Patients Who Pay

illustration by Doug Potter

On any given night, four of every ten hospital beds in Austin are empty. Given that, why are two new hospitals being built in Austin? More importantly, how will these new private hospitals affect the city's ability to care for its indigent patients?

The answer to the first question is easy: MedCath Incorporated of Charlotte, North Carolina will build a $27.5 million heart hospital, and Universal Health Services of Philadelphia is putting up a $14 million women's hospital, because they see a lucrative market.

No one knows the answer to the second question. But some critics are already predicting that the new hospitals will hurt the city's ability to provide health care for the poor and uninsured.

By early 1998, MedCath plans to be operating a 60-bed facility at the northeast corner of 38th and Lamar that will be called the Heart Hospital of Austin. Universal has begun construction of an 18-bed hospital near the corner of MoPac and Bee Caves Road, to be called the Renaissance Women's Center, that will specialize in obstetrics and gynecology. It will open next summer.

The new hospitals will compete for patients in a market that has had a radical makeover in recent years. Brackenridge Hospital was rocked in early 1994 by the discovery of a $21 million loss due to poor management. The problems at the city-owned facility led to negotiations with the non-profit Seton Medical Center, and in May of last year, the city inked a 30-year lease agreement with Seton that allows it to run Brackenridge. The biggest deal of the year, however, occurred in April, when St. David's Health Care System merged with health care giant Columbia/HCA in a deal worth $160 million. The move gives Columbia, America's largest hospital company, control over one-fourth of Austin's general-purpose hospital beds.

Dr. Joe Martin, a physician who trains other doctors at Brackenridge for the Central Texas Medical Foundation, says the heart and women's hospitals will siphon off paying patients that would have gone to Brackenridge or Seton. Those paying patients subsidize the health care costs of patients that cannot pay, so if the city's hospital beds start getting fewer paying patients, says Martin, they will have to charge the paying customers more or the city will have to kick in extra money to make up the difference.

Martin says the new hospitals are "skimming off the cream of the fee-for-services sector." He says that patients with heart-related problems are often elderly and are therefore covered by Medicare. Because Medicare is a fee-for-service program, Martin says, there is a potential for a conflict of interest. "Most physicians are ethical, but it raises the question: Where does the interest of the physician lie? Does he have an incentive to perform extra procedures?

"I don't think that's necessarily happening," adds Martin. But he points out that many Austin-area cardiologists will be investors in the new heart hospital. Thus, they will have a financial incentive to refer their patients to the MedCath hospital instead of to Seton or Brackenridge. "It's a conflict between the public good and rampant capitalism," he said. "And no one in the city has talked about the public good."

Charles Barnett, the president and CEO of Seton, also worries about the new heart facility. "I don't see that it helps the community," he said. "In the area of cardiac services, it is clear from the data available on quality of care that you need to concentrate cardiac care in limited sites. By moving cardiac services so they are diluted in the community, I think that will be harmful."

In addition, Barnett says, Austin already has plenty of hospital beds. He points out that Brackenridge
(308 beds), St. David's (483 beds), and Seton (472 beds) are all within a few miles of each other. "To put another hospital in this area is ludicrous in terms of resources," he said.

MedCath focuses on hearts because that's where the money is. Americans spend some $117 billion per year on coronary care. And unlike other hospitals which use profits from cardiac treatment to pay for other services, MedCath uses its profits to build more hospitals. The company opened its first heart hospital in McAllen in January and is building additional ones in Tucson and Little Rock. To help smooth the way for their Austin facility, the company has hired local political consultant/operative Mimi Correa to help them get the necessary approvals.

Founded in 1988, the company went public in 1994 and is traded on the NASDAQ. Its stock soared earlier this year to more than $40 per share but last week it was trading at $14, the same price at which it went public.

The Renaissance Women's Center has not received as much scrutiny as the heart hospital because it is far smaller, and because it's planning an alliance with Seton. Lauren Scott, the center's CEO, says "We are bringing women's services into a warm environment with the highest quality doctors and technology. It will be a benefit for Austin and not a negative in any sense." Owned by Renaissance Centers for Women, a subsidiary of Universal, the facility will be staffed primarily by female doctors. Universal owns 30 hospitals in 14 states and had revenues last year of $931 million.

But the biggest scalpel in the Austin market is wielded by Columbia/HCA. In addition to its half ownership interest in St. David's, Columbia owns half of the Austin Diagnostic Center's new 118-bed hospital on north MoPac, and it owns South Austin Medical Center and Round Rock Hospital. The New England Journal of Medicine and CBS's 60 Minutes have both run pieces recently that are critical of the Nashville-based company's rapid absorption of not-for-profit hospitals. With $20 billion in assets, it controls half of the nation's for-profit hospital beds and 7% of all hospital beds in the U.S. It is the nation's 10th largest employer. But the company's aggressive expansion has also invited scrutiny from federal and state regulators over possible antitrust violations. This summer, officials from the Texas Attorney General's office investigated Columbia's valuation of the assets at St. David's. And in August, the AG intervened in a suit that prevented Columbia from acquiring St. Luke's Episcopal Hospital in Houston.

As each new entrant in the hospital derby jostles for market share, Barnett says, the time has come for a comprehensive look at Austin's health care delivery system. "Twenty percent of our population doesn't have health insurance," he notes. "If we don't come to grips with that, we will either have deterioration in the community in which we live, or we will have to increase the subsidy [of hospitals] from the city, county, state or federal government."