Close Hospitals? Not So Fast.

A blog post I wrote last week raised the question of whether closing hospitals and firing low-performing physicians could help healthcare in the long-run. The story was based on comments from thought leaders, including athenahealth CEO Jonathon Bush, Cleveland Clinic CEO Dr. Toby Cosgrove and Dr. Ezekiel Emanuel, about America having too many hospital beds and the need for some to close and find a presence elsewhere in the healthcare spectrum.

Panel discussions at "idea festivals" can gain momentum and get provocative rather quickly, and I regret if my blog post did the same. I was not suggesting much-needed safety-nets or critical access hospitals in rural communities shutter and abandon their communities. Unfortunately, they are already doing so: 14 rural hospitals shut down across the country last year alone, according to the National Rural Health Association as cited in this Al Jazeera America report.

When 49-bed Vidant Pungo Hospital in Belhaven, N.C., closed July 1, it left the town's 1,500 residents with a 30-minute drive (at least) to the closest emergency room. There is the possibility that the distance may have already contributed to one patient's death, as it took an hour to transport a 48-year-old woman experiencing a heart attack to the next closest hospital via helicopter. The mayor of Belhaven began marching 273 miles to Washington, D.C., this week to draw attention to the closure and break away from his fellow Republicans by supporting Medicaid expansion. If North Carolina had expanded Medicaid, Pungo may be in a different spot.

Rather, the idea of closure or reduction of inpatient services was targeted more toward markets and metro areas saturated with hospitals. As my colleague Lindsey Dunn wrote yesterday, there are 121 metropolitan statistical areas (or markets) with only a 20-50 percent occupancy rate in the U.S., according to data from MedPac.

As care shifts from inpatient to outpatient and hospitals move toward pay-for-performance models — the ultimate goal being to keep people healthy and out of hospitals — the need for some hospitals to close doesn't seem so radical. For instance, Summa Health System in Akron, Ohio, recently closed inpatient services at its Wadsworth-Rittman Hospital after seeing low volumes. Rebranded as a health center, Wadsworth-Rittman will still house a freestanding emergency department and expanded primary care offices. 

Vidant Pungo and Wadsworth-Rittman's situations are different, but same can be said for each and every healthcare market, which is one problem in discussions about "hospital closures" being helpful. Given a community's political circumstances, demographics, and other confounding factors, a hospital closure can mean any one of a hundred different things.

Alan Sager, PhD, a professor with Boston University School of Public Health, called me earlier this week to talk about the inherent problems in viewing hospital closures as a solution to healthcare's cost and quality problems. First and foremost, he says overbedding is not a cause of high cost in U.S. healthcare.

The United States has about one-third fewer beds than the average rich democracy, according to the Organisation for Economic Co-operation and Development's statistics. Plus, the U.S. has reduced hospital beds per 1,000 people, going from 6.0 per 1,000 in 1980 to 3.1 per 1,000 in 2011, the most recent year available. And age-adjusted patient-days per 1,000 were cut by 60 percent from 1980 to 2010 according to Health, United States, 2013 (Table 95), while hospital costs continue to rise. On average, one day as an inpatient at an American hospital costs more than $4,000, which is five times the cost in many other developed countries, according to the International Federation of Health Plans, a global network of health insurance industries.

Nationally, the average hospital occupancy rate is reported at about 65 percent. This looks inefficient, but hospitals do not staff empty beds, says Dr. Sager. Actual occupancy rate is close to 100 percent of staffed beds. The real bed supply may be too tight in areas, which is reason for patients backing up in the ER.

"So maybe the hospital closing policy has not been an effective remedy in attacking the real causes of high costs of hospital care," says Dr. Sager.  

Furthermore, how would one determine which hospital should go, which should stay? How does one demonstrate that a hospital is not needed? We certainly can't rely on a free market to tell us this. And competent government action is equally lacking. (Maryland, through its rate-setting system, is the only state that identifies hospitals and emergency rooms needed to protect the health of the public. The rest of states do not have a process to assess which hospitals are vital.)

In his work analyzing hospital closings in 52 U.S. cities, Dr. Sager found efficiency never predicts hospital survival, as it surely would in a functioning competitive free market. Decade after decade, major teaching hospitals and those with greater endowment relative to their size were likelier to survive, he says. Those in black neighborhoods were likelier to close.  

We can't rely on free market competition to identify and close unneeded or inefficient hospitals "Unfortunately, not one of the six requirements for a functioning market is remotely well-satisfied in healthcare today. Or could be," says Dr. Sager.

Competitive free markets need six things. First: Plenty of small buyers and sellers so none have market power. ("We don't have that in healthcare," says Dr. Sager.) The second is independent buyers and sellers, which is impossible since only a million of us have gone to medical school, only a few million of us are nurses and the rest of us rely heavily on those few medically trained professionals. Third: easy entry, so that if hospitals merge and win market power, and use it to extract high prices, competitors can build their own hospitals, compete and bid down prices.     

Three more things. If healthcare were a competitive free market, there would be good and balanced information about price and quality. That's not only missing in healthcare but is significantly hard to achieve. Even if we had good information about price and quality, we still would not know if we needed the care a doctor recommended. Fifth: Price would track cost. "We would be rewarding efficient hospitals and doctors if we bought at the lowest price," says Dr. Sager. "But healthcare prices are very hard to learn and prices don't track costs — they are barely kissing cousins. Even if we could get informed consumers to shop by price, we wouldn't do a good job of rewarding efficiency."  

And lastly: Let the buyer beware, or caveat emptor, the imperative to mistrust everyone. But we are more likely to get better, other things equal, when we trust our doctors and nurses.

Rather than talk about healthcare in business terms, let's do so in scientific terms: We need to maintain the ecology of healthcare — physicians, ambulatory care, emergency rooms, inpatient care, health insurance coverage, post-acute care and more.

Fixed costs are present, but these persist — someone bears them, even if a hospital closes. "Changing one thing may have unintended consequences," says Dr. Sager.  As hospitals close, there is often greater reliance on teaching hospitals to provide routine inpatient care, which is more expensive. America's physician workforce is below that of the average rich democracy — the average is 3.2 physicians per 1,000 people, while the United States lags with 2.5 — which has implications for hospital costs. If there are fewer physicians in private practice, the emergency room becomes a more powerful provider of ambulatory care. And a study published in the Annals of Emergency Medicine in March found increasing insurance coverage in Massachusetts was linked to increased emergency room use, punching a hole in the idea that people are most driven to ERs if they don't have health insurance.

This goes to show any one thing that changes can have long and lasting repercussions on any other part of the healthcare ecosystem. As care is reconfigured, it can get more affordable, more convenient and more high-quality, or these can all worsen.

Dr. Sager said a more useful question we should be asking is this, and on a zip code-by-zip code basis: What physicians and what hospitals providing what services do we need and in what locations? How do we pay them in a way that attracts, retains and sustains them? How do we support them to deliver appropriate care efficiently and where it is needed?

"The healthcare we get depends heavily on the caregivers we've got," says Dr. Sager. "Shooting at the wrong targets is unlikely to fix our very real healthcare problems. Close hospitals, fire doctors — it imagines the problem is we have too many of them. Some may be in the wrong places, but certainly in primary care the problem is shortage and not oversupply."

There are outliers, of course. Some hospitals absolutely should be closed because they are not needed, dangerous or impossible to turn around. And some physicians are chemically or cognitively impaired, fraudulent or negligent, and shouldn't be practicing.

"But I'd like to believe that's a pretty small minority," says Dr. Sager. "For others, some skills could improve, but there are ways of accomplishing that. As we learn more about how to diagnoses and treat patients, that evidence can be disseminated widely and physicians can be held accountable to practicing at high standard so the gap between the 5 percent of physicians who get the best results and the remaining 95 percent can be narrowed. We can do that for hospitals too." This approach, he says, would better balance efforts to raise healthcare's floor — the worst care Americans get — and efforts to raise the ceiling.


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