Medicare and for-profit hospitals

By Vin Suprynowicz
web posted September 1997

You need heart surgery. You can choose between two competing practices:

One surgeon drives a fancy car and lives in a big house. He took the job because it pays in the mid six figures, easily beating out hundreds of other medical students, discovering both the theory and the manual skills came to him as easily as falling off a log.

Your other option is a government-run hospital where, as a matter of considerable pride, the doctors refuse to accept pay any higher than the nurses' aides. The surgeon who will handle your case is an earnest young man who took post-graduate medical courses at an inexpensive medical college in the Caribbean after spending the past two years in Bill Clinton's AmeriCorps program, painting pig sheds in Alabama.

Noble young man with a mission to serve ... or greedy capitalist?

As with any other field of endeavor, the free market with its "focus on the almighty dollar" has historically done the best job of encouraging individuals to seek out the employment where their talents are most valued by their fellow men.

But now, with the well-publicized indictment last month of three managers of the nation's largest for-profit hospital chain, Nashville-based Columbia/HCA Healthcare Corp., some of Washington's usual suspects are braying that medical care and profits don't go together.

The profit motive "has no place in the health care system," says Rep. Pete Stark, the California collectivist credited with prompting the probe of Columbia/HCA. For-profit hospitals "will self-destruct because they'll get too greedy. I think Columbia's getting into that corner right now."

It's significant that most of the problems being faced by America's now-booming "for-profit" medical segment seem to result when this different paradigm interfaces with government bureaucrats inherently suspicious of "greedy capitalists," and thus far more likely to cry "fraud" than they are to blow the whistle on any amount of incompetence or misallocation in a wholly government-run system, like, say ... the Veterans Administration hospitals.

Hospitals have no realistic choice but to accept Medicare patients, and it's no secret Washington's main initiative in containing runaway Medicare costs has been to pro rate payment of billings for such care, down to an official rate of 89 cents on the dollar (it's often lower) -- even before the current "budget-balancing deal" on Capitol Hill, where most of the Medicare savings come in the form of "lower reimbursements."

The government has engaged in this "ratcheting down (of) the reimbursements," Holman W. Jenkins, Jr. writes in the August 5 Wall Street Journal, "in the full and complete knowledge that its payments don't cover the cost of the services provided, and that hospitals make up the difference by 'cost shifting' to other patients whose bills are paid by private insurers. If anybody has been gaming the system, it's the fine people of the Health Care Financing Administration, the federal body that runs Medicare. And their unindicted co-conspirators are a flimflam outfit known as the U.S. Congress..."

Frightened by federal forms that promise "imprisonment, fine or civil penalty" for seeking too much reimbursement, doctors actually tend to "downcode" their bills, creating further shortfalls in hospital reimbursements, Jenkins explains. Yet when hospital administrators revise the billings to more accurately reflect the real services provided, they risk of being accused of "fraud."

Does this mean no one at Columbia/HCA did anything wrong? It's too soon to know. Certainly, investors who pressure managers to keep repeating the kind of 15 percent annual earnings growth Columbia/HCA has been showing, may invite trouble.

But the problem here is not the tentative resurgence of the profit motive, but rather the government net in which these businesses still find themselves largely ensnared.

"Depending on sunspots or the mood of the auditor, some charges are permissible on Thursday, a felony on Friday, and OK again on Monday," Jenkins reports, under Medicare regulations which "run to 45,000 pages."

How many profitable auto manufacturers do we imagine would be left in this country -- what kind of innovation would we find in auto design, and how long would waiting lists be -- if each auto buyer paid only $1,200 for her vehicle, and the dealer then had to wade through 45,000 pages of regulations in order to send in a "claim form" to Washington for his remaining $22,800, knowing he might get as little as 60 cents on the dollar, months down the road, and in the meantime could be indicted for fraud for "overcharging the government" by as little as $40?

Did I mention the amount of "excess" capital overhead for which Columbia/HCA is alleged to have "overbilled" Medicare in these "fraud" indictments?

$1.7 million over 10 years.

Vin Suprynowicz is the assistant editorial page editor of the Las Vegas Review-Journal. Readers may contact him via e-mail at The web site for the Suprynowicz column is at

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