COLUMN: It ain't easy being UPHS

From Binyamin Appelbaum's, "Carving marble," Fall '00 From Binyamin Appelbaum's, "Carving marble," Fall '00As hospitals nationwide struggle with the double burden of slashed federal health care payments and penny-pinching insurance companies, Philadelphia's hospitals are caught between a particularly hard rock and a very rocky hard place. Those are Microsoft-like numbers and, like the tech giant, the two insurers pretty much get to set their own prices. After all, it's hard to bargain with a company that you can't live without. It's even harder to do in a city with too many hospital beds. Not that hospitals don't try. The latest attempt came Tuesday, as the Jefferson Health System -- Philadelphia's largest -- announced it would stop doing business with Independence Blue Cross when their contract expires this summer. Meanwhile, the Children's Hospital of Philadelphia is suing Independence, claiming that in the absence of a new contract, the insurer is legally required to reimburse Children's at cost. Neither situation is likely to be resolved entirely to the affected hospital's satisfaction. But however tight-fisted HMOs may be, they still have to negotiate contracts with the hospitals. The federal government's Medicare and Medicaid programs act by fiat. That became a problem for Philadelphia's hospitals -- and for hospitals nationwide -- when the 1997 Balance Budget Act slashed federal health care reimbursements below the cost of service. Of course, other cities also have too many hospital beds or insurance oligopolies. And everyone needs to deal with the effects of the Balanced Budget Act. What really makes life uniquely difficult for Philadelphia's hospitals is the cost of indigent care. Under federal law, hospitals are required to provide emergency care to the uninsured. That was fine as long as the cost could be passed along to paying customers. And the way that health insurance used to work, passing along costs was easy. A patient would get treated by a doctor who would bill the insurance company who would charge the patient's employer. Indigent care costs were just added to the bill. It was the rough equivalent of giving your teenage daughter a credit card and sending her off to the mall to ask a salesperson working on commission what clothes she needed. And predictably enough, the people paying the bills eventually started to look for a better way. They came up with health maintenance organizations. By setting prices in advance -- better yet, by deciding what services could be offered and setting the prices -- HMOs were able to slash health care costs for employers. But their increasing popularity meant that hospitals had to pay their own bills for indigent care. But now that even the patients who are paying are costing Penn money, treating the ones who aren't is a lot harder to swallow. What makes matters worse is that the fattest city in America is also the largest without a public hospital system, and the state government does next to nothing to compensate the private hospitals that must bear the cost instead. In 1999, Pennsylvania provided a total of about $40 million statewide to cover the cost of indigent care. Penn's indigent care bill alone came to $60 million. For the Philadelphia area, the total cost ran to $400 million. And for two Philadelphia health systems -- Allegheny and Penn -- the problems ran much deeper. Each held dear the goal of becoming an "integrated delivery system," doc talk for owning all of the pieces necessary to provide birth-to-death health care. Physician practices, nursing homes, rehabilitation centers and hospices numbered among the purchased entities. Like two contestants in a game of chicken, they spent the '90s locked in a game of one-upmanship, bidding up prices in equally frantic efforts to expand. The concept of integrated delivery systems will go down as a hugely costly failure, both here and elsewhere. Penn lost $200 million in the last fiscal year and Allegheny went bankrupt in 1998. As a result, thousands have lost their jobs, and on May 1, City Line Avenue Hospital -- owned by the company that bought Allegheny's Philadelphia-area properties -- will close its doors for the last time. As for Penn, only time will tell.