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For-Profit Hospitals' and Investors' Buyouts of Not-For-Profits Holds More Promise Than Peril

Recent acquisitions of not-for-profit hospitals by for-profit institutions and private equity firms have raised new questions about whether not-for-profits are kinder and gentler, especially to the poor, than their profit-making brethren are. The short answer is no. And it is far better for patients if for-profits acquire ailing not-for-profits than if some of the latter go out of business.

As I've chronicled before, Cerberus Capital Management has agreed to acquire the six-hospital Caritas Christi chain in Boston for $830 million. Vanguard Health Systems, backed by the Blackstone group, is buying Detroit Medical Center for $700 million. And a number of for-profit hospitals are snapping up not-for-profit facilities. For example, LifePoint Hospitals recently bought Clark Regional Medical Center in Winchester, Ky., and Community Health Systems is purchasing Bluefield Regional Medical Center in Bluefield, W.Va., and Marion Regional Healthcare System in Mullins, S.C.

For-profit buyouts of not-for-profits are occurring for several reasons. For one thing, not-for-profits have found it difficult to borrow money for capital needs in the past couple of years; for-profits, in contrast, can raise money from private investors or the stock market. Also, not-for-profit hospitals are attracting investors and for-profit chains that expect healthcare reform to increase the number of paying patients by expanding insurance coverage.

Is this bad for patient care? A USA Today article suggests as much, quoting doctors and community leaders in Detroit and Boston who fear that the for-profit juggernaut will lead to curtailed services and a harder line toward the uninsured.

According to a 2006 Congressional Budget Office study, not-for-profit hospitals provide slightly more charity care than their for-profit brethren do. But a more recent IRS survey of nearly 500 not-for-profit hospitals paints a very different picture. It finds that 14 percent of the surveyed facilities provide 63 percent of the total uncompensated care. On average, the surveyed hospitals spent 9 percent of their revenues on community benefit, but 58 percent of the facilities reported spending 5 percent or less.

What's more shocking is the report's finding that the average CEO of a not-for-profit hospital received $490,000 in compensation in 2006. Top executives at 20 of the larger hospitals took home an average $1.4 million each.

This is not surprising, however, when you consider that not-for-profits behave quite similarly to for-profits in other respects. They are just as likely to charge uninsured patients their full rates, while getting less than half of that from insurance companies. They are just as likely to garnish wages of people who don't pay their bills. They play the same hardball games that for-profit hospitals do in competing for high-admitting physicians, and in hiring key doctors so that their competitors can't have access to them. And they're just as likely to add lucrative service lines, whether or not the local community needs them.

The USA Today article quotes a University of Michigan professor as saying that not-for-profit hospitals operate more money-losing trauma and burn centers and drug rehab and mental health services than for-profits do. That's true, but in many cases, these services are part of academic medical centers that are located in urban areas. Those teaching hospitals receive federal and state subsidies for medical education and for treating the poor.

The real disaster for the poor occurs when their local hospital closes. This usually means they lose most access to care, because other hospitals may be too far away and there may be few if any primary care doctors in their area. Moreover, hospitals employ a disproportionate number of people in economically disadvantaged areas that don't have many other employers. So if for-profit hospitals want to buy not-for-profits that are in danger of going under, more power to them!

Image provided courtesy of Automatic Clusters at Geograph. Related: