Canadian study compares price discrepancies at U.S. hospitals

A new study has concluded that for-profit hospitals owned by investors result in higher payments for care than private nonprofit hospitals.

Canadian researchers reviewed previous medical studies on the costs of health care at U.S. hospitals, and their report appeared June 8 in the Canadian Medical Assn. Journal. That was the same day the Supreme Court of Canada heard a case that could potentially shake up Canada's national health care system by undoing bans on the use of private medical services and insurance.

P.J. Devereaux, MD, a cardiologist at McMaster University in Hamilton, Ontario, who led the study with colleagues, said there was a significant discrepancy between facilities, with payments for care at for-profit hospitals about 19% higher than those at private nonprofit hospitals.

The report examined eight previous studies spanning from about 1980 to 1995, with data representing nearly 350,000 patients. Dr. Devereaux said public nonprofits were excluded because they have a different economic situation than other hospitals.

He cited several possible reasons about what might be causing the difference in payments. For-profits, he said, have to pay taxes and must generate revenue to satisfy shareholders, while nonprofits don't have those responsibilities. Also, he said for-profits have higher executive salaries and bonuses compared with nonprofits, and they seem to be more top-heavy in administration.

"That's a lot of extra money that the for-profits have to generate and that the nonprofits can put directly toward care," he said. "The reality is that the for-profits' economic challenges are just too overwhelming compared to the nonprofits."

Dr. Devereaux said a previous study that he and colleagues had conducted also had found that private for-profit hospitals had higher risk-adjusted mortality rates than private nonprofit hospitals.

But Richard Coorsh, spokesman for the Federation of American Hospitals, defended for-profit facilities, saying they tend to bring in more capital, which can help a hospital's ability to expand and update or to improve technology. Also, he said for-profit hospital chains offer some economies of scale, which help management.

"Hospitals all across the country now are working very hard to improve productivity and also to improve their performance. And this is the case regardless of ownership status," he said.

Coorsh said a study in the RAND Journal of Economics in 2002 by Daniel Kessler, a Stanford business professor and Hoover Institute research fellow, and Mark McClellan, MD, who is now the CMS administrator, concluded that areas with a for-profit hospital presence had about 2.4% lower levels of hospital expenditures, but virtually the same patient outcomes. He questioned the findings of the new report and said it was politically motivated.

"What the study tells us is that Dr. Devereaux and his learned colleagues have once again released a politically motivated mumbo jumbo in an attempt to denigrate for-profit hospital care," Coorsh said. "These types of politically motivated attacks are intended to deny Canadian citizens the benefits of a more competitive health care system."

The American Medical Association's policy on for-profit hospitals is that they should be held to the same standards of care, commitment to service, professional education and commitment to their communities as nonprofit hospitals.

Dr. Devereaux said there is intense debate in Canada about using for-profit models for health care delivery. He said part of the reason he conducted the study was to "inform that debate based on evidence and make sure in Canada we made the right decision."

A Montreal family physician, Jacques Chauolli, MD, and a patient, George Zeliotis, are asking the Supreme Court of Canada to overturn Quebec's laws that effectively bar the use of private medical services and insurance, saying long waits -- such as Zeliotis' nearly one-year wait for hip replacement surgery -- are a violation of patients' rights under Canadian law. Two lower courts have ruled against them.

The Canadian Medical Assn. was among those weighing in on the case to say that problems -- such as long wait times for procedures -- in the country's single-payer health system are "unacceptable" but "can be fixed within the current publicly funded structure." The Supreme Court had not ruled at press time.

In an editorial that accompanied the CMAJ report, Steffie Woolhandler, MD, and David U. Himmelstein, MD, of Harvard Medical School said the study's findings imply that the $37 billion Americans paid for care at investor-owned acute care hospitals in 2001 would have cost only $31 billion at nonprofits -- a difference of $6 billion.

In an interview, Dr. Woolhandler said the discrepancy in payments is a result of how for-profits are set up as a business model. "For-profit hospitals are profit maximizers, which is not the same thing as a cost minimizer," she said.

Dr. Devereaux's report concluded that "evidence strongly supports a policy of not-for-profit health care delivery at the hospital level."

Stuart Altman, health policy professor at the Heller School at Brandeis University in Waltham, Mass., said the study seemed to reflect an "ideological aversion" to for-profit care. He said that while for-profit hospitals do tend to go after revenue aggressively, they are not alone.

"There are some extremely aggressive nonprofit hospitals that maximize revenue as much as for-profits," Altman said.