The Sickly State of Public Hospitals

There are many types of hospitals but the most				finance hyper-sophisticated marketing. Public policy
well known are the Public Hospitals. What sets				must be written to support "safety net"
them apart is that they provide services to the				institutions. They must be allowed to organize
indigent (people without means) and to minorities.				their own MCOs (Managed Care Organizations of
Historically, public hospitals started as correction				patients), to insure patients and to market their
and welfare centres. They were poorhouses run				services directly to groups of potential consumers.
by the church and attached to medical schools. A				This way they will save the 20% commission that
full cycle ensued: communities established their				they are paying HMOs currently. If they become
own hospitals which were later taken over by				more efficient and reduce utilization, they will
regional authorities and governments - only to be				absorb the full benefits, instead of ceding them to
returned to the management of communities				contracting groups of patients and insurance
nowadays. Between 1978 and 1995 a 25% decline				companies or even to the government's medical
ensued in the number of public hospitals and those				insurance plans. The hospitals will thus be able to
remaining were transformed to small, rural				construct their own networks of suppliers and
facilities.				share their risks with their physicians or with the
In the USA, less than one third of the hospitals				insurance companies as best suits their objectives.
are in cities and only 15% had more than 200				An example: a Public Hospital with its own
beds. The 100 largest hospitals averaged 581				healthcare plan is likely to make use of all its
beds.				specialists and facilities, increase capacity utilization
A debate rages in the West: should healthcare be				and profits - whereas today only its primary care,
completely privatized - or should a segment of it				less lucrative, services are used by independent
be left in public hands?				HMOs.
Public hospitals are in dire financial straits. 65% of				The government can limit the total number of
the patients do not pay for medical services				healthcare plans available, so that the one
received by them. The public hospitals have a legal				propagated by the public hospital will stand out
obligation to treat all. Some patients are insured				and not be swamped by hundreds of other plans.
by national medical insurance plans (such as				Such a public hospital plan could also be declared
Medicare/Medicaid in the USA, NHS in Britain).				the "healthcare plan of default" - anyone who has
Others are insured by community plans.				not selected a plan will be automatically referred
The other problem is that this kind of patients				to and included in the public hospital plan.
consumes less or non profitable services. The				Not every hospital can start an HMO plan. Only
service mix is flawed: trauma care, drugs, HIV				the big ones can support the necessary insurance
and obstetrics treatments are prevalent - long,				payments, the reserve requirements and the
patently loss making services.				marketing and administrative costs. The paradox
The more lucrative ones are tackled by private				is that big public hospitals are already committed
healthcare providers: hi tech and specialized				to HMOs, insurers, other patient groups, or
services (cardiac surgery, diagnostic imagery).				government-sponsored MCOs. These resist the
Public hospitals are forced to provide "culturally				inclusion of hospitals which own competing
competent care": social services, child welfare.				healthcare plans - in their networks. This is natural:
These are money losing operations from which				a hospital with a plan - is a direct competitor of a
private facilities can abstain. Based on research,				private provider of healthcare management and
we can safely say that private, for profit				insurance. Another obstacle is that governments
hospitals, discriminate against publicly insured				are very reluctant to encourage the public sector
patients. They prefer young, growing, families and				on account of the private one. This is definitely
healthier patients. The latter gravitate out of the				out of fashion nowadays.
public system, leaving it to become an enclave of				So, an alternative strategy looks more viable:
poor, chronically sick patients.				Public hospitals can act as direct contracting
This, in turn, makes it difficult for the public				networks. They can team up, pool their
system to attract human and financial resources.				resources, exercise political lobbying, relegate
It is becoming more and more destitute.				administrative and audit functions (data processing,
Poor people are poor voters and they make for				claim processing, payment system, accounting,
very little political power.				legal services) to a common centre. This will
Public hospitals operate in an hostile environment:				eliminate the need for middlemen like the HMOs.
budget reductions, the rapid proliferation of				These joint networks will be able to negotiate
competing healthcare alternatives with a much				contracts with other contractors: physicians,
better image and the fashion of privatization				pharmacies, specialized laboratories and so on. This
(even of safety net institutions).				will assist the public hospitals to preserve a loyal
Public hospitals are heavily dependent on state				and stable (low churning) patient base.
funding. Governments foot the bulk of the				Finally, public hospitals are large employers with
healthcare bill. Public and private healthcare				political muscle. All they lack is the will to exercise
providers pursue this money. In the USA, potential				it. They should do it to force governments to
consumers organized themselves in Healthcare				adopt some unpopular decisions: offer incentives
Maintenance Organizations (HMOs). The HMO				to HMOs which will refer patients to public
negotiates with providers (=hospitals, clinics,				hospitals, require HMOs to use all the range of
pharmacies) to obtain volume discounts and the				services (both primary and speciality),
best rates through negotiations. Public hospitals -				compensate public hospitals directly for nonpaying
underfunded as they are - are not in the position				patients.
to offer them what they want. So, they lose				But the public hospitals must begin to behave as
patients to private hospitals.				public entities: they must open their decision
But public hospitals are also to blame for their				making processes and make them
situation.				community-oriented. They must shift from relying
They have not implemented standards of				on contractual language to relying on
accountability. They make no routine statistical				administrative law (regulations) - except when it
measurements of their effectiveness and				comes to employment. In a nutshell: they should
productivity: wait times, financial reporting and the				be business oriented, on the one hand - and
extent of network development. As even				publicly accountable on the other.
governments are transformed from "dumb				There is the little matter of Public Relations and
providers" to "smart purchasers", public hospitals				advocacy. Public Hospitals have a terrible image
must reconfigure, change ownership (privatize,				and they are doing very little to change it. They
lease their facilities long term), or perish. Currently,				do not even collaborate with researchers trying to
these institutions are (often unjustly) charged with				establish a factual fundament concerning "safety
faulty financial management (the fees charged for				net medical and social care". In a world where
their services are unrealistically low), substandard,				images count more than realities this may well be
inefficient care, heavy labour unionization, bloated				the public hospitals biggest mistake.
bureaucracy and no incentives to improve				Eight Ways to Improve the Operation of Public
performance and productivity. No wonder there is				Hospitals
talk about abolishing the "brick and mortar"				A public hospital can lease physical space or
infrastructure (=closing the public hospitals) and				temporal slots, or computer equipment or any
replacing it with a virtual one (=geographically				other equipment which suffers capacity
portable medical insurance).				underutilisation - to their physicians for private
To be sure, there are counterarguments:				practice.
The private sector is unwilling and unable to				The lessee physicians will undertake to pay the
absorb the load of patients of the public sector. It				hospital - either in the form of fixed fees or in the
is not legally obligated to do so and the marketing				form of participation in the income (franchise
arms of the various HMOs are interested mainly in				arrangements).
the healthiest patients.				They will also commit themselves to provide
These discriminatory practices wreaked havoc				community-oriented, non profit services in return
and chaos (not to mention corruption and				for the right to use what is, essentially,
irregularities) on the communities that phased out				community property.
the public hospitals - and phased in the private				Another method of using the excess capacity is
ones.				to sell it, rent it, or lease it to entrepreneurs who
True enough, governments perform poorly as				are not members of the hospital staff. There are
cost conscious purchasers of medical services. It				many such possibilities: small laboratories, speciality
is also true that they lack the resources to reach				medical services, primary care and specialist
a substantial segment of the uninsured (through				practitioners. All these would love to use the
subsidized expansions of insurance plans).				superior infrastructure of the hospital. The right to
40,000,000 people in the USA have no medical				use this infrastructure can be given in the form of
insurance - and a million more are added annually.				a concession, a franchise, a rental arrangement,
But, there is no data to support the contention				or any other arm's length mode of collaboration.
that public hospitals provide inferior care at a				Professionals are likely to jump on the bandwagon
higher cost - and, indisputably, they possess				when they realize that the hospital provides them
unique experience in caring for low income				with a "captive market" of patient. This is very
populations (both medically and socially).				much like the relationship between an "anchor" in a
So, in the absence of facts, the arguments really				shopping mall and the small retail shops
boil down to philosophy. Is healthcare a				surrounding it. The small shops benefit from the
fundamental human right - or is it a commodity to				business diverted in their direction from the big
be subjected to the invisible hand of the				"anchor" outlets.
marketplace? Should prices serve as the				The next logical step would be to sell products
mechanism of optimal allocation of healthcare				and services to the community on a commercial,
resources - or are there other, less quantifiable,				competitive basis. The hospital does not have to
parameters to consider?				limit itself to the sale of medical goods and
Whatever the philosophical predilection, a reform is				services. It can also sell medical legal services, use
a must. It should include the following elements:				its print shop to offer print jobs, organize its social
Public hospitals should be governed by healthcare				services as a profit centre and sell them to the
management experts who will emphasize clinical				community or to individuals, offer medical
and fiscal considerations over political ones. This				consultancy on a fee per service basis, even sell
should be coupled with the vesting of authority				food from the hospital kitchen through a catering
with hospitals, taking it back from local				service or data to researchers from its archives.
government. Hospitals could be organized as				A natural extension of this approach would be
(public benefit) corporations with enhanced				"internal privatization".
autonomy to avoid today's debilitating dual effects:				A hospital is a collection of small (to medium) size
politics and bureaucracy. They could organize				businesses operating under one organizational roof.
themselves as Not for Profit Organizations with				Laundry, cleaning, kitchen, the provision of
independent, self perpetuating boards of directors.				television sets and telephones to patients, a
But all this can come about only with increased				business centre for the hospitalized businessmen -
public accountability and with clear measuring, using				these are all profit or loss generating centres.
clear quantitative criteria, of the use of funds				Internal privatization entails the transformation of
dedicated to the public missions of public hospitals.				the hospital into a holding company. This holding
Hospitals could start by revamping their				company will own and operate a host of
compensation structures to increase both pay and				corporations. Each corporation will constitute a
financial incentives to the staff.				separate contractor which will provide the hospital
Current one-fits-all compensation systems deter				with a service or a product. Thus, all laundry will
talented people. Pay must be linked to objectively				be done by a corporation which will charge the
measured criteria. The Hospital's top management				hospital for its services. The same will go for the
should receive a bonus when the hospital is				kitchen, the printshop, the legal services and so
accredited by the state, when wait times are				on. These corporations will employ the former
improved, when disrollment rates go down and				staff of the hospital. This way, the knowledge and
when more services are provided.				experience accumulated within the hospital will not
To implement this (mainly mental) revolution, the				be lost. The corporations owned by the former
management of public hospitals should be trained				employees will have a "right of first refusal" in the
to use rigorous financial controls, to improve				first five years following the transformation. The
customer service, to re-engineer processes and				employee-owned corporations will be allowed to
to negotiate agreements and commercial				match the best offers in yearly tenders that the
transactions.				hospital will conduct for the services that they are
The staff must be employed through written				offering.
employment contracts with clear severance				These corporations will also be allowed to offer
provisions that will allow the management to take				their services to other clients. Thus, they will
commercial risks.				reduce their dependence on one employer, the
Clear goals must be defined and met. Public				hospital. They will become truly entrepreneurial
hospitals must improve continuity of care, expand				entities, competing for profits in a market
primary care capacity, reduce lengths of stay				environment.
(=increase turnaround) and meet budgetary				A part of the re-engineering process is to
constraints imposed both by the state and by				determine which of the functions that the hospital
patient groups or their insurance companies.				fulfils are "core functions", indispensable functions
All this cannot be achieved without the full				without which the hospital will cease to exist or
collaboration of the physicians employed by the				will change its identity to such an extent that it will
hospitals. Hospitals in the USA form business joint				no longer will be recognizable as a hospital. All
ventures with their own physicians (PHO -				other, "noncore", functions should be tendered out
Physicians Hospital Organizations). They benefit				(a concept called "outsourcing"). They should be
together from the implementation of reforms and				awarded in a tender to the most competitive
by the increase of productivity. It is estimated				bidders, regardless of their identity and previous
that productivity today is 40% less in the public				allegiance. The hospital is likely to benefit from the
sector than in the private one. This is a dubious				transfer of functions, in which it has no relative
estimate: the patient populations are different				competitive advantage, to outsiders whose
(sicker people in the public sector). But even if the				expertise these functions are. This is somewhat
figure is incorrect - the essence is: public hospitals				akin to international (free) trade, where each
are less efficient.				nation optimizes its resources and passes the
They are less efficient because of archaic				(beneficial) results of this optimization process to
scheduling of patient-doctor appointments,				its trading partners.
laboratory tests and surgeries, because of				To control this kind of transformation, medical
obsolete or non-existent information systems,				information management systems need to be
because of long turnaround times and because of				introduced. Many are available and they improve
redundant lab tests and medical procedures. The				both the quality and the quantity of data available
support - which exists in private hospitals - from				to the management of the hospital and, as a
other (clinical and nonclinical) personnel is absent				result, the decision making process. This will make
because of impossibly complex labour rules and				it easier for the management to pinpoint which
job descriptions imposed by the unions. Most of				areas require doing what. For instance: the
the doctors have split loyalties between the				management of the hospital will be able to
medical schools in which they teach and the				determine what kind of incentives should be
various hospital affiliates. They would tend to				provided to which members of the staff, where
neglect the voluntary affiliates and contribute				could costs be cut and where and how could
more to the prestigious ones. Public hospitals				productivity be improved.
would, therefore, be well advised to hire new				Finally, a novel concept is emerging. Universities
staff, not from medical schools, share risks with				and hospitals are two important repositories of
its physicians through joint ventures, sign				human knowledge and experience. Virtually every
contracts with pay based on productivity and put				hospital somehow collaborates with an academic
physicians in the governing boards. In general, the				institution, or with a medical school.
hospitals must shrink and re-engineer the				There is symbiosis between hospital and medical
workforce. About half the budget is normally				and social researchers.
spent on labour costs in private hospitals - and				Hospitals should actively encourage this. It
more than 70% in public ones. It is no good to				improves their image, it contributes to their ability
reduce the workforce through natural attrition,				to provide quality services. But should not do it
mass layoffs, or severance incentives. These are				for free. They should be contractual partners to
"blind", nondiscriminating measures which affect				the commercial exploitation of the results of
the quality of the care provided by the hospital.				research conducted within their premises or with
When compounded by work rules, seniority				their co-operation. There is a vast field for
systems, job title structures and skewed				pharmaceutical, medical, genetic and bioengineering
grievance procedures - the situation can get				research - and a lot of opportunities to make
completely out of hand.				money for the benefit of the entire community.
The government must contribute its part. Public				By not getting commercially involved - hospitals
hospitals cannot comply or compete with the				give up money which really is not theirs to give
demands of national, publicly traded HMOs with				up.
political clout and the capacity to raise capital to

Integrail

The Sickly State of Public Hospitals