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Hospital health in the 1990s; despite shortfalls in Medicare, Medicaid, urban hospitals continue to thrive while rurals go under.

Hospital Health In The 1990s

Trying to get a grasp on Arkansas' $1.8 billion hospital industry you first start with the realization of how large a role it plays in the state's economy. Hospitals employ over 33,000 people and in many communities are the largest employer.

But since 1983 and Medicare's unwillingness to foot the full cost of rising medical expenses, hospitals in rural areas of the state have taken a beating. Eleven community hospitals have closed since that time and as a glance at the chart beginning on page 40 shows, many more may soon follow.

The root of the problem is twofold. First, Medicare's Diagnosis Related Group system only pays hospitals a set rate for patients admitted with the same diagnosis. Since 1984, Medicare has increased its DRG payments by 14 percent; while hospitals in the state say their prices have risen by 28 percent.

Second, Medicaid pays most hospitals based on reasonable costs, but for a third of those hospitals the rates are stuck at 1982 levels. This shortfall in income is what hospitals call "contractural allowances" and a glance at the chart shows that for many hospitals they are a sizeable burden.

The Arkansas Hospital Association estimates that in 1989 hospitals in the state lost an average of $80 on each Medicare patient discharged and $684 for each Medicaid patient treated.

Despite these reported losses, hospitals continue to thrive, particularly large urban ones. Baptist Medical Center in Little Rock which leads this year's list reported $192.6 million in revenues and contractural allowances at Baptist were a hefty negative $48.5 million, or 26 percent of overall revenues. But the bottom line at Baptist was still well in the black with $9.8 million in net profits.

Below are a few of the areas hospitals must focus on to thrive in the 1990s.


As the nursing shortage continues, hospitals and universities are scrambling to increase their programs and their recruitment efforts.

Although enrollments have increased and stabilized at schools around the state, it is not enough to keep up with demand, according to Mary K. Priddy, UAMS director of nursing.

Eight years ago, hospitals needed about 52 nurses per 100 patients, but today that ratio is 98 nurses to 100 patients, says Priddy. Hospitals must compete with out-patient clinics, doctor's offices, and industry, all of which enable nurses to work regular daytime hours instead of the round-the-clock hours of a hospital.

Nurses' salaries are up in Little Rock, and they're becoming competitive with regional salaries.

"A new graduate, with no experience, normally starts somewhere between $20,500 and $21,000 per year," says Priddy.

As serious as it is, the nursing shortage is not the only personnel problem plaguing the hospital industry. Shortages exist in almost every allied health profession, including lab technology, pharmacy, respiratory therapy, radiologic technology and physical therapy, says Russell Harrington, Baptist Medical Systems president.

The University of Central Arkansas currently has the only physical therapy program, according to Roger Busfield, Arkansas Hospital Association president. UCA will soon expand its program, he says, thanks to Blue Cross/Blue Shield, several hospitals, and the Arkansas Chapter of the American Physical Therapists, which raised more than $100,000 for program expansion. It is hoped this will help alleviate the shortage of physical therapists.


While hospital charges continue to increase around the country, patients pay less to be hospitalized in Arkansas. The average charge per inpatient day in Arkansas hospitals is 15 percent lower than the national average, according to figures provided by the Arkansas Hospital Association.

That's largely because health care costs, especially in hopitals, are driven in part by labor costs, and labor costs are lower in Arkansas, say the experts.

"In terms of per capita income or median family income, Arkansas pretty much has 75 to 80 percent of the national average," says Douglas Murray, Center for Health Statistics director.

Medicare and Medicaid have become two of the largest purchasers of that lower health care in Arkansas, accounting for more than 50 percent of all patients admitted to Arkansas hospitals in 1989, according to the AHA. But while hospital costs have been increasing about five percent per year, Medicare payments have increased only a little more than 1 percent per year, according to Harrington.

While Medicaid pays hospitals based on allowable reasonable costs, 32 of the state's larger hospitals are paid based on their 1982 costs, the AHA claims. "Government shortfalls, contractual write-offs and unsponsored care resulted in about 60 percent of urban hospitals and more than two-thirds of rural hospitals losing money on patient care during 1988," Harrington says.

In 1989, Arkansas hospitals lost just under $600 million. "There is no such thing as a hospital that doesn't make a profit, if they want to stay in business," Busfield says. "You can't even stay open breaking even."


Since 1983, at least 11 Arkansas community hospitals have closed, most because of a lack of occupancy, says Busfield. The costs of a hospital go up as the volume goes down "because you're staffed for a normal occupancy and then all of a sudden you don't have any patients."

Busfield believes the situation has stabilized, though he says we may see a few more closings. To stay profitable - and open - hospitals are diversifying and acquiring profit-making subsidiaries like parking lots, home health programs, clinics and office buildings. Busfield says hospitals will become especially aggressive about nursing homes.

"By the end of this century, most of the nursing home industry as we know it will be well on its way to being absorbed by hospitals," he points out.

But for the present, "pretty much what is keeping many hospitals afloat are other revenue producers, such as large out-patient clinics," says Paul Cunningham, AHA associate vice president.


As hospitals build new facilities, add new services and modernize their physical plants in order to attract patients, competition among institutions heats up, Harrington says.

"But in the health business, unlike most others, competition actually drives prices up, not down," he asserts. "Hospitals don't compete on price, they compete on service."

To attract patients, the Methodist Hospital in Jonesboro is just one of several hospitals in the state that waive the first-day deductible to attract patients, according to Busfield.

In addition, hospitals try to come up with a program that no one else has. A Fort Smith hospital specializes in treating impotence. And of course they must advertise their program or speciality.

"Most of the competition is in the marketing," Busfield says. An article in Science magazine claims marketing efforts coupled with high administration costs add not to the bottom line, but to hospitals' expenses: "A contributing factor to higher outlays in the U.S. seems to be that we spend more on billing and such other administrative costs as marketing than do other countries.

Some estimates place the cost of administration as high as 22 percent of national health care spending, perhaps two-fifths larger than would be necessary with a single payer."


The Arkansas Health Department would like to collect more statistics on illnesses and cure rates. A discharge survey, which hospitals would complete when a patient is released, is one of the things they say they need.

"We have a great deal of information about birth and death, but very little information on what happens in between," says Douglas Murray, director of the Center for Health Statistics. some kind of a hospital discharge survey, and the Arkansas Legislature has authorized it here, but no money has been appropriated for it yet, Murray says. The AHA opposes the state collection of that kind of data, calling it needless duplication, since the AHA already keeps those statistics in their data bases.

"We have the data they would like to have, but they don't want us furnishing it because they're afraid ours is biased." Busfield says. "AHA has furnished most of the data used by health planning for years."

AHA reveals another reason in its literature, reprinted here: "AHA's data center...fills a void, which if left unfilled, could encourage government, business coalitions, insurance companies, or private organizations to establish their own data programs which could be a detriment to the AHA and its member hospitals."

PHOTO : HOSPITAL HEALTH: Entering the 1990s, both hospitals and patients are strugglng for answers in the search to control steadily rising medical costs. Photo courtesy of UAMS.

PHOTO : NURSES NEEDED: Better pay and working conditions needed for nurses.

PHOTO : A HEALTHY START: Rural Arkansans are seeking doctors who will minister to their health needs, but the economics of modern medicine are driving them to profitable urban centers.
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Author:Gibson, Carolyn
Publication:Arkansas Business
Date:Jun 4, 1990
Previous Article:A winning idea .
Next Article:Medical business; blending medical research with business smarts is the goal of this UAMS team.

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