Los Angeles Business Journal

Special Report: Troubling Symptoms

By Deborah Crowe Monday, November 10, 2008

"Let me put it this way: New Orleans lost two-thirds of their hospital beds in Katrina and they still have three beds for every 1,000 people we're lucky to have 1-bed-per in the L.A. Basin," said Strople.

Losing leverage

Los Angeles and California hospitals also must deal with burdens that hospitals in other states don't face.

Hospitals are under looming deadlines to retrofit or replace their main patient care buildings to withstand a major earthquake. Many facilities have spent up to $100 million or more on new buildings, though state legislators recently relaxed the deadlines for the work to be completed. But that's a capital expense that many hospitals have funded with long-term debt or capital drives. Day-to-day there's an even bigger problem.

The 2000 U.S. census pegged the number of uninsured residents in the county at 2.7 million, the largest in the nation by far and a figure boosted by the high number of illegal immigrants. But on top of the huge number of indigent patients who can't pay their bills, the hospitals even take a hit for treating Medical patients; the state pays out the lowest such benefits in the nation.

A study by the Kaiser Family Foundation found that on average in 2005 the state paid out $2,701 per Medical beneficiary for all care provided by doctors and hospitals, compared with a national average of $4,662. That's a disparity not caused by California patients being any less sick, but rather efforts to balance the state budget since the program requires state matching funds.

Moreover, Southern California hospitals typically get 15 percent less than their northern counterparts based on a formula that was created years ago when local hospitals were less unionized and thus had sharply lower labor costs than those in the north. That is less the case after big hospital organizing drives by the Service Employees International Union and other unions over the past decade.

Then there's the issue of private insurance, which can account for 40 percent to 70 percent of gross revenues. L.A. is a fragmented hospital market, with roughly 60 different ownership entities. That gives hospitals less leverage in contract negotiations than the larger hospital groups up north.

That wasn't always the case. Earlier this decade, Tenet Healthcare Corp. was the largest hospital chain in the county. Tenet at one time owned 17 hospitals, giving it a near monopoly on providing acute care in certain communities. That monopoly gave the company muscle when it negotiated reimbursement rates from private insurers. The insurers needed Tenet's hospitals as places to send their members more than Tenet needed additional patients.

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