Press Release Tuesday, May 11, 1999

Contact: Julio Mateo, Jr., 415/431-6747 Consumers Union's West Coast Regional Office

 

SAN FRANCISCO, CA - Hospital charity care declined in the absence of tight guarantees at California nonprofit hospitals that converted to for-profit corporations, according to a new report by Consumers Union. In addition, the sale proceeds alone from these deals never fully replaced the community benefits provided by the hospital when it operated as a nonprofit.

The report, "White Knights or Trojan Horses? A Policy and Legal Framework for Evaluating Hospital Consolidations in California," analyzed ten California nonprofit hospital conversions that occurred between 1993 and 1998. Due to the newness of some of the transactions and limits on public reporting of information, the full impact of some transactions is still unclear. The report offers a method to evaluate these deals into the future.

"California and the rest of the nation are experiencing a major shift in the way hospitals operate and serve their communities," said Julio Mateo, Jr., staff attorney with Consumers Union and co-author of the report. "As nonprofits become for-profits or merge with larger nonprofit chains, communities need to be vigilant in safeguarding their healthcare services. This is especially true of charity care."

Charity care is defined as the amount of care given to patients who are unable to pay, and for which the hospital has no expectation of payment.

The report also found that genuine public input in the transactions and a high level of independence of the foundation boards resulting from these consolidations are critical in protecting the delivery of health care in communities. The report analyzed the following hospital deals: Sacred Heart, Hanford; Centinela, Inglewood; Good Samaritan, San Jose; United Western, Santa Ana; United Western, Anaheim; Pacific Hospital, Long Beach; Riverside Community Hospital, Riverside; Queen of Angels, Los Angeles; Watsonville Community Hospital, Watsonville; and Sharp Healthcare, Murrieta.

FINDINGS:

· In the first year after converting to for-profit status, charity care declined in four of the five hospital transactions with sufficient data to analyze. Charity care decreased 94% at United Western of Santa Ana; 88% at Good Samaritan; 84% at United Western of Anaheim; and 31% at Riverside. Charity care increased 71% at Pacific Hospital of Long Beach. In this deal, sales documents contained no charity care obligations, but did contain strong service and patient volume guarantees.

· Declines in charity care frequently coincided with substantial increases in "bad debt," the amount of charges that a hospital cannot collect from patients who are able but unwilling to pay. According to the report, this indicates that the newly for-profit hospitals began to charge some patients whom they previously considered charity cases. Faced with a hospital bill, such patients may decide in the future to defer or forego treatment, or go to a different hospital.

· In none of the ten hospital transactions analyzed did the sale proceeds, usually set aside in a foundation, sufficiently replace the community benefits provided by the hospital before it became a for-profit company. Community benefits include a hospital's activities that address community needs, primarily through disease prevention, improvement of health status, and provision of charity care.

RECOMMENDATIONS:

· Improve access and fairness of public participation in these transactions. Meaningful public participation is the single most important tool to limit the potentially negative impact. Key steps to maximize public input include timely community notice of a pending sale, prompt release of documents and conveniently scheduled public hearings.

· Health impact statements should examine short- and long-term impacts, identify any unprofitable but critical services likely to be cut, and analyze whether charitable proceeds and contractual commitments made as part of the deal are sufficient to mitigate identified gaps in care.

· Require that new for-profit owners provide, in perpetuity and adjusted annually for inflation, at least the same level of charity care as the nonprofit hospital has historically provided.

· Require the for-profit buyer to pay full fair market value for the public charitable assets it wants to acquire, not just a value within a "reasonable range."

· The Legislature should pass AB 254 (Cedillo), which would require more stringent regulatory oversight of mergers between nonprofit hospitals. These mergers are increasingly common and their potential health impact can be as significant as for-profit conversions.

"Our report offers regulators, policymakers and community members a tool to help evaluate the impact of hospital consolidations, and identifies steps to help improve the results," Mateo said. "California law broke new ground in protecting communities' health care in these hospital deals. However, this report indicates that state regulators must better enforce current laws. The Legislature should take further action to ensure that charity care is not sacrificed to profit."

Consumers Union, publisher of Consumer Reports, is an independent, nonprofit testing and information organization, serving only the consumer. We are a comprehensive source of unbiased advice about products and services, personal finance, health, nutrition, and other consumer concerns. Since 1936, our mission has been to test products, inform the public, and protect consumers.