon he will not be able to turn away such business.
"The patients are directing us to act," he said. "I can't shut my eyes to the market forces out there."
Dr. Ronald Bronow, meanwhile, stands steadfast against managed care. HMOs, Bronow said, are "revolving-door medicine that tries to get the patients out the door as quickly as possible. The whole idea to me is completely revolting."
But Cedars officials dispute such claims.
Irving Feintech, chairman of Cedars' board of directors, said in a statement that the hospital "will not, now, or ever, compromise on quality."
And Priselac said: "Just as we set the gold standard in many respects . . . under the old system, we are setting out to make sure the public knows they can get Cedars-Sinai level of quality care in a managed-care environment."
Cedars-Sinai Medical Center, a nonprofit, nondenominational private hospital, was formed in 1961 through the merger of Cedars of Lebanon Hospital and Mt. Sinai Hospital. Cedars of Lebanon was founded as Kaspare Cohn Hospital in 1902, an eight-bed home for Jewish tubercular patients. Mt. Sinai was founded in 1921 as a six-bed facility for needy patients during an influenza epidemic. In 1976, after completion of a $100-million addition, Cedars-Sinai consolidated its operations at a single, 1,120-bed hospital on Beverly Boulevard.
Wrenching Changes for Cedars-Sinai
Over the last decade, the annual number of patients admitted to Cedars-Sinai has been fairly stable. But cost-cutting pressures from HMOs and other managed care firms--as well as new medical technology and drug treatments--have substantially reduced lengths of hospitalstays and left hundreds of rooms vacant on the typical day.
Admissions have been steady...
...but the total number of days patients spend in the hospital has tumbled...
Number of patient days:
...as the average length of stay has shrunk.
Length of stay (days):
The result: Average daily occupany in the hospital is down dramatically.
Avg. daily occupancy:
* Years ending March 31
Source: Cedars-Sinai Medical Center