testimony before the senate health, human services and aging committee

wednesday, november 20, 2002

 

offered by joseph calvaruso

president and chief executive officer

mount carmel health system

columbus, ohio

 

 

Chairman Wachtmann and members of the Committee, thank you for the opportunity to speak with you today in support of Senate Bill 309, which will help ensure that Ohio residents retain access to the full range of healthcare services that they want and need.

 

I’m Joe Calvaruso, President and CEO of Mount Carmel Health System here in Columbus. Mount Carmel offers a broad range of healthcare services in the central Ohio region and treats more than a half-million patients each year.  The Mount Carmel family includes three hospitals – Mount Carmel East, Mount Carmel West, and Mount Carmel St. Ann’s – and approximately 8,000 employees, 1,200 physicians and 1,000 volunteers.

 

For more than 100 years, central Ohio's not-for-profit full-service hospitals have provided world-class care and the latest medical treatments and technologies to all in our community – regardless of their ability to pay.

 

However, a new kind of hospital is emerging around the country, and investors are eyeing Columbus and all of Ohio as a new market of opportunity. I’m referring to for-profit limited-service hospitals – often referred to as “boutique” hospitals.  These hospitals only treat patients with certain medical conditions, such as those requiring heart or orthopedic care. 

 

Boutique hospitals cherry-pick the patients they want.  They select patients who are well-insured, who have less complicated medical conditions and who are especially lucrative to treat. These types of hospitals leave medically complicated, indigent and unprofitable patients for the full-service community hospitals to care for. This isn’t merely what could happen in theory.  Other hospitals we have talked to around the country who already have boutique hospitals in their communities say that this has been their exact experience.

 

Central Ohio's full-service community hospitals operate under a charitable community mission.  We all use revenue from profitable services like heart care and orthopedics to subsidize services that are unprofitable – but needed – by the community.  These services include emergency and trauma care; burn-center and poison-control center services; preventive care such as immunizations; charity care for the indigent and wellness education.

 

Last year alone, Columbus’ full-service community hospitals provided more than $200 million in uncompensated healthcare services.  When boutique hospitals skim profitable services away from the community hospitals, they jeopardize the full-service hospitals’ ability to provide all of the unprofitable services that the community wants and needs.  For-profit boutique hospitals may rake off as much as 35 percent to 45 percent of a community hospital's revenues, according to the Health Care Advisory Board, a national data-gathering and research-reporting organization.

 

For instance, a study commissioned by Columbus’ full-service community hospitals concluded that a proposed for-profit orthopedic hospital in the local community of New Albany could skim $43 million to $56 million in revenue each year from the community hospitals.  That is the projected impact of this orthopedic boutique hospital alone.  How much more will be skimmed by heart hospitals, eye hospitals and other boutique hospitals that are likely to follow since they are reportedly under active consideration?

 

We will make sure that you receive a copy of this research report, which outlines the impact of emerging boutique hospitals in other communities across the country as well as the projected impact on central Ohio. 

 

Let me address some of the claims that you may hear boutique hospital investors make:

 

Claim: “The main reason the orthopedic surgeons are building the New Albany boutique hospital is because they can’t get operating room time at the community hospitals.”

 

While it is true that surgery schedules are tight at most area community hospitals, we all are actively addressing this issue to increase operating room availability.  At Mount Carmel East, for instance, we have increased the number of staffed operating rooms in the past year from 10 to 12-13 on most days – and we will work to open more during the coming year.

 

I also should note that the problem at Mount Carmel East isn’t that we need to build additional operating rooms – we have 15 already.  The problem is that we have existing operating rooms that we can’t use because we cannot find nurses to staff them as a result of the nationwide nursing shortage.  I might add that boutique hospitals only worsen the nursing shortage by stretching the existing nursing resources even further.

 

Claim: “This issue is anti-free-market competition.”

 

Mr. Chester who will speak in a little while will address this claim in detail.  You will see that while this claim sounds good, it simply isn’t true.

 

Claim:  “Large community hospitals are over-stating the threat of small boutique hospitals.”

 

I have already noted that the New Albany orthopedic hospital is projected to skim tens of millions of dollars from the profitable services of community hospitals.  That alone is cause for concern.  But we aren’t only facing the prospect of this orthopedic hospital skimming profitable services from us – we also are facing the prospect of additional boutique hospitals skimming other profitable services as well.

 

Claim:  “Community hospitals are trying to make ‘profit’ sound like a dirty word.”

 

At Mount Carmel, we certainly don’t have anything against trying to make a profit.  In fact, to be a good steward of a community asset, a not-for-profit full-service hospital must try to make a profit.  The main question is not whether a hospital makes a profit, but what the hospital does with the profit. 

 

In the case of not-for-profit community hospitals, profits must be invested back into the hospitals for the benefit of the community by replacing medical equipment, offering new programs and services, renovating and expanding facilities to meet growing community healthcare needs, and the like.  The profits of boutique hospitals, on the other hand, go into the pockets of investors.

 

Claim:  “Boutique hospitals have better clinical outcomes.”

 

All of our local community hospitals have received national recognition for the quality of care that they provide in heart services, orthopedics and other services.  Some have been named among America’s Best Hospitals® by U.S. News & World Report magazine; others have been named a 100 Top Hospital® in the country by Solucient, a health information management company; and recognition from other groups and organizations.

 

Claim:  “Boutique hospitals provide less expensive care.”

 

The reality is that boutique hospitals often do have lower overhead costs – but it is because they do not offer a full range of healthcare services like community hospitals do.

 

Claim:  “The New Albany orthopedic hospital will provide more charity care than the community hospitals.”

 

Investors have pledged to contribute 5 percent of their revenue to charity care, and we commend them for making this commitment.  They say that if they live up to the 5 percent pledge, it will be a greater percentage of revenue compared to what the community hospitals provide. 

 

While that may sound nice, the boutique hospital’s charity care benefits to the community will be far less than the overall uncompensated community benefits of the not-for-profit hospitals.  The community hospitals’ uncompensated benefits for the community go beyond providing traditional charity care to hospitalized patients who cannot afford to pay.

 

For instance, Mount Carmel’s community outreach program takes a mobile coach – a medical office on wheels – to about 30 sites in the community, including homeless shelters, soup kitchens and seniors centers to provide basic healthcare services to those in need.  The program also does door-to-door immunizations for children and adults in low-income neighborhoods.  It also staffs health stations in participating churches where basis healthcare assessments are offered.

 

Mount Carmel’s uncompensated community benefits last fiscal year totaled more than $47 million – which was 3.5 percent of our total revenue and almost $10 million more than the year before.

 

The reality is that as boutique hospitals skim tens of millions of dollars from the profitable services of our community hospitals, our ability to provide this level of uncompensated community benefits will be jeopardized.

 

Claim:  “For-profit boutique hospitals are no different from for-profit outpatient facilities like ambulatory surgery centers in which hospitals sometimes have joint-ventured with doctors.”

 

There is an enormous difference between the financial impact of small for-profit outpatient centers on our community hospitals and those we serve compared to the impact of much larger inpatient boutique hospitals.

 

Furthermore, Mount Carmel’s portion of profits from such joint ventures are invested back into our healthcare services to benefit the community as part of our overall charitable mission.

 

A community can live without for-profit boutique hospitals.  However, it cannot survive without its full-service community hospitals.

 

Thank you for the opportunity to speak with you today.  At this time, I would be happy to respond to any questions that you may have.