[Congressional Record Volume 143, Number 2 (Thursday, January 9, 1997)]
[Extensions of Remarks]
[Pages E82-E83]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




   THE PURSUIT OF PROFIT: NON-PROFIT HOSPITALS BECOME THE BIG PUBLIC 
                        GIVEAWAY OF THE NINETIES

                                 ______
                                 

                        HON. FORTNEY PETE STARK

                             of california

                    in the house of representatives

                       Thursday, January 9, 1997

  Mr. STARK. Mr. Speaker, today along with Mr. Lewis of Georgia, Mr. 
McDermott, Mr. Waxman, Mr. Filner, Mr. Kennedy of Rhode Island, and Mr. 
Brown of Ohio, I am pleased to introduce the Medicare Non-profit 
Hospital Protection Act of 1997 in response to the fast-growing number 
of hospital conversions. Conversion refers to the process by which a 
nonprofit entity opts to change its nonprofit status and forgo its tax 
exemption. In a conversion, investor-owned, for-profit companies buy 
community, nonprofit hospitals in deals that usually are secret, with 
costs and details not disclosed. Proceeds of the sales are suppose to 
establish charitable foundations.


 health care is a service, it is not a commodity to be bought and sold

  Some how we've reached the point where our society thinks of the 
medical system not in terms of keeping patients well or helping them 
get better but instead as a fiercely competitive business in which 
survivors concentrate on making tremendous amounts of money.
  The late Cardinal Bernadin, Archbishop of Chicago, had it right in 
his speech to The Harvard Business School Club of Chicago, He said:

       Health care . . . is special. It is fundamentally different 
     from most other goods because it is essential to human 
     dignity and the character of our communities. It is . . . one 
     of those goods which by their nature are not and cannot be 
     mere commodities. Given this special status, the primary end 
     or essential purpose of medical care delivery should be a 
     cured patient, a comforted patient, and a healthier 
     community, not to earn a profit or a return on capital for 
     shareholders.

  The goal isn't health care anymore--the goal has become the care of 
the stockholder interest.


                              the problem

  Historically, the nonprofit hospital has, in general, assured that 
necessary services are available, that all populations are cared for, 
and that there is always a place to go for care. The goal of a for-
profit hospital is just that--profit. The for-profits allegiance is to 
their shareholder, not the community--and certainly not the uninsured 
or poor. The for-profit hospital chains have the minds of piranha fish 
and the hearts of Doberman pinschers.
  Whereas for-profit hospitals are accountable to their shareholders, 
nonprofit hospitals have another kind of accountability--to patients, 
to providers of care, to payers and to the communities in which they 
operate. Instead of producing a return on investments to shareholders, 
nonprofit hospitals have the inherent motivation and deep obligation to 
produce a different kind of return--that of quality care to their 
patients and overall good for the community.
  The need to show a profit focuses the for-profit hospital on cost 
structure rather than on the structure of care. Their decisionmaking 
cannot help but he skewed toward shareholders rather than patients. 
Whereas nonprofit hospitals manage care because doing so improves 
health outcomes, for-profit hospitals manage the cost of care because 
it is the cheapest, most profitable thing to do. Their primary legal 
and fiduciary duty--to return a profit to the shareholders--puts 
patients and public welfare in second place.
  In 1993, there were 18 conversions of nonprofit hospitals and health 
care plans. In 1995, there were 347. In the past 18 months, for 
example, Columbia HCA, the largest of the for-profit hospital chains, 
has completed, has pending, or is in the process of negotiating more 
that 100 acquisitions or joint ventures with nonprofit hospitals.
  I have many concerns about the sale of nonprofit hospitals to for-
profit corporations: too often the terms of the sale are secret; there 
are often conflicts of interest among the parties; the mission of the 
nonprofit foundation that results from the conversion may not be 
consistent with the original mission of the hospital--the funds in the 
resulting foundation are sometimes used for things like sports training 
facilities, flying lessons, or foreign language programs in schools; 
and the valuation price is often much less than it should be. Perhaps 
most important, quality and access to health care in the community is 
often significantly diminished.


               COLUMBIA HCA--THE PAC-MAN OF THE INDUSTRY

  Columbia HCA, the largest of the for-profit hospital chains, is 
characterized as the PAC-MAN of the industry--gobbling up nonprofit 
hospitals as it expands its market share in communities across the 
United States. Nationwide, Columbia HCA is riding high from dozens of 
acquisitions of hospitals that have made it not only the biggest--with 
355 hospitals--but also one of the wealthiest for-profit chains with 
$18 billion in annual revenue.

[[Page E83]]

  The political muscle of Columbia is legendary. When it enters a 
community in pursuit of an acquisition, Columbia lines up blue-chip 
legal talent, identifies allies among local civic, political, and 
medical leaders, and spreads around lots of money. In 1995, for 
example, Columbia had 33 lobbyists in Tallahassee, FL. It also leads 
the list of corporate campaign contributors in Florida.
  The questionable practices of Columbia HCA are numerous, but one 
issue is particularly important. In Florida, health care officials 
cited the possibility that Columbia hospitals engage in cream-skimming. 
They allege that doctors, who own stakes in Columbia facilities, send 
the most profitable patients there--and steer less-profitable patients 
to the public and charity hospitals. The practice of physician self-
referral in many instances is illegal, and I have asked the Health Care 
Financing Administration to investigate Columbia's investment structure 
and referral patterns.
  Columbia HCA and its doctor affiliates are in the business of 
building medical trusts and destroying public and nonprofit hospitals 
who take the tougher, less profitable cases. Columbia and similar for-
profit entities are not in the business of health care. They're in the 
business of mergers and acquisitions. It wouldn't matter if their 
product was can openers or chairs. They run the business like a Walmart 
is run--I firmly believe that hospitals shouldn't be run that way.


                              legislation

  For the past three Congresses, I have worked on legislation to ensure 
that the advantages of tax exempt status ultimately benefit the 
community and not private individuals. My bills have imposed excise 
taxes--based on the foundation rules--as intermediate sanctions on 
501(c)(3) and 501(c)(4) organizations engaging in transactions with 
insiders resulting in private inurement. Bills have also made private 
inurement a statutory prohibition for 501(c)(4) organizations, the 
social welfare organizations which include many health nonprofits.
  The bill I am introducing today protects the public interest in 
conversions and is modeled after Nebraska and California laws. It makes 
sure that conversions are carried out in the sunshine of public 
information and debate and that the conversion price is fair, without 
sweetheart deals or private party gain. The legislation would deny 
Medicare payment to any hospital that did not demonstrate the fairness 
of the conversion process to the Secretary of Health and Human 
Services.

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