Most hospitals lose money on operating basis.

Most hospitals lose money on operating basis

The majority of Los Angeles County's hospitals lost money on an operating basis last year, according to figures recently released by the Office of Statewide Health Planning and Development.

Of 127 general acute-care hospitals in Los Angeles in the state survey, more than half, or 68, lost money if revenues from patients are compared against operating expenses. The survey covered public, private and non-profit hospitals.

The figures, however, are not entirely conclusive: Hospitals receive additional income from charities and foundations, but also spend additional sums on capital improvements, such as expensive high-technology medical equipment. The bottom line for hospitals could be better or worse than expressed by the operating figures.

Nevertheless, making money on an operating basis is considered the financial acid test for most hospitals. "For most hospitals that has become the credo, you want to break even on an operating basis," said David Langness, spokesman for the Hospital Council of Southern California, a Los Angeles-based organization of 232 member hospitals. "Unfortunately, fewer are able to do so than ever before."

Hospitals reporting large operating losses include Queen of Angels-Hollywood Presbyterian Medical Center, with $12.2 million losses on $80.2 million in net patient revenues; the California Hospital Medical Center, with $9.5 million in losses on $65.7 million in revenues; and Memorial Medical Center of Long Beach, with $19.2 million in losses on $262.2 million in revenues (see accompanying table).

The hospital operating losses are another indication that the healthcare crisis gripping California and the nation is particularly acute in Los Angeles.

With large low-income and immigrant populations, Los Angeles County has the highest fraction of adults -- roughly one-quarter -- uncovered by health insurance of any region in the United States, according to the UCLA School of Public Health.

The medically indigent cost millions of dollars when they show up at hospitals needing care, but are unable to pay the $1,594-a-day the average hospital stay in Los Angeles cost in 1989.

"We spend $8 million a year on the medically indigent," said Thomas Priselak, chief operating officer at the 1,200-bed Cedars-Sinai Medical Center in Los Angeles. "Our indigent care obligation has come because we have an open emergency room, and have remained in the trauma system."

(The trauma system is a network of local hospitals that have emergency rooms and ambulances trained and equipped to handle life-threatening injuries, such as gunshot wounds and injuries received in auto accidents. Due to the high fraction of trauma patients who are uninsured, many local hospitals have dropped out of the system, unable to afford the uncompensated costs.)

Compounding financial problems for local hospitals is continuing tightfistedness on the part of private-sector insurers, the State of California and the federal government, all of which have reduced payments to hospitals in the late 1980s.

Perhaps the biggest problem: Medicare, the federal health program for the aged, pays for about 90 percent of the costs of caring for the elderly, said hospital administrators. And Medicare patients make up about 34 percent of hospital stays in Los Angeles County, according to the state survey.

"Every year is getting worse, because the federal government is not playing fair with the medical industry," said Darrell Stafford, director of finance at the Memorial Medical Center of Long Beach. "Cutting Medicare payments is one way to balance the budget."

In recent years, Medicare payments have been increased by 0.5 percent or 1 percent a year, far below the rate of inflation, said Stafford. Prior to reforms in the mid-1980s, the Medicare system more or less compensated hospitals for all bills incurred treating Medicare patients, a system some said did not encourage efficiency.

Now hospitals are compensated a fixed amount per type of admission, such as $10,000 for an appendectomy. The hospital must make a profit on the fixed payment. But in recent years, hospital administrators have complained the fixed amounts are below the costs of treatment, even for an efficient hospital.

Other hospitals are groaning under the freeze on Medi-Cal payments, the state program for the indigent. Medi-Cal patients make up about 21 percent of hospital admissions in Los Angeles County. However, because certain hospital have contracts with the state to provide care to Medi-Cal patients, and others don't, the costs of providing Medi-Cal vary widely from facility to facility.

For example, Medi-Cal admissions make up more than one-half of admissions at the French Hospital in downtown Los Angeles, but only 2.1 percent of admissions at Cedars-Sinai, which does not have a contract with Medi-Cal.

Today, hospital administrators say that Medi-Cal covers only 60 percent of costs. Making matters worse, Medi-Cal has not honored bills for five weeks, as stage legislators wrestle with a way to fund a $250 million shortfall in the system. One state bill would come up with $158 million, and no one is sure what will happen to the remainder of the state debt.

"There are two hospitals in Los Angeles that may go under if Medi-Cal does not come up with more money," said Langness, who declined to divulge the names of the endangered hospitals. "And others will be made even more weak financially."

In the late 1980s private insurers, responding to complaints from customers that health plans had become too expensive, began to demand discounts from hospitals. These discounts are won in exchange for an insurer placing a hospital on an "approved" list of health care providers, which employees, generally speaking, must go to for health care. The result of this trend has been a large increase in the fraction of private-sector patients who get health care at a discounted price. "It is getting harder and harder to shift costs from the indigent onto the private-paying patient," said one administrator who requested anonymity.

There are some glimmers of hope in the hospital world. Proposition 99, passed last year by state voters, has applied a 25-cents-a-pack tax on cigarettes, the money from which can be used to provide health care to the indigent. Cedars-Sinai has already received $1.8 million from the cigarette tax, making a dent in the $8 million a year it spends on the poor, said Priselak of Cedars-Sinai.

And this year state legislators will again wrestle with bills that may force California employers of more than five workers to provide health insurance to their workers.

"The public has shown it is willing to pay for health care," said Langness of the Hospital Council, who said a recent poll conducted by his organization revealed Californians would pay more to give care to the poor. "We think we will get legislation, or another ballot measure, passed this year."

PHOTO : County-USC Medical Center