10 Things Hospital CEOs Won't Tell You

1. “I’m a CEO first and a health care professional second.”

With 46 million uninsured Americans and major health care reform possibly ahead, the roughly 5,000 CEOs at U.S. community hospitals aren’t in an enviable position. In the 1980s almost all hospital heads held advanced degrees in health administration, but the American College of Healthcare Executives says more than one in four of its member CEOs now has an MBA, which President Tom Dolan thinks has “advantages and disadvantages.” One plus: Business savvy sure helps in the $1 trillion U.S. hospital industry.

But along with that have come less welcome changes, like Wall Street–style salaries and perks. Gary Mecklenburg, former CEO of Chicago’s Northwestern Memorial Hospital, was paid $16.4 million from September 2005 to October 2006, including a nearly $11 million retirement bonus. A Northwestern spokesperson says the hospital complies with IRS standards of “fair and reasonable” compensation.

Cathy Glasson, a nurses union leader in Iowa, says only recently have hospitals internally begun calling patients “consumers” or “clients.” “Even that small shift hints at today’s business model,” she says. “Focus
less on care and more on profits.”

2. “Just because we’re nonprofit doesn’t mean we’re good guys.”

These days even nonprofit hospitals have become more entrepreneurial. Executives have all but replaced the nuns who once ran Catholic hospitals, and at least a few facilities have upped prices to several times what procedures cost. What’s more, even though nonprofit hospitals get roughly $12.6 billion in annual tax breaks and billions more in government subsidies in exchange for community service, there’s no standard for how much free care they must provide. Studies show many hospitals don’t give enough free care to equal their tax breaks, and figures they report can be misleading. For instance, many facilities claim
the amount they bill for a service instead of what it costs to provide it.

The Service Employees International Union recently criticized Beth Israel Deaconess Medical Center in Boston for reporting bad debt (unpaid bills for which it had already been partially compensated by the state) as charity care, inflating its free-care figure by about 20 percent. A Beth Israel spokesperson says hospital auditors have “never found any cause for concern.” And no wonder: The hospital was acting in accordance with IRS regulations.

3. “Who says you can’t haggle for health care?”

After media coverage about how they often accept lower payments from insurers while charging higher list prices to the uninsured, hospitals are now more open to bargaining. So how can you take advantage? For starters, many facilities have financial counselors who can set up no-interest payment plans or adjust prices based on financial need—all you have to do is ask. Or team up with an outfit such as North American Surgery—which pairs patients willing to pay up front with small hospitals willing to give discounts—and you could save up to 80 percent on common procedures like bypass surgery.

Kelly Proffitt, a 39-year-old teacher in Bassett, Va., knows the benefits of bargaining. In May, when her mother got a $12,000 bill from a hospital after spending almost a week there with a near-fatal blood infection, Proffitt hired a health care advocate—a private individual, often with insurance experience, who helps tackle charges. Weeks later the hospital offered to cut the bill by 80 percent. The advocate “found strings to pull we didn’t even know existed,” Proffitt says. To follow her example, visit www.billadvocates.com to find your own bill bargainer.

4. “If we build it, you will come.”

The hospital industry is in the midst of a serious building boom, having spent more than $100 billion on construction from 2002 through 2007, double the amount from the previous five years. Hospital executives argue that they’re trying to make patients more comfortable, but critics claim much of the work is unnecessary, “like putting waterfalls in the lobby,” says Maggie Mahar, author of Money Driven Medicine. “And that cost trickles right back down to consumers.”

What’s more, when construction increases the number of hospital beds, doctors tend to fill them and charge accordingly. Researchers at Dartmouth University have repeatedly found that patients with chronic conditions spend more time in the hospital in areas with more hospital beds per capita. And during the last months of life, patients in bed-glutted regions like Miami spend 20 days in the hospital on average, compared with six days elsewhere. 

The upshot for patients? “Researchers have never found all that extra care is producing better health outcomes,” says Paul Ginsberg, president of the Center for Studying Health Systems Change. “In some cases, outcomes are actually somewhat worse.”

5. “We don’t like competition, especially from doctors.”

Tensions are up between hospital executives and doctors, especially since many physicians have begun opening small outpatient-surgery centers or mini hospitals in direct competition with big hospitals. The CEOs worry such facilities—which often focus on profitable specialties like liver transplants—will shear off the most high-paying, well-insured patients.

Orthopedic surgeon William Reed has felt the blowback: In 2003, when he and 21 colleagues opened Heartland Spine & Specialty Hospital in Kansas City, Kan., he says the six biggest insurance firms in the area stopped talking to him about adding the facility to their networks. When Reed filed suit alleging tortious interference and civil conspiracy, his lawyers uncovered e-mail showing several large local hospitals had told the insurers they didn’t want them working with Heartland. One hospital allegedly said it would drop an insurer that did. Five hospitals settled for undisclosed sums this spring; the one that allegedly threatened to drop an insurer says its contracting uses a “thorough, lawful approach.” But says Reed, “They were trying to find a way to choke me right out of business.”