Hospital merger risky

Austin American-Statesman, October 26, 1994

The recently announced $5 billion stock-swap merger between the nation’s two largest for-profit hospital chains, Columbia/HCA Healthcare Corp. and HealthTrust Inc., makes Columbia the biggest market force in health care — with $15 billion in annual revenues. This merger is part of the wrenching shakeout transforming the overbuilt hospital industry (with nonprofit hospitals $100 billion in debt) to a more cost-conscious business. Although government’s attempts to reform the nation’s $1 trillion health-care system failed, market-based reform via unfettered capitalism persists, but may not be best for the patient.

In an era of cost obsessiveness, the medical industrial complex is reorganizing both the delivery and financing of health services. More than half of all American workers are enrolled in prepaid health plans, or “managed care” organizations. Managed care has successfully reversed incentives. Under the dying fee-for-service system, the more a practitioner did for a patient the more money was made. With managed care, the less that is done for a patient the more money is saved. And in fact, health inflation slowed dramatically to just 5.3 % last year, the smallest increase in 20 years.

The philosophy underlying hospital mergers is to create enterprises big enough to prosper in an age when hospital stays are short, and simple surgeries and procedures are performed in outpatient settings. Hospital chains gain negotiating clout with suppliers and contractors and are able to demand steep discounts, are better positioned than independent hospitals to offer a range of services that attracts more patients and doctors, and in some cases control costs by channeling business to the most efficient operations in a region.

Meanwhile the hospital industry’s rush to reorganize has not been seriously challenged by the Justice Department or the Federal Trade Commission. Generally, hospital chains escape antitrust challenge if 35 percent of local marketshare is not exceeded.  In the Austin-area, the merged facilities — South Austin Medical Center, Austin Diagnostic Medical Center, Round Rock Hospital, Bailey Square Medical Center and Specialty Hospital of Austin — comprise about 25 percent of Austin’s 1,600 beds.

While these changes may make dollars and sense, there are problems. The reorganization has created another layer between the patient and the medical provider. Utilization review, now about a $7 billion per year industry, consists of medically untrained workers who deal with charts and numbers, not people.

Physicians must seek permission for many procedures and are questioned about their treatment plans. Nurses are grossly devalued in hospital redesign as they are replaced by unlicensed assistive personnel who perform tasks, not necessarily provide “care”; traditional health teaching by registered nurses is all but gone. Patients cannot choose their hospital, and their choice of doctor is limited.

The Columbia/HCA-Health Trust merger is supposed to save $125 million annually. What exactly is being done with all the money saved? In 1992, Thomas Frist, Jr., then with HCA, was the highest-paid CEO in the country, making a dizzying $127 million. He will be vice-chairman of the Columbia/HCA-Health Trust merged companies. Austin’s three largest health maintenance organizations–PCA, PruCare, and Travelers — reported $30.8 million in pretax profits last year, more than double that of 1992. Is this managed care or managed money?

The recent merger foreshadows major changes in the Austin health-care landscape. It will be difficult for Brackenridge, Seton and St. David’s, as independent, non-profit, free-standing hospitals, to compete with the for-profit merged facilities. Let’s hope that realignment and networking result in the major players talking and cooperating with each other to assure that all patients receive the right care in the right setting in the right amount.

Toni Inglis, MSN, RN CNS (retired), FAAN, a lifelong Austin resident and retired neonatal intensive care nurse and editor of NursingNews, writes a monthly opinion column for the Austin American-Statesman editorial page.