In California, a struggle over a hospital system acquisition has cast light on a practice that could have important implications for the industry. State officials there are trying to decide whether to let a non-profit hospital chain go for-profit—and whatever decision they make, it's likely to influence communities and public officials across the nation.
As Healthcare Dive recently reported, the California Attorney General’s Office is holding a series of hearings on whether Prime Healthcare should be allowed to pick up six financially-troubled non-profits owned by the Catholic chain Daughters of Charity. Prime will not be allowed to proceed with the buyout unless state AG Kamala Harris approves the sale, as California law demands that the AG give permission to a non-profit seeking to switch to for-profit status.
Of course, some of the issues that get aired out in the hearings will be unique to Prime, an aggressive competitor which has been sued, scolded and shamed over questionable practices such as cancelling all of an acquired hospital's insurance contracts to make sure patients pay out-of-network rates. The situation is further complicated by the fact that Prime intends to go public in 2017, which would arguably give the healthcare chain further incentive to maximize profits in any way possible.
That being said, other deals like this one are likely to pop up across the US, particularly in states where Medicaid expansion isn't likely to be approved. With non-profits treating a growing number of patients with high-deductible plans or no insurance at all, far too many are teetering at the edge. So I have to ask: If a substantial of non-profit hospitals are acquired by for-profit hospitals and investors, will the whole non-profit business model begin to disappear?
Struggling to stay alive
To hear the American Hospital Association tell it, hospitals have been taking it on the chin financially for years. According to AHA research, cuts to Medicare and Medicaid spending have forced hospitals to absorb almost $122 billion since 2010. What's more, they’ve been faced with high levels of bad debt since the big Wall Street crash and related joblessness drove up the number of uninsured Americans seeking care in their emergency departments.
Under these unenviable circumstances, struggling and bankrupt non-profit hospitals are being bought out by investors and former competitors. And when that happens, the hospitals often change their business approach dramatically within a short time.
Take the acquisition of New Jersey's Bayonne Medical Center, which was picked up by investors in 2008. Like Prime, Bayonne canceled its contracts with some of the state's largest insurers so it could charge out of network rates.
What made the new approach particularly profitable is a legal loophole in New Jersey law, one which requires insurers to pay for emergency treatment at hospitals even if the hospital isn't on contract. What's more, that the law in question doesn't set any limits on what hospitals could bill for such emergency care. This strategy allowed Bayonne to show a $17-million operational profit within two years of the takeover.
A huge shift
Bayonne's experience is far from unique. At the rate things are going, the US could see a huge shift in how hospitals work, with a rapidly-increasing string of for-profit hospital conversions changing the healthcare landscape irrevocably. It's happening so fast, in fact, that regulators can hardly keep up with rate at which non-profits are disappearing.
Under these circumstances, it's only logical to wonder whether the non-profit hospital model has outlasted its usefulness. While many patients depend on charity care doled out by these hospitals, they'll get no care at all if their hospital closes, a reality regulators have to face.
Plus, for-profit operations aren't necessarily bad for communities. In fact, a recent study by the Harvard School of Public Health found that switching from non-profit to for-profit status increased the facilities' financial health while keeping care quality at similar levels to non-profits.
Still, for-profit hospitals simply can't be a real refuge for the underinsured or those without insurance. Patients in communities with for-profit hospitals may feel they've gained something by keeping their beloved facility open, but they won't feel that way when they're crushed by an unpayable bill.
For-profit hospital conversions may be inevitable or even beneficial. But before regulators approve them on a wholesale basis, let's make sure we're doing the right thing.