Hospital costs rise in California, but quality doesn't follow

News outlets report on rising hospital prices in California and the difficult financial situation of hospitals in New York and Massachusetts.

Kaiser Health News, in collaboration with Bay Area News Group, reports that while prices are rapidly rising at California hospitals, the quality of care is not always better at those that are most expensive. "Hospital rates in the Bay Area now are among California's most expensive, propelled upward by prominent hospitals and networks, including Sutter Health, Stanford Hospital & Clinics and John Muir Health, according to private and government data. Statewide, hospital prices have been rising rapidly for years. For privately insured patients, the cost of a stay has increased annually by an average of 8.5 percent over the past five years, while the cost of an outpatient visit has grown by 9.6 percent a year, state records reveal. In many cases, hospitals are able to keep raising prices beyond inflation because their sizes or reputations give them clout in negotiating rates with insurers, researchers say. Yet high prices don't always equate with superior care. Quality measures for some of the Bay Area's most prestigious hospitals, including Stanford and John Muir, show that in some instances, less expensive competitors perform as well or better in their basic responsibilities, such as avoiding infections and high death rates for patients in intensive care" (Rau, 10/17).

Check out the interactive graphic. This story is part of an occasional KHN series about hospitals.

Meanwhile, New York Magazine reports that "an alarming number of New York's major medical institutions are teetering on the financial edge." The plight of St. Vincent, a Manhattan hospital that closed in April, "has been portrayed by public officials and the media as a story of local misfortune—a community losing a vital piece of its infrastructure and a centerpiece of its identity to a combination of mismanagement, the recession, and bad luck. The truth, though, is considerably more alarming. St. Vincent's collapse is only the most visible symptom of an ongoing financial emergency facing the city's five dozen remaining hospitals and threatening those they serve. In a sense, St. Vincent's is the Lehman Brothers of the local hospital industry: an institution whose dramatic disappearance, once unthinkable, raises dire questions about the viability of the entire system."

Several other hospitals in New York have also closed or been taken over by larger health systems. "The financial distress of New York hospitals is not evenly distributed, but it is nearly universal," even for the largest and most prestigious hospitals. "New York's many community hospitals, which provide an essential first line of defense in the effort to safeguard public health, the danger of failure is particularly acute. … The bottom line is sobering: In 2008, local hospitals spent $3 billion more delivering care than they took in. Overall, they operated at a 6 percent loss—an average that masks much deeper red ink at the worst-performing places. In contrast, hospitals nationwide have earned average profits of about 4 percent over the past decade" (Levine, 10/17).

The Boston Globe spoke with Lynn Nicholas, president and chief executive of the Massachusetts Hospital Association, about the state of the hospital industry during the economic downturn. "[I]t's actually not very healthy, no pun intended," she said. "In fact, 27 percent of hospitals have total [operating] margins less than zero. So there are a lot of stressed hospitals, some with less than two weeks cash on hand. All of the hospital margins are on average below what's considered healthy, which is about 3 percent. So there's a lot of stress." While some hospitals in the state are cutting jobs while others are offering employee bonuses, Nicholas said that "[a]ll hospitals are being affected by the economy in terms of their overall volume and financial wherewithal" (Weisman, 10/17).

The Milford (Mass.) Daily News: "The medical network that includes UMass Memorial Medical Center has cut 350 jobs, citing pressure that includes costs from insurers and the government and a leveling of patient visits, likely tied to the economy and unemployment. … The organization declined to answer questions but issued a statement promising that safety and quality would not be jeopardized. The move was pinned on flattened patient visits and lower payments from private insurers, Medicare and Medicaid. UMass Memorial typically treats more Medicaid patients than other hospitals in the region. UMass Memorial also cites higher costs for medical supplies, equipment and medications and for salaries and benefits" (Morton, 10/18).

---

This article was reprinted from kaiserhealthnews.org with permission from the Henry J. Kaiser Family Foundation. Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization unaffiliated with Kaiser Permanente.