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Health Policy Advisory Center No. 41 May 1972 HEALTH / PAC BULLETIN HOW TO BUILD A HOSPITAL Across the country hospital construction is becoming a big business. Hospital con- struction expenditures nearly doubled be- tween 1969 and 1970 and in New York City, hospital construction applications have tripled during the last 18 months. This has happened because of dramatic changes in the way hospital construction is financed. Money for hospital construc- tion comes from three sources: philan- thropy, government grants, or sources in- ternal to the hospital, such as borrowing or the use of cash reserves (see box Page 3). Philanthropy During the early part of this century, nearly all hospitals were built (as well as operated) by philanthropy, but this pat- tern has undergone major changes in the last thirty years. While the actual amount of philanthropic funds for hospital con- struction has increased, relative to other sources, it is declining in importance. Philanthropic support varies according to both the kind of hospital and the region where it is located. Private contributions supply as much as 57 percent of volun- tary hospital capital construction funds in the Northeast and as little as 6 percent in the Mountain and Pacific states. Very little is given to public hospitals and none goes to profit making ones. Studies show that the older and larger the hospital, the more it is likely to receive philanthropy. Most philanthropic money for construc- tion is donated by large contributors through fund raising - drives conducted by the hospital. Organized philanthropies, such the Federation of Jewish Philanthrop- ies and Catholic Charities play a small role in funding hospital construction. Government Direct government financing of capital construction peaked shortly after World War II, when it provided nearly two thirds - of all hospital construction funds (much of which went into building Veterans ' Administration hospitals). By 1970, how- ever, governmental sources provided only 17 percent of voluntary hospital construc- tion money and 56 percent of construction funds for public (federal non - ) hospitals. The primary source of federal grants for voluntary hospital construction has been the Hill Burton - program. However, Hill Burton - money has provided only 13 percent of the cost of voluntary hospital construction from 1946 when the legis- lation was enacted until 1967. In the past, the Hill Burton - program has strongly favored rural and suburban, as opposed to urban areas. The federal government now funds con- struction of health facilities under a varie- ty of other programs such as the Health Professions Educational Assistance Act, the Economic Opportunity Act, Model Cities, mental retardation programs, com- munity mental health centers, and re- search programs in heart disease, cancer and stroke. These programs finance some hospital expansion, but compared to other sources, they are relatively insignificant. All federal grants together comprise only 16 percent of all (public & volun- tary) hospital construction funds. State and local government financing contribute CONTENTS 1 Hospital Construction 4 Hospital Expansion 8 Health and Hospitals Corporation another 7 percent, most of which goes to public hospitals. Loans and Self Financing - The greatest change in hospital con- struction financing has taken place in the ability of hospitals to finance construction on their own through - loans and their own reserves as would any other business enterprise. This has become possible only recently, due to the growth of hospitaliza- tion insurance, particularly Blue Cross, Medicare and Medicaid which have help- ed to stabilize hospital income. Over 89 percent of all Americans are now covered by some form of hospital insurance. Not only have insurors such as Blue Cross, Medicare and Medicaid made hospitals financially viable enterprises, but most include specific allowances for construction costs in their payments to hospitals. These take the form of depreci- ation on hospital plant and equipment (the original cost divided by their usable lifetime usually considered to be about 25 years for hospital buildings) and the cost of interest on loans acquired to fin- ance hospital construction (the " cost " of borrowing money). Often a ceiling, such as six percent of the total reimbursement, is set on depreciation and interest costs. Borrowing, which was frowned upon in the days when hospitals were run by char- ities, has grown dramatically in the last 20 years until today it has become the single largest source of construction financing. It provides 41 percent of the construction funds for voluntaries, 25 percent for public hospitals, and 64 percent for proprietaries. A hospital, like any business enterprise, may seek a commercial loan (usually long term -) at the current rate of interest, or in some cases, it may borrow from public funds where interest rates are lower. Some special government pro- grams, such as Federal Housing Adminis- tration and the more recent provisions of Hill Burton - , subsidize the interest rates on commercial loans or insure the lender against the risk of a hospital defaulting on a loan. The effect of either loan subsi- dies or insurance is a lowered interest rate for the hospital. New York is one of the first states to experiment with major programs to make public loan money available to hospitals. Through the sale of bonds, the Hospital Mortgage Loan Act will make available $ 1.75 billion in loans for voluntary hosp- itals and nursing homes. These can cover up to 97 percent of the cost of construc- tion, and this, plus the fact that the pro- gram includes no loan insurance, mean that hospitals must meet strict credit re- quirements to get a loan. This also means that financially - shaky hospitals in poor areas, which probably need expansion and modernization most, seldom qualify. Hospital loans can be similarly obtain- ed through the New York State Dormitory Authority, although each loan requires a special act of the State Legislature. The third major loan program for hospital construction in New York is the Health and Mental Hygiene Facilities Improve- ment Act, which will provide $ 1.8 billion, also through the sale of bonds, to public (city and county) hospitals. The act also establishes a quasi independent - corpora- tion which actually constructs facilities and then sells them back to the city or county involved. The Corporation (not to be confused with New York City's Health and Hospitals Corporation) was designed to cut the red tape and long de- lays normally involved with public hosp- ital construction, and to date it has ap- parently succeeded, although at reported- ly high construction costs. After years and sometimes decades of delay, two city hospitals in New York (Lincoln and Greenpoint) are under construction and a third, North Central Bronx Hospital, is nearing completion. But a loan is a debt, and regardless of how it is financed, it must be repaid. Not only must the principal of the loan be re- paid, but so must the interest, which can easily exceed the original amount of the loan. For instance, a private loan of $ 1 Published by the Health Policy Advisory Center, 17 Murray Street, New York, N. Y. 10007. Telephone 212 () 267- 8890. The Health - PAC BULLETIN is published monthly, except during the months of July and August when it is published bi monthly - . Yearly subscriptions: $ 5 students, $ 7 others. Second - class postage paid at New York, N. Y. Subscripions, changes of address, and other correspondence should be mailed to the above address. Staff: Constance Bloomfield, Des Callan, Oliver Fein, Marsha Handelman, Ronda Kotelchuck, Howard Levy, and Susan Reverby. Associates: Robb Burlage, Morgantown, West Virginia; Vicki Cooper, Chicago; Barbara Ehrenreich. John Ehrenheich, Long Island; Ruth Galanter, Los Angeles; Kenneth Kimerling, New York City. 1972. 2 million at 8 percent interest, repaid with level monthly payments over a 20 year - period, will cost 1,007,456 $ in interest alone. Similarly, payback on a $ 10 million loan will total $ 20,074,562. (4) Interest ranges from around eight percent on com- mercial loans to around five percent on straight public ones. The interest costs go to lenders, primarily banks and insur- ance companies. One recent study reports that three insurance companies presently hold over $ 1 billion in hospital debts. (4) An article entitled " Capital Financing for Hospitals, " by Rufus Rorem demons- trates the effect this has on patient costs. include the cost of land acquisition. (2) The cost of constructing municipal hosp- itals in New York City runs much higher, with some estimates as high as $ 200,000 a bed. These estimates provide a small glimpse of the big business which hospital con- struction has become and the impact it has on patient care costs. That it has be- come big business has been possible only through shifts in the general financing of hospital care specifically - Blue Cross Medicare and Medicaid. For the hospitals, this has meant a steady, guaranteed in- come and construction allowances which Hospital Hospital Construction Construction Funds Funds (By Percentage) Philanthropy Government Short - Term Hospitals (By Type) | Fund Fed. | Driv es Oth| er Tot al Grants Other Internal Total | Reserves Loans Other Total Private Nonprofit | 14.4 9.8 24.2 14.3 2.9 17.2 | 17.3 40.8 .3 58.4 (Voluntary) Public (Nonfederal) 1.3 6.6 7.9 | 26.7 29.3 56.0 | 9.8 25.4 .8 36.0 For Profit - - (Proprietary) - - - - | - 22.4 63.7 13.7 100.0 If a hospital bed cost $ 50,000 to build (total construction costs divided by num- ber of beds), the cost per patient day will be 17 $ for interest, depreciation and mis- cellaneous financing expenses (assum- ing 6 percent interest, 3 percent deprecia- tion, and 1 percent miscellaneous financ- ing expenses in a hospital averaging 82 * percent occupancy). Similarly, he estim- ates that the patient will pay $ 23 a day for a hospital bed that originally cost $ 70,000. (1) Rough estimates of construction costs in New York City range from $ 31,000 per bed for proprietary hospitals to 58,000 $ for voluntary community hospitals to $ 78,000 for teaching hospitals. This is only the contract cost, and does not include the cost of equipment, furnishing, site pre- paration, architecture and engineering fees, legal and development fees, and financing which add another 27 to 37 per- cent to the cost. None of these estimates are totally at the disposal of the hospital For banks and insurance companies, it has meant an increasingly attractive source for investment. For construction companies, it has been a windfall. And as usual, for the public, it has meant picking up the tab, either as paying patients or as taxpayers. -Ronda -Ronda Kotelchuck References 1. Capital Financing for Hospitals, " by C. Rufus Rorem, published by the Health and Hospital Planning Coun- cil of Southern New York, 3 E. 54th Street, New York, New York 10022, June 1968. 2. Health and Hospital Planning Council of Southern New York, Inc., 3 E. 54th Street, New York, New York 10022. 3. " Hospital Construction Reports, " published monthly by the American Hospital Association, 840 Lake Shore Drive, Chicago, Illinois 60611. 4. Hospitals, Journal of the American Hospital Associa tion, Special Issue on Capital Financing, Vol. 46, No. 5, March 1, 1972. 5. How " Hospitals Finance Construction, " by Richard Foster and Dorothy McNeil, Hospitals, Vol. 43, No. 13, July 1, 1971. 6. H"e aPlrtohg rFaamc iElleimteinetss, o"f bFye dCehraarll oLtatwes Mounl lFeirn,a nAcmienrgi coafn Journal of Public Health, Vol. 60, No. 2, February, 1970. 3 SAVE OUR HOMES Early this year several New York City tenant groups called a conference of those whose homes and neighborhoods were threatened by hospital expansion. Besides providing the opportunity to share experiences, expertise and problems among the more than 100 who attended, the conference also gave birth to the City- " wide Save Our Homes Committee, " a coalition of nearly a dozen different tenant groups currently fighting hospital expan- sion in the New York City area. The Problem This development is part of a growing wave of opposition to all institutional ex- pansion, not only in New York, but in cities across the country. Increasing num- bers of urban dwellers feel they have no choice but to stand and fight eviction. Ris- ing prices and diminishing buying power, widespread unemployment, a crisis in low and moderate - income urban housing and lack of public transportation leave them no option. This is particularly true in New York City where the recent loss of rent control has sent the price of apart- ments renting since July, 1971, skyrocket- ing and where mass transit fares have leapt 75 percent in two years, with no end. in sight. By and large, neighborhoods under the gun of hospital expansion are poor and working class. Many are black and Puerto Rican. Some are heavily sprinkled with elderly persons who have lived there 4 since their families first migrated from Europe decades ago. Many of these com- munities are viewed warily by their in- stitutional neighbors as " deteriorating " or " high crime " areas. The threat which hospitals present to these communities is substantial. By the tenants'own calculations, nine hospitals in Manhattan and Brooklyn own a total of over 100 buildings, involving nearly 1,500 apartments. About 5,000 tenants have been evicted or are threatened with eviction, and at least 337 apartments are presently being held vacant. And these are conservative estimates. In most cases, hospital expansion plans are not made public, so many tenants know nothing until they receive a notice from the hosp- ital asking them to leave. So these figures represent only those cases where tenants have become aware, have organized themselves, and have researched their situation. The sorest point among tenant groups has not been the expansion of medical facilities, but the building of staff hous- ing, parking lots and private doctors'of- fices. The Citywide Save Our Homes Com- mittee notes that the nine expansion pro- jects surveyed included six staff housing developments and five parking lots (see box page 6). Besides building new hous- ing, many hospitals have purchased ex- isting buildings or have arranged pre- ferential rental for their staff in existing apartment buildings. Hospitals claim that they face a short- age of doctors, nurses and other staff. In order to offer good medical service, they must compete for good medical person- nel, they say. And to do this, they must provide housing, parking and doctors ' offices. Housing is especially important, they emphasize, because staff are espec- ially reluctant to work in areas where they feel unsafe coming and going at night. For the hospital, expansion often kills two birds with one stone. Not only does it meet immediate staff needs, but it is often used to " upgrade " or at least push back the borders of " deteriorating " neigh- borhoods. Tenants, however, do not look so kindly on the effects of this " private urban renewal. " They feel that hospitals are intervening to solve problems of poor housing, high rent, crime, and poor trans- portation for their own, usually privileged, personnel who are best prepared to cope with these problems, while pushing out those who are least able to do so. Ironically, while hospitals claim to suf- fer because of the nature of the adjoin- ing neighborhoods, their own actions often contribute to deterioration and crime in those very neighborhoods. Any land- lord planning to tear down a building is unlikely to maintain its services, and hospitals are no exception. Worse than that, failure to maintain services is often used as a means of getting rid of tenants or " encouraging " them to leave without the hassle of going through formal evic- tion procedures or relocation fees. Con- sequently, many hospital - owned buildings become slums, and the tenants suffer from periodic lack of heat; electricity and water; rat infestation; falling ceilings; ex- posed wires; broken plaster, plumbing and windows; lack of locks and buzzers; etc. Vacant apartments are boarded up, attracting junkies, garbage, and more rats, and a downward spiral begins. Even after expanding, hospitals often find that new developments, without the vitality of community life, encourage crime. Alternative Approaches Thus far tenant groups have been care- ful to assure that their opposition to hospi- tal expansion does not mean opposition to better health care. In fact, often it is their own communities which also have the greatest need for improved health care. To avoid this potential conflict, the Citywide Save Our Homes Committee suggests alternatives for the hospitals: decentralizing some services by building small scale preventive and family care centers; seeking land which is vacant or not being used for low rent - housing; con- structing low rent - housing in which to relocate tenants before attempting to evict them; hiring and training commun- ity residents as health personnel, which would not only provide jobs, but eliminate the need for special staff housing; and working to improve public transportation which would meet both staff and com- munity needs. Tenants feel adamant that sound hous- ing must be seen as an important factor in good health; that hospitals must broad- en the scope of their health responsibilities to include community issues such as housing, and that, at the very minimum, hospitals must not contribute to the hous- ing crisis. Toward this end, the Citywide group has demanded that hospitals declare a " moratorium on the demolition of all structurally sound housing "; that apart- ments kept vacant by hospitals be " made available to community residents living in substandard housing "; and that, where hospitals own residential buildings, " pro- per services and maintenance be obtain- ed. " Tenants also feel strongly that hospitals must service and be accountable to the communities in which they are located; and that these communities must have a meaningful say in the development and expansion of those hospitals. To date the opposite has generally been the case. The procedures required for a hospital to ex- pand depend on what is being built and how it is being funded, but provisions for community involvement under any cir- cumstance are minimal. Token Community Input To expand or change its medical facili- ties in any way, a hospital must get ap- proval from they New York State Com- missioner of Health, who in turn relies on the recommendation of the Health and Hospital Planning Council of Southern New York. The Council is a private, self- perpetuating body which represents hosp- Hospital expansion is " private urban renewal. " ital interests. Neither the applications sub- mitted to it nor its deliberations on hosp- ital expansion decisions are public. The Council takes community participation in- to account in reaching its decisions, but relies entirely on the word of the hospital itself that this process has taken place. The upshot is that not only does the com- munity lack any meaningful say, but it does not even have the right to know what medical facilities its local hospital is plan- ning. A Comprehensive Health Planning Agen- cy (CHP) has recently been established in New York, which must make recommend- ations concerning certain kinds of hosp- ital expansion. While the power that CHP will have in the hospital planning decisions and the power that local com- munities will have within it are still un- clear, at least it appears that, through CHP, communities can demand early access to hospital expansion plans. No such public approval process is necessary to build staff housing, doctors ' offices, parking lots, or other facilities re- lated to, but not directly used for hospital 5 Hospital Hospital Expansion Expansion In NYC ** Hospital Mt. Sinai # Bldgs. Owned 25 Downstate 1 Brooklyn 13 Methodist Florence Nightingale 35 Beth Israel 8 New York Infirmary New York Eye & Ear Columbus Hospital St. Clare's Total 7 6 2 15 112 # Apts. Involved 250 107 6699 340 120 170 132 48 250 1,486 # Tenants Evicted or Purpose of Threatened Expansion # Apts. Being Held Vacant 900 Staff housing Parking lot 50 Other 460 Staff housing Parking lot 200 Staff housing 51 Parking lot 1,500 Expand facility 60 370 Staff housing 6 Offices Drug Program 510 Social services + 9 Will not reveal 396 Staff housing 60 Parking lot 70 Parking lot 21 (plans stopped) 350 Staff housing 80 Replace hospital 4,756 337 ** Calculations of tenants themselves. Most information on hospital expansion plans is not public, so chart represents only hospitals where tenants'groups have organized and researched hos- pital expansion plans. care, unless a hospital needs to obtain a zoning variance. In that case, the local community planning board must advertise and hold a public hearing prior to making its recommendation to the City Planning Commission which gives final approval, Tenant groups at Methodist Hospital in Brooklyn and at St. Clare's in midtown Manhattan are currently embroiled in struggles to win the support of their com- munity planning boards against expan- sion of those hospitals. When zoning changes are not required, however, there is no formal role for the community in those kinds of decision. Occasionally funds for certain pro- grams such as neighborhood comprehen- sive health centers and Ghetto Medicine (a New York State program to support outpatient services in voluntary hospitals) require community advisory boards. And even more occasionally, members of these boards have been able to use their posi- tions to get information or to put pressure on institutions. For example, the Ghetto Medicine Advisory Board of St. Vincent's Hospital went to court to get access to financial information on which expansion decisions were based (see BULLETIN, March, 1971). 6 To the Streets Formal opportunities for community input are few, arbitrary, and generally irrelev- ant, even though expansion projects are often built with public funds and hospitals are operated largely from public funds. Consequently, communities rely on age- old techniques for making their voices heard. For example, to build community support and embarrass the hospital, ten- ants of two of Mt. Sinai's worst tenements set up a photographic display and distri- buted leaflets in front of the hospital, ex- posing Mt. Sinai's role as slumlord. Tenants of Columbus Hospital and Florence Nightingale Nursing Home, re- lying on the presence of prominant public officials, pioneered such media techniques as the paint - in, the sleep - in and the walk- ing tour. During a recent walking tour, Florence Nightingale tenants " graded " their elected representatives on their per- formance regarding community housing problems. Many different tenant groups, with the assistance of OEO Legal Service lawyers and the Metropolitan Council on Housing, have become experts in filing complaints and conducting harrassment hearings, quasi - legal procedures established to pro- care and tuberculosis bed capacity of the Delafield are sent to St. Clare's and Har- municipal system. Implementation of the lem Hospitals. " With the admissions pri- shrinkage campaign is expected immedi- orities controlled by Columbia's physi- ately to save the Corporation $ 36 million a year in operating expenses. Money de- rived from the sale and / or leasing of hos- cians and so few services available, it's no wonder that Delafield's bed utilization is low. pitals is expected to generate additional Dr. Brown's allegation is further sup- revenue. ported by bed utilization patterns at some But before the cost conscious and bud- of the older, larger and most underutil- get juggling Lindsay administration gives ized city hospitals like Kings County its stamp of approval to the plan, it should Hospital where the 384 adult medicine be more closely scrutinized to determine 1 whether HSA's promise that patient ser- vices will not be sacrificed is valid. Utilization HSA argues that City hospitals can be shut down since the are underutilized anyway. In hospital administrators'lingo " utiliza- tion " is expressed in terms of occupancy rates - a percentage based upon the num- ber of beds occupied by patients divided by the total number of beds in an institu- tion. For example, if a hospital had 100 beds and 70 were filled, the hospital would have a 70 percent occupany rate. To document underutilization by City Hospitals, HSA examined the hospital cen- sus for December. It neglected to men- tion, however, that December is a low cen- sus month since patients avoid hospitaliza- tion and doctors discharge patients so that they can be home during the holidays. It is nonetheless undoubtedly true that City Hospitals have overall lower utiliza- tion rates than many voluntary hospitals in NYC. But HSA technocrats barely touch upon why this is so. Former head of HSA and present pro- fessor at the New York University Gradu- ate School of Public Administration, Dr. Howard Brown, blames the affiliated vol- untary hospitals. Brown suggests that chiefs of departments and subspecialty de- partments hold the reins in terms of ad- missions and bed utilization policies. The effect is demonstrated in the case of Dela- field Hospital. Delafield was built two decades ago to the tailor made specifications of Columbia College of Physicians and Surgeons and Presbyterian Hospital. It was to serve Columbia as a cancer research and experi- mental treatment center. Since 1967 the hospital's services have been expanded to include renal dialysis and methadone programs. (Specialized services like these also account in part for why costs per pa- tient day at Delafield are a high $ 146.) However the hospital still offers no pedi- atric, obstetrics, emergency room or ambu- lance services. As a member of the Dela- field Health Planning Committee, com- munity activist Dave Dubnaw said, " Pa- tients who don't fit Columbia's interest in " In the 1960's, New York had affiliations with private medical centers. In the 1970's, New York got the semi private - Health and Hospitals Corporation to run its hospitals. In the 1980's, New York will have no more public hospitals! " _ Health - PAC Press Release, April 13, 1972 beds are divided among 12 medical sub- specialties. 541 total adult surgical beds are similarly subdivided among 10 sub- specialities. Subdivisions exist for other services as well. The result is that pa- tients overflowing the neurosurgical ward cannot use beds reserved for ophthalmol. ogy. This means that to maintain high oc- cupany, City hospitals must fill each of the subspeciality wards. While some City hospital services sit empty, others are filled to capacity. For example, during the winter, the occupancy on the medical ser- vice at Harlem Hospital was a dangerously high 96 percent. According to HSA, gener- al care inpatient census increased across the board for all city hospitals 16 percent this past year. Though obviously inefficient and ex- pensive, specialty and subspecialty sub- divisions are retained because they clearly serve the interests of the faculty of the af- filiated teaching centers. Each Department enhances its own status and prestige by re- taining its own complement of beds. Segre- gating patients by disease fits neatly into the teaching and research needs of the medical school and its faculty. 9 To add to the problem, the teaching hospitals also determine where city hos- pitals are to be located. Thus a number of City hospitals, like Jacobi Hospital, are located conveniently for the medical school (in this case Albert Einstein Col- lege of Medicine) but miles away from where poor patients live. Moreover, teach- ing centers gerrymander catchment areas to serve their interests. Thus it is difficult, and sometimes impossible, to change dis- tricts to, for example, relieve overcrowd- ing at Harlem and underutilization at rela- tively nearby Metropolitan Hospital. There is undoubtedly waste in the utili- zation of beds in the City hospital system, but as Professor Brown commented, " Until the dukedoms established in hospitals and on wards by the private institutions are attacked, nothing will be done about the utilization problem of City hospitals. " Thus far, neither HSA nor the Corporation give any indication of mounting this attack. This simplistic and misleading analysis casts doubt upon HSA's proposals for cost savings. For example, the cost of unused beds in the City hospitals is exaggerated. In most hospitals, empty beds cost almost as much to maintain as full beds because in either case the hospital must pay such costs as nursing, ancillary services, heat " Until the dukedoms established in hospitals and on wards by the private institutions are attacked nothing will be done about the utilization problem of City hospitals. " -Howard Brown, M.D., former head of HSA and present professor at the NYU Graduate School of Public Administration. ' and utilities. To be sure, City hospitals also have these fixed sevices. However, the HHC has already saved much of the costs HSA is talking about by its drastic understaffing of the hospitals. Bankrupt Logic for a Bankrupt System " Shrinking " the municipal hospital sys- tem is designed to ease the Corporation's budgetary crisis. HSA and presumably the Mayor's office and the Bureau of the Budget are also concerned with cutting back on the amount of money spent by the City, independent of Corporation ex- 10 penses on health care. HSA is banking on " increased collections performances, " by the private sector, particularly with refer- ence to Medicaid to accomplish this feat. The reasoning goes something like this: The City must pay 100 percent of a poor patient's health care costs, if the patient isn't covered by some form of insurance. If, however, the patient is enrolled under Medicaid, the City's share of the expense is only 25 percent (25 percent State and 50 percent Federal). Since HSA expects the private hospitals to be more efficient about getting patients onto Medicaid, HSA reasons that the cost to the City should be eased. While the City hospitals are reimbursed a miserly 123 $ per day for Medicaid pa- tients, most teaching hospitals receive be- tween $ 140 and $ 170 a day. Not only are the extra dollars an incentive for the pri- vate hospitals to enroll patients on Medi- caid, they also permit the hospitals to hire personnel for the sole purpose of doing this job. Patients are helped to fill out forms, appointments are made with wel- fare centers and suggestions are offered about how to stretch interpretations of Medicaid eligibility. Finally, private hos- pitals can coerce patients to seek Medi- caid benefits. They have the unfortunate power to deny treatment uness a patient enrolls on Medicaid. City hospitals, on the other hand, are hospitals of last re- sort and cannot (unless they are closed) turn patients away. To placate public opinion, HSA has of- fered assurances, that, if hospitals are closed, non Medicaid - patients would not be turned away from private institutions. It proposes to pay these institutions for the care of non Medicaid - patients who cannot pay. However, this destroys the logic of (1) the incentive for private hos- pitals to enroll patients on Medicaid; and (2) the expected cost savings to the City. HSA is toying with the idea of giving the private hospitals an extra $ 5 per patient bonus for each Medicaid patient they en- roll, thus suggesting that even HSA sus- pects that the voluntaries'much praised - , but entirely unproven " efficiency, " may be illusory. Unfortunately, HSA seems never to have considered such an incen- tive system for its own hospitals. HSA's plan may save the City and the Corporation money over the short haul. But as municipal hospitals are shut down, the private medical institutions will gain a monopoly on hospital beds. At this point they will have the power to blackmail the City into paying higher Medicaid reim- bursements. The City will be billed an arm and a leg for non Medicaid - patients treated at private hospitals. For poor and near poor patients, the up- i shot will be disaster. Private institutions will still pick and choose patients based not upon their medical needs, but rather upon their ability to pay and their teach- ing value.Many patients now served by hospitals whose closings are threatened will never be accepted in private hos- pitals: alcoholics, narcotic addicts, elderly and other patients with chronic diseases, etc. If Medicaid eligibility is cut back further, fewer and fewer patients will be able to pay and will be turned back to the shrunken public hospitals. For all pa- tients, the closing of City facilities will mean less accessible medical care and the burden of traveling great distances to get to a hospital. For example, if Coney Island Hospital were to close, patients would have to travel eight miles with no direct transportation to get to the closest City hospital - Kings County. The HSA memoranda clearly imply that cutting im- mediate expenses is the issue; the patients be damned. The more serious implication is that the City wishes to abdicate its re- sponsibility for providing health care al- together. And indications are that the City is moving quickly toward this end. Bargain Basement Deals The most definite offer to buy a hospital at a bargain basement price has been made by the Episcopal Church Charities Foundation. For the Foundation, the attrac- tion of Coney Island Hospital is twofold: the inexpensive acquisition of Coney Island's relatively new physical plant and fiscal benefits which may accrue to it from Coney Island's Medicaid reimbursement rate. The Foundation presently operates several small, poorly reimbursed hos- pitals in New York. For example, its 250- bed St. Johns Hospital receives only $ 92 a day from third party reimbursors. If the Foundation takes over Coney Island Hos- pital, with its $ 119 a day reimbursement rate, it stands a chance of renegotiating its reimbursement rates with insurance agen- cies and Medicaid for all its hospitals. Though officially denied by all parties, it is well established that Van Etten and Delafield Hospitals have been offered by HSA to the Health Insurance Plan of Greater New York (HIP). HIP, a prepaid group practice, has for many years sought unsuccessfully to acquire its own hos- pitals so that it can offer comprehensive health services along the lines of the Kaiser Permanente Plan. Surveying the hospital market, a HIP official commented that neither Delafield nor Van Etten are ideal, but that " three or four other City hospitals are being discussed with City officials. " As the fiscal cords become tighter around the Corporation, we can look for- ward to other voluntary hospitals placing their bids. Already there is talk of the City being unable to open the spanking new North Central Bronx Hospital. When the price is right, Montefiore Hospital, which worked for over 12 years to have North Central Bronx built in its own backyard (complete with tunnels to Montefiore), will step forward to graciously offer to take it off the City's hands. The affiliation program has already vested more than enough control of pub- lic hospitals in private hands. The per- formance of the voluntary hospitals un- The Warped Board Despite repeated assurances from the Health and Hospitals Corporation (HHC) that the establishment of Com- munity Advisory Boards (CAB) is a high priority, thus far only four have been set up. When the Seaview Hospital CAB was announced, a furor was enacted on usually quiescent Staten Island. 90 doctors boycotted the hospital to protest the delegation of authority to the nonprofessional CAB. The terms of the settlement however, do not augur well for the effectiveness of CAB's, if and when they ever get off the ground. The agreement now reached by the Seaview CAB and the doctors added three doctors to an expanded Board of thirty seven - members. The CAB is now expressly forbidden to judge " the acceptability of services rendered to patients " nor can it ques- tion matters of medical diagnosis and treatment. These critical prob- lems are the responsibility of the hospital's Executive Director and Medical Board. Still more ominous, the Corpora- tion conceded to the doctors respon- sibility for the " establishment of pri- orities in relationship to planning; al- location of funds within the hospital [and] areawide planning through ap- propriate agencies and mechanisms. " That doesn't leave the CAB much to do beside gazing at the Verrazano Bridge. Not a bad agreement for a one- week walkout. It just goes to prove that some workers have all the luck. Of course, it helps if the workers hap- pen to also be doctors. 11 der the affiliation contracts has been scan- dalous. The importance of HSA's propos- als is that they threaten to convert a deep erosion of public responsibility into a veritable landslide. Once the process of divesting of health facilities is begun, it will be difficult to turn back the tide. Reaction to the release of the HSA memoranda was immediate. HSA Chief Gordon Chase claimed that the memos were " routine... draft analyses. " HHC President English denied that he had ever seen the memos, though independent sources are certain English was well aware of their contents. The Mayor's office claimed that the memos were merely contingency'plans. " Official postures of innocence not with- standing, many hospital workers and con- sumers understand the gravity of the situ- ation. On the day of their release the Board of the Health and Hospitals Corpo- ration angrily denounced the HSA propo- sals and the Corporation's failure to inform the Board of the going on - sale negotia- tions. The Board unanimously adopted a resolution stating: " No other agency has authority to buy, sell, lease, or dispose of any of the facilities except with the ex- press consent of the Board of Directors... " Victor Gotbaum, president of District Council 37 (the union which represents most workers in City hospitals) said Chase " would get rid of all the hospitals if he could, since he has no concern for patients as human beings. " And Dr. Ger- ald E. Thomson, Chief of Medicine at Har- lem Hospital and president of the Society of Urban Physicians remarked, " It is in- credible that such considerations have been going on without any consultation with the communities involved, with med- ical staff, or with the hospital workers. " Community groups at Kings County and Coney Island Hospitals have expressed anger over the HSA memos. A member of Delafield Hospital's Planning Committee reacted typically to the proposed sale of Delafield. The Delafield community, he said, has two demands: () 1 " Delafield not be closed; " and (2) Delafield " be ex- panded into a full general hospital. " Perhaps the most salutory effect of of the HSA secret memo caper is that for the first time the public has been permitted to see that the HHC is not the only City agency responsible for the City hospitals ' plight. HSA, which had been as quiet as a dormouse for two years, suddenly moved into the act. Even HHC's Board of Direc- tors expressed amazement at the involve- ment of the Bureau of the Budget and HSA _ What " right, " said Board member Ed Rothschild, " does the Bureau of the Budget have to conduct guided tours of our hos- pitals for prospective private buyers? " 12 These developments are taking place in the midst of mounting criticisms of the Corporation. Two recent auditing reports have increased the flak directed at Corpo- ration headquarters. Andersen Report Dissent has simmered, and sometimes boiled over, within HHC's own Board of Directors for the past year. In the Spring of 1971, the 16 member - Board directed the accounting firm of Arthur Andersen and Company to examine HHC's books. The Board's directive reflected the growing suspicion that Corporation management had badly bungled its job and was, among other things, fiscally inept. After all, one of the most persuasive arguments for cre- ating this semi private - authority had been that of bringing sound fiscal man- agement to the municipal hospital system. Arthur Andersen and Company was charged with auditing the Corporation's books from July 1, 1970 to June 20, 1971, its first fiscal year. They found it an im- possible task. The best the Andersen and Company could do was to go through the Corporation's bank statements. In that limited pursuit, it reported in February that discrepancies were found (over and under estimates by the Corporation com- bined) totalling $ 200,000,000! As damag- ing as the Andersen report was, informed sources state that the report which was finally made public was the least dam- ning of three drafts- the two previous drafts having been watered down after discussions with Corporation officials. The Andersen Report, while not having the influence of the similarly named Washington columnist, did throw the mu- nicipal hospitals'would - be IT & T into an heroic face saving - effort. On February 12, instead of publishing its proposed Budget for Fiscal Year 1972, Joseph English, Pres- ident of the Health and Hospitals Corpo- ration, produced a 140 page - Apologia (Memorandum " on Accounting Proce- dures and Internal Control ") for its 1970- 71 activities - the same period uncovered by Andersen accountants. This long- winded report, while acknowledging a multitude of fiscal failures in budgeting, collections, payroll, purchasing, inventory and disbursements - attempts primarily to shift responsibility for these failures to others. Anybody and everybody is scapegoat- ed in English's report. The Interim Task Force which helped set up the Corporation has its knuckles rapped. Next, the consult- ing firms which advised the Corporation are lambasted. Even the Department of Social Service which used to collect Med- icare and Medicaid reimbursements, gets bawled out for its inefficiency. However, all is not lost. The Corpora- tion report paints a valiant picture of its activities unsaddling - itself of one klutzy consultant after another. These have been replaced by others who have devised new. systems and programs. The Report goes on to indicate that if these new plans don't work, the responsibility will lie else- where again. For example, the Corpora- tion has developed a Case Management System, whereby the patient is tracked " from the point of his admission to the hospital through the final collection of the bill. " But, Corporation President English points out, " the single limiting factor of this system is the quality of the data in- put... " Hospital workers are blamed for this defect " the quality of the paper work submitted is inferior " and " hospital- level productivity is low. " English wishes is almost $ 2.5 million more than under the old Department of Hospitals. The budget for the rest of the Corporation's central office is approximately 20 $ million. Despite its face saving tone, the English Report is important for two reasons: (1) it was published in lieu of a detailed pro- posed budget, and (2) it emphasized cen- tralization of management. The English report was issued in lieu of a prospective budget and only offers the illusion of public scrutiny of Corporation affairs. While nearly everyone agrees that fiscal 1970-71 was a bad year, people are more concerned about fiscal 1972-73. De- spite the assurances of top Corporation officials like Joseph Mann, Senior Vice- President for Operations, that " no cult of secrecy surrounds the Corporation " this year, no budget is published. Last year the " New positions created for HHC included 94 executives, earning in excess of $ 20,000 annually, for a total annual cost of approximately $ 2.5 million. The old Hospitals Department, as of June 30, 1970, had 75 employees earning salaries of $ 20,000 or more annually. This included 12 individuals earning salaries of $ 30,000 or more. The annual salaries of these employees totaled $ 1,882,310. A check of the March 19, 1971 payroll revealed that there were 169 such employees. The total annual salaries of these employees reached $ 4,361,400. In addition, the number of individuals earning salaries in excess of $ 30,000 had increased from 12 to 33 and there are now 3 individuals earning salaries in excess of 50,000 $. " -The Beame Report on the Health and Hospitals Corporation to introduce productivity standards de- veloped by industrial engineers. He im- plies that the problems can be resolved, but only if the chronically short staffed - hospitals can extract more work from their workers. It hardly matters since English's re- port implies that given the chronic short- age of funds which go to the Corporation, it will never be known what a terrific job the Corporation is doing. The Corporation claims to " demonstrate progress * in building an administrative structure which could work, if adequately financed. " One should note that the total salaries of of- ficers of the Corporation (earning $ 20,000 or more a year) has nearly doubled and public was denied access to the budget for the affiliation contracts. This year it's de- nied access to the budget for the entire municipal hospital system. So much for public scrutiny and non secrecy - cults! The second item of importance in the English Report is its emphasis on central- ization of management. The proposed de- centralization of hospital administration, the public is told, was premature and ill- conceived. It is dismissed as a political ploy: " The concept of decentralization... had been used to gain support from key management personnel in the hospitals who sought autonomy for the local institu- tions. " While administrators, doctors and nonprofessional hospital workers alike. 13 blame the demoralization of hospital em- ployees on the distance they feel from and lack of influence they are permitted to exert upon the Corporation, English of- fers counter productive - " recentralization " as one solution to the problems of the mu- nicipal hospitals. Recentralization can " en- sure consistency of the work product and ensure appropriate disciplinary follow - ups in instances where personnel productivity and quality of outut is questionable. " There's nothing like cracking the whip to inspire a demoralized work force. On the Beame In case some people feel lingering sym- pathy for the plight of Joe English and sus- pect the Andersen report of being too harshly critical, it would be good to note that the grand daddy - of all accountants- the Comptroller of the City of New York, Abraham Beame, came out with his own report in March, 1972 which reinforces the conclusions reached by Andersen and Company. " This report was prepared on an interim basis because of the Corporation's failure to comply with its mandated responsibility to produce for audit a definitive annual report, supported by valid and complete financial and pro- grammatic documentation. " It concludes: " HHC employs a very large managerial and administrative staff. Notwithstanding, this staff was unable to produce for our evaluation operational plans, charts, standard operating procedures, perform- ance standards or performance measure- ments. In light of this, we question the managerial competence of some of these executives. " Many people, after reading the Beame and Andersen and Company auditing re- ports, will undoubtedly conclude that all of the ills of the municipal hospitals are just a case of incompetent management. One observer of the New York City health scene remarked that " it seems almost as if the Corporation was set up only in order to self destruct -. " Calls will undoubtedly be heard for Joe English's scalp within the next few months. To be sure, incompe- tence at high places of the Corporation hierarchy does exist, but to zero in on this barnside target would be to miss the bullseye by a mile. The Corporation's mis- management is but an inevitable conse- quence of its underlying structural defect. As long as two systems of health care exist one for the rich and middle class and the other for the poor - no manage- ment team will succeed. The wealthy pri- vate institutions will continue to call the shots attracting - the most resources while using poor patients to further their own in- terests of research and teaching. If the problem, however, is structural and not principally managerial, there are two solutions. As the HSA memos, the in- volvement of the Bureau of the Budget (reliable informants say the plan to sell Coney Island Hospital originated in the Bureau of the Budget) and the interest of private medical institutions affirm, one al- ternative is to turn the City hospitals en- tirely over to the private sector. This rep- resents a long term solution for the volun- tary teaching hospitals and a short range transfusion for the City's hemorrhaging bank account. For patients, however, it is worse than no solution at all; it turns them on the mercy of private hospitals which have manifested little concern for their health needs. An alternative solution is to create an entirely new structure, characterized by decentralized, autonomous, community and worker control of health facilities. With real power in the hands of those who work in and use local hospitals, a united community and workforce could be ex- pected to fight the financially draining encroachments of the private hospitals upon public institutions. Communities and workers must first build their own power before they will be able to achieve power. If the HSA memos have done nothing else, they have begun to arouse potentially powerful forces who for the first time are beginning to see the power of private institutions long hidden behind impoverished quasi public - bodies like the Health and Hospitals Corporation. -Howard Levy and Constance Bloomfield THE POLITICS OF HEALTH CARE A Bibliography Edited by: Ken Rosenberg and Gordon Schiff Boston MCHR This 24 page annotated bibliography is packed with readings in the following areas: Power in the Health System, Health Capitalism, Health Workers, Com- munity Control, Women and the Health System, Health and the War, Other Countries, Strategies for Change. May be obtained for 30 from: New England Free Press 791 Tremont Street, Boston, Mass. 02118 14