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When Investor-Owned Corporations Buy Hospitals: Some Issues and Concerns
Pages 51-72

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From page 51...
... These managed hospitals are often prime candidates for purchase at a later date. The purchase of hospitals, particularly of nonprofit hospitals, by investor-owned hospital chains has raised questions that touch on ethics, law, research, medical education, costs, productivity, and more generally on how the public interest is being served.
From page 52...
... The final selection of hospitals was influenced by the availability of key individuals during August 1982 when the interviews took place. In each case the author attempted to contact, by telephone, the local health systems agency, a local newspaper, relevant public interest groups, the medical society or hospital association, one or two physicians (preferably the chief of staff or medical director)
From page 53...
... After the failure of the second referendum the local chamber of commerce studied the available alternatives and concluded that total replacement was required to bring the hospital up to date and that selling to an investor-owner was the best available option. The hospital board, hospital medical staff, and the county council all concurred with the decision.
From page 54...
... The major concerns and the way they were handled were as follows: 1. Care for the medically indigent the proceeds from the sale of the hospital were placed in an escrow account, with the income to be used to reimburse the hospital at 90 percent of charges for people certified as medically indigent according to criteria developed by the county council.
From page 55...
... The committee recommended to the county commissioners, the hospital staff, and the hospital board that only the option of sale to an investorowned corporation would produce enough funds and affect enough change to remedy the deficiencies of the system. A number of investor-owned corporations submitted bids local peo
From page 56...
... The local newspaper came out in favor of the purchase and set up an action-line phone number to respond to questions. As the proposed purchase became more controversial, medical and county leaders, businessmen, and city fathers united behind a public information campaign designed to reassure the people that local concerns were understood and to prevent misconceptions from developing.
From page 57...
... The benefits expected from corporate ownership include improved management and financial reporting systems, access to corporate purchasing expertise and discounts, and new equipment. Osteopathic Hospital Osteopathic Hospital, with 81 beds, is located in a resort area 15 miles from another osteopathic hospital and in an area considered by the local health planning agency to have a surplus of hospital beds.
From page 58...
... It is reported that other medical staff also have decreased their admissions to Osteopathic Hospital and that the new administration is "bending over backwards to get doctors with private paying patients." The previous owner tried to convince doctors that the purchase was in their best interest, and the corporate regional director has spent time with department heads and other staff to reassure them about continuity of tenure and quality of care, but with less than total success. The medical staff had waited for years for a renovation and expansion program.
From page 59...
... When Investor-Owned Corporations Buy Hospitals 59
From page 60...
... Control Every time a hospital chain buys a hospital there is a change in the locus of control from a community board, county authority, or physician group to the corporation. Questions about the effects of the increasing penetration of the profit-making hospital chains into the control of health care facilities are being heard with increasing frequency.
From page 61...
... However, the nature of the expressed concerns varied, often with the position of the speaker. County council members or county commissioners expressed concerns about the loss of local control; physicians who had previously had representation on a board of trustees were concerned that their input into decisions might be diminished; community groups that became involved in the hospital purchase issue were interested in the effect on the overall mission of the hospital an issue similar to the loss of local control but dealing more particularly with the range of services offered to specific elements in the population.
From page 62...
... In sum, although loss of local control was initially a concern and most people understood that loss of autonomy was inevitable, a year after the sale it was generally felt that the company could be trusted to be responsive to the advisory boards' recommendations and that there would be no insurmountable problems. dote Security and Benefits In all cases administrators expressed anxiety both about their personal job security and about the tenure of all hospital staff.
From page 63...
... The exception was Osteopathic Hospital, where the chief of staff expressed deep dissatisfaction with the way things had been handled. He contended that the number of staff fired was higher than he expected; that people who did not "fit the corporate pattern" were let go; that morale was low, despite efforts by the corporate regional director to assure the staff that all capable employees would be retained; and that the best nurses had left, partly because they were overworked and partly because they felt insecure about their jobs.
From page 64...
... In only one case, Osteopathic Hospital, did the purchaser reportedly fail to implement its verbal assurances about renovation and new equipment. Some of those interviewed thought that the corporation might be having financial problems.
From page 65...
... Suburban County Hospital is located in a state that has an active hospital rate review commission. The commission gave the company assurances that it would not lower the rates for 5 years even if the company significantly reduced costs; some county council members thought this was unfortunate because they wanted protection against increases not decreases.
From page 66...
... The expressed reason for the lack of anxiety about quality was, once again, that the sellers believed that their investigations of hospitals owned by the prospective buyer indicated that quality would be maintained. On the other hand, in the case in which such an investigation had not taken place Osteopathic Hospital a doctor commented that: "It's still a low-class hospital the good staff have gone to other hospitals.
From page 67...
... No doubt the concern was fueled by the active concerns of citizens' groups, but everyone from the hospital administrator to the county officials, from the newspaper editors to the physicians, said that indigent care was at the top, or close to the top, of their list of concerns. Arrangements for financing care for medically indigent people involved setting up a fund with a portion of the proceeds from the sale and using the interest to pay for hospital care.
From page 68...
... We heard it from board members, county council members, administrators, and physicians. In some cases this belief was based on the fact that, before detailed negotiations with a company began, the sellers had looked closely at the corporate operations and at hospitals it owned.
From page 69...
... The result was that a clear and public decision had been made that corporate ownership was the best available option and that the company selected would be responsive to public concerns. Here again the contrast with two places that omitted these steps—Osteopathic Hospital and Suburban County Hospital is striking.
From page 70...
... There were also clear differences in the interests of the various people with whom we talked, the interests being related to their position or relationship with the hospital. Although there were some exceptions, the expressed concerns of the different groups were as follows: · Consumers for the county hospitals, consumers became interested in the issues of indigent care, local input into hospital policies, and the financial deal, particularly buy-back provisions.
From page 71...
... However, it must be kept in mind that each of these hospitals had experienced corporate ownership for only a year or so. The longer-run relationships between the corporate management and the medical staff; the community; board members; and administrative, nursing, and other staff could be not be explored.
From page 72...
... Suburban County Hospital Executive director of local medical society Staff member of health systems agency Member of the county council Staff of councilman Director of local citizens' coalition Director of state rate review commission Admitting physician at hospital


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