Jewish World Review


For-profit hospitals cost more but provide worse care, study shows

http://www.NewsAndOpinion.com | (KRT) When it comes to delivering health care, the United States is not alone in grappling with whether a for-profit model or a not-for-profit approach works better.

During this election year, the United States is weighing the pros and cons of a market-based medical system, focusing on the high costs and limited availability of care, among other issues. But Canada, too, is investigating which method is more effective - and has come up with some startling, if controversial, results.

It appears for-profit hospitals charge patients more and are more hazardous to users' health than not-for-profit facilities, according to the results of a study examining data covering 350,000 American patients and published in the June 8 edition of the Canadian Medical Association Journal. Canada's hospitals are publicly funded and its government provides citizens with health insurance.

Taking into account the relative risk and severity of the conditions they treat, U.S. commercial hospitals had higher death rates and charges than not-for-profit hospitals, the study said.

"For-profit health-care facilities are the cigarettes of health policy: They increase your risk of dying prematurely and you end up paying too much for them," said Dr. P.J. Devereaux, a cardiologist at McMaster University in Ontario and the study's lead author.

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Cost remains a chief concern in the United States as more low- and middle-income workers struggle to get and keep health insurance. Growth in health-care spending eased in 2003, though the rate is still high by historical terms and outpaced overall economic growth, according to a study this week from the Center for Studying Health System Change (HSC).

Hospital prices jumped 8 percent last year, the biggest one-year increase in nearly a decade, according to the HSC.

The Canadian study breaks that down further. Patients with similar problems being cared for in both types of hospitals end up paying 19 percent more when admitted to for-profit hospitals, Devereaux added.

About 15 percent of U.S. hospitals, or 766, are for-profit businesses, according to the American Hospital Association.

The pitfalls those market-based hospitals face, according to the study's authors, are fourfold:

Profits. The push to generate revenue to satisfy investors, not applicable for private not-for-profit hospitals, leads many for-profit facilities to cut corners and compromise care.

Taxes. For-profit hospitals have to pay taxes, whereas not-for-profits are exempt.

Overhead. Administrative costs are 6 percent higher than those at not-for-profits.

Salaries. Executive bonus incentives are more than 20 percent higher at for-profit hospitals.

What's more, the study may be underestimating the effects because it didn't measure the impact of fraud investigations and settlements, which come mostly from the for-profit side, Devereaux said.

Cases such as billing for services not provided or performing unnecessary surgeries, a charge faced by Tenet Healthcare Corp., drive up costs, he suggested.

Executive pay is one reason Tenet scores a "D" for overall standing, according to the Corporate Library, an independent corporate-governance research firm in Portland, Maine.

"They score poorly on board composition and executive pay," senior research associate Paul Hodgson said, adding that Tenet's former chief executive, Jeffrey Barbakow, was the highest paid CEO of all publicly traded firms in 2002.

"Barbakow's total compensation was the highest in my survey, well into the hundreds of millions of dollars because of the exercise of a substantial amount of stock options prior to any problems emerging in the company," Hodgson said.

On the other hand, the Corporate Library rates HCA, another for-profit hospital company, an "A."

It's true that higher pay scales often motivate not-for-profit hospitals to issue public stock, said Richard Foote, senior equity analyst at Samuel A. Ramirez & Co.

"If they take themselves public, there can be options involved, so the compensation packages are far more attractive than just being not-for-profit," he explained.

All factors combined, the for-profit hospitals have a higher financial burden to overcome and face more temptation to economize where they shouldn't because the incentives are different, Devereaux asserted.

The phenomenon has proved true in previous research on dialysis, which is largely a for-profit enterprise in the United States, he noted.

The Federation of American Hospitals, which represents 22 investor-owned hospital chains such as HCA, Tenet and Triad Hospitals, contends Devereaux's research is flawed, spokesman Richard Coorsh said.

"He appears to have decided to overlook or perhaps is unaware of other studies that discuss the benefits of private hospitals," Coorsh added, pointing out that some not-for-profits "partner with for-profit hospitals for what they can bring to the table, such as additional capital, additional know-how or expertise, (and) efficiencies of scale."

Devereaux insists he's not promoting one camp or the other, but he's quick to claim that patients in a for-profit environment don't have the capacity to evaluate the quality of care they receive, limiting their ability to be discerning consumers. "Most people equate it with how nice a place looks," he said.

A free-market system may work in other areas, but research shows it doesn't improve quality and cost control in health care, he added.

"Our point is not to defend our Canadian health-care system," Devereaux maintained, noting that many Canadians complain about long waits for procedures. "It's just to say let's not make it worse. For-profits are not a solution."

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