Choice in Health Care: Why You Can't Compare a Hospital to a Grocery Store

Feb. 4, 2005 – Public hospitals throughout the nation deliver a wide range of essential healthcare services – including emergency response, trauma care, neonatal intensive care, and disease injury prevention – that make them an essential part of their communities. America depends heavily on the special mission of its public hospitals and healthcare systems, but these same hospitals are struggling financially, facing government cutbacks and staffing shortages that threaten the delivery of these health care services.
On a weekly basis, community hospitals are closing their doors and leaving many individuals without accessible medical care, not to mention many people without jobs. Last month, Southwest Atlanta Hospital, citing lack of state funds and high debt, closed its doors after 40 years, leaving 250 unemployed. In Los Angeles, the beleaguered Martin Luther King Jr./Drew Medical Center, one of three county-run hospitals in LA, closed down for good. In Houston, after struggling with empty beds and mounting financial problems, the Bellaire Medical Center filed for Chapter 11 bankruptcy protection. In Northern Michigan, Northport Hospital shut down after 47 years.
In all these cases, patients are transferred to other regional hospitals, often forcing rural residents to drive many extra miles to see their doctor or emergency room. But this is not an option for St. Thomas residents. What would happen if the island's only hospital closed? The result would be devastating, both to our economy and to the healthcare of our residents.
RLSH Budget slashed 17 percent
The Roy Lester Schneider Hospital, Myrah Keating Smith Community Health Center and Charlotte Kimelman Cancer Institute (RLSH) are not in danger of closing. They are in danger of losing many key services without the support of the Government of the Virgin Islands. Why? Like two-thirds of all U.S. hospitals, the RLSH is in the red. This year we project a $23 million operating loss. The 2005 budget submitted by the Governor reduces the government subsidy to RLSH by $2 million (8 percent) to $21.7 million. The Office of Management and Budget has further reduced our allotment by $2.1 million (10 percent) to $19.6 million. The overall $4.1 million dollar (or 17 percent) decrease in funding from the government will require RLSH to evaluate services that can no longer be provided to the community. We also face a further cut in Medicare payments, despite the fact that most hospitals lose money treating Medicare patients (Medicare pays about 30 percent of the cost of hospitals' providing care to Medicare patients). The largest loss comes through providing care to the uninsured (who represent one-quarter of all Virgin Islanders). Just last year, the cost of uncompensated care that RLSH provided exceeded $24 million. What is "uncompensated care"? That's care provided to the uninsured, the under-insured, and the people who cannot afford to pay. Unlike private health care facilities, we cannot reject these patients –hospitals cannot turn away those in need of emergency care based on their ability to pay.
Healthcare Economics 101
Unfortunately, there is a widespread lack of knowledge and awareness among our private sector leaders about how healthcare economics works. In a recent article in Modern Healthcare magazine, Eric Norwood, CEO of Dekalb Medical Center in Decatur, Ga., made a salient analogy. Imagine that instead of a hospital, Norwood wrote, you own a local community co-op grocery store, with all the profits going back into the co-op. Now imagine a customer named Joe Jones comes into your store and wants $1,000 worth of groceries, but says he doesn't have the money to pay. "My family is in need…it's a matter of life and death," he says.
What would you do as the owner of the co-op? Norwood said there are four options:
1. Deny Mr. Jones the food and tell him to go somewhere else with his problem.
2. Give him the food and ask someone else to pay for it.
3. Give him the food and set up a payment plan.
4. Just give him the food and take the loss yourself.
Let’s look at these four options a little more closely:
1. Don't give this needy person the food. Hospitals do not have the luxury of this option. In our country, Medicare established access to healthcare as a right for all people. There are laws that prevent hospitals from turning away those in need of emergency care based on their inability to pay. As a grocery store owner, it's within your legal rights to deny free food to Mr. Jones; but it’s not a choice in healthcare.
2. Ask someone else to pay for it. Many grocery store owners, in trying to help this poor soul to feed his family, might ask someone else to pick up the tab. In healthcare, most folks say the government should.
Imagine what might happen if the government funded food like it does healthcare. You the grocery store owner could not charge your retail price. Instead, the government will tell you what they'll pay for anything Jones wants, based upon what they think it should have cost you. Later, the government realizes it's spending more on food than expected, so it decides to pay you a flat amount for a week's groceries for folks like Jones. If Jones takes less than that amount, you get to keep the difference, but if he takes more, that's all you get. Soon, the government price is about half of what the groceries cost you. And you may not bill Jones the difference! Any rational business person would say, "I don’t want to play this game anymore!"
3. Have him pay you back over time. The sad fact is, some people in this country are in need by choice while others are in need through no choice of their own. Some don't have any income to pay for their care, while others make a good income yet choose not to buy insurance. The twist in healthcare economics comes in when insurance companies negotiate volume discounts for their members, while those without insurance have to pay the normal retail price.
Suppose we now have a Sam Smith who is standing in line right in front of Jones, and Smith bought "grocery insurance." Since there are many grocery stores in town, each insurance company negotiates discounts for members. Jones, with no government support, no private insurance, sees Smith getting groceries for less than the retail price. He's upset!
No problem. A third man is standing in line. He's a famous tort attorney. "Let's sue the grocery store," he says, "because they've overcharged you for groceries. And with all the money they have in the bank, they ought to be giving you food for free! We'll put together a class-action lawsuit against all the co-op grocery stores in the country – or at least the ones with money in the bank!"
Overcharged?! Yet wasn’t that the retail price, the starting point, the amount you needed to pay your expenses and stay in business? That money in the bank doesn't even belong to you. It came from your neighbors, plus what you have accumulated over the years to build new stores and underwrite debt. Your co-op grocery store is the only "safety-net" in your community that helps people in need like Jones.
4. The final option – just give Jones the food and take the loss – is advocated by some who say you as a diligent grocery store owner can afford the loss, since you have built reserves. You don't have any stockholders, so 100 percent of your profits goes right back into serving the community.
Of course you can't afford to take the loss. If you don't replenish the co-op's balance sheet, there won't be a grocery store some day. The entire community will suffer.
Unfortunately, that's what's happening in many U.S. communities today. It could happen in the Virgin Islands someday. Until our federal and local governments decide to tackle the unavoidable question, "Who pays for Jones?" those that have always found a way to serve him – Ame
rica's hospitals, and our hospitals – will eventually be unable to do so.
Rodney E. Miller, Sr. is president and CEO of the Roy L. Schneider Hospital.

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