The Hospital of Last Resort

The noble sentiments inscribed on the Statue of Liberty become flesh and blood reality at the Hennepin County Medical Center in downtown Minneapolis. On hundreds of thousands of occasions every year, some of the best and brightest healers in Minnesota minister to the tired, the poor, and the huddled masses, who are often literally "yearning to breathe free."

The income levels of the patient population at HCMC range across the economic spectrum. Lured by the hospital's reputation and array of specialized services, people fly in from around the world, and tens of thousands of residents from the 86 Minnesota counties besides Hennepin receive treatment there each year. As a public teaching hospital, HCMC has provided clinical training for nearly half of the state's physicians. It is also Minnesota's foremost homeland security hospital, the locus for responding to bioterrorism and implementing the state's disaster preparedness efforts.

But where HCMC really stakes its claim is as a public safety-net hospital, treating Hennepin County's neediest and most vulnerable population. Forty percent of the hospital's patients belong to the various state-supported health insurance programs available to low-income and indigent people, a proportion four times greater than the average in other Minnesota hospitals. And with more than 75,000 residents of Hennepin County without any health insurance--a number steadily on the rise--no other hospital in the state comes close to providing emergency, life-and-death treatment for so many patients who are unable to pay for it.

From local social service workers to national surveys and studies, HCMC is highly respected for the compassion, flexibility, and expertise with which it deals with this challenge. The hospital operates the Twin Cities' only crisis hotline available around the clock for patients encountering psychological problems. On-site interpreter services are offered in more than 60 languages, and the hospital provides a variety of outreach and public education programs throughout the county. More importantly, patients admitted to HCMC's intensive care units have a 40 to 50 percent better chance of survival than the national standards of care would predict. These are just some of the many reasons why HCMC has been named one of America's best hospitals for six years in a row by U.S. News & World Report.

Despite this remarkable track record, the resources required for HCMC to maintain its high standard of care have become increasingly inadequate in recent years. Budget cuts at the federal, state, and county levels, coupled with the rising tide of uninsured patients and the spiraling cost of medical technology and services are generating millions of dollars worth of red ink, jeopardizing the future viability of the hospital's safety-net capabilities. In September, a task force commissioned by the county recommended that governance of the hospital be transferred from the county commissioners to a newly created public benefit corporation, managed by a quasi-independent board, at the beginning of 2005. This half step away from direct governmental control would reduce the politics but also some of the accountability of HCMC operations. Among the other administrative changes and strategies recommended by the task force, some--such as better marketing of the hospital in the private sector, the establishment of a fundraising foundation, and a $30 million infusion by the county for capital expenses--would financially benefit HCMC without compromising services. But other proposed reforms would almost certainly impinge upon the unique camaraderie of the hospital's workforce, and circumscribe the care provided to indigent patients.

Whatever the outcome of the task force recommendations, most everyone agrees that without more financial support, the economic future of HCMC, founded in 1887, is on shaky ground. Put simply, one of the crown jewels of our medical system is falling victim to the heedlessly dysfunctional and inequitable way we provide health care to people in this country.



Getting shortchanged by the federal government is not a new experience for HCMC or other providers of health care in Minnesota. Over 15 years ago, Washington conceived a formula for the disbursement of Medicare money that was based in part on what each state was spending for health care at the time. This effectively penalized Minnesota for the cost efficiencies it had already created by being ahead of the curve in managing medical care through membership in HMOs. Because states that benefit from the formula have political clout in Congress, attempts to change it have been unsuccessful. According to HCMC Administrator Jeff Spartz, if Minnesota health care providers were being paid even an average state share of Medicare money, they would receive an additional $60-$80 million this year. And HCMC would garner approximately 10 percent-six to eight million dollars--of that money.

HCMC took another hit when the feds reduced payments to teaching hospitals for medical education under the Balanced Budget Act of 1997. That change will deprive HCMC of another eight million dollars this year, on top of the more than $38 million that has already been lost since the law was enacted. Then, just a few months ago, the feds concluded that a budgetary mechanism known as intergovernmental transfers--which allowed states to receive matching federal dollars for money they spent on Medicaid--was being abused, and cut back the funding guidelines. "Admittedly, some states were misusing intergovernmental transfers--pocketing the money or siphoning it off for road programs--but that never happened in Minnesota," Spartz says. "It has become both a fiscal and a punitive issue for Washington. But the result is, we thought we were going to get $9 million [this year] and instead we're going to get $2 million." This shortfall will continue into the future.  

So how has a safety-net hospital such as HCMC been able to continue providing quality health care despite the skewed Medicare disbursement formula and the federal cuts in medical education funding? One significant reason has been Minnesota's extraordinary commitment to state-supported health insurance for low-income people, through MinnesotaCare (begun in 1996), Medical Assistance, and General Assistance Medical Care. Because of these three programs, just nine percent of the people living in Minnesota lacked health insurance last year (for children it was six percent), as opposed to an estimated 14 percent uninsured nationwide.

But during this year's state legislative session at the Capitol in St. Paul, this compassionate and (because health insurance is a sound investment in preventive care) fiscally prudent approach came under siege from Governor Tim Pawlenty and his starve-the-government crew. Even with a last-minute infusion of temporary federal funding specifically earmarked for state health care expenditures, more than $200 million was hacked from Minnesota's health care budget, which, among other things, is expected to bump 38,000 people out of the state's health insurance programs between now and 2005.

Many of these cuts will hammer at HCMC's bottom line. Payments to hospitals have been decreased five percent for Medicaid patients and 10 percent for those enrolled in GAMC. Outpatient care is no longer covered under GAMC for single adults earning between $561 and $1,143 per month, and inpatient hospitalizations for these people will require a $1,000 co-payment that HCMC will either eat or spend resources trying to collect. Undocumented persons, who are treated at HCMC more often than at any other Minnesota hospital, have been eliminated from the state's health insurance programs--which does not relieve the hospital's legal obligation to provide emergency care for them. In all, HCMC estimates that laws enacted during this year's legislative session will cost the hospital nearly $6 million during the remainder of 2003, and more than $27 million over the next two years.

Even before the state's massive budget cuts, to make ends meet HCMC has required $12 to $19 million in annual funding from property taxpayers in Hennepin County, which owns and administers the hospital. That's not too severe, given that the residents of Dallas County in Texas have paid as much as $100 million in one year to maintain the operation of its public hospital. But when HCMC commissioned McKinsey & Company to draw up a strategic plan for the hospital 18 months ago, the firm warned that the county's property tax burden could soar to as much as $62 million within five years if HCMC didn't become more efficient. Following one of McKinsey's recommendations, HCMC successfully sought legislative approval to streamline their process for purchasing goods and equipment in a manner akin to the way private hospitals operate. But it's not likely that more efficient purchasing can offset the damage wrought by the state's budget cuts or the tightening of intergovernmental transfers, neither of which were known at the time McKinsey was making its sobering projections.

Meanwhile, the county has to contend with its own budget shortfall. State lawmakers at the Capitol finessed their no-new-taxes rhetoric by passing many of the costs of government down to the counties, and, for good measure, set limits on the amount of new taxes counties could levy to meet those obligations.

"The Legislature dumped $45 million [of unfunded programs and responsibilities] in our laps and capped the amount we could raise property taxes at nine percent, which when all is said and done would have given us the ability to raise $2 million" beyond what is necessary to fund existing programs, says Hennepin County Commissioner Peter McLaughlin. But on a 4 to 3 vote, the commissioners decided to raise taxes only three percent, leaving it $8 million shy of its current obligations before the state's $45 million cost shift is even factored in. Rather than increase funding for HCMC, the county is more likely to make up part of its $53 million deficit by cutting staff at the hospital, beyond the 190 non-clinical positions there that have already been eliminated.  

"There are no rabbits to pull out of the hat," McLaughlin says. "The only discretionary money we have is property taxes. The Legislature capped that money and then we capped it further. And we can't anticipate any help from Washington." Meanwhile, the double-digit increases in health care costs and the economy's "jobless recovery" continue to swell the ranks of the uninsured. Earlier this year, the Target Corporation, headquartered just a few blocks away from HCMC, decided to eliminate health insurance coverage for its thousands of part-time workers. If and when many of these local employees face a medical emergency, HCMC is their most likely destination.



Midway through a recent weekday afternoon, Burt Stroad sits in HCMC's emergency room waiting area, kneading his hands against his flannel shirt while occasionally glancing up at the soap opera playing on the television overhead. Stroad's brother had awakened at a nearby homeless shelter earlier that morning with a piercing pain in his back, prompting Stroud to assist him on a hobbling trek to the hospital to get it checked out.

"At first we thought it might be kidney stones, but evidently they found elevated blood sugar levels in his urine, so maybe that's it," Stroad says. "He was hurting pretty bad and so he had to go somewhere. It's good to have this place here; it's better than hurting all the time. We've been here since 8:30--five hours. That's not uncommon. When I came in here for my hip I had to wait half a day, five or six hours. If you've got plenty to read, you can go to a hospital. If you're going to see a doctor, take a book."

Recent changes in the health care system almost guarantee that the waiting time for emergency room patients at HCMC with non-life-threatening illness and injuries will get even longer. This month, the Bush administration will relax rules that say hospitals must keep doctors on call around the clock to care for emergency room patients regardless of their ability to pay for treatment. It is expected that many smaller hospitals will essentially close up shop on nights and weekends, diverting patients--especially the unprofitable uninsured, who often wait for an emergency to seek medical attention--to hospitals like HCMC, which, as an officially designated Level 1 Trauma Center, must keep a full complement of doctors available at all times.

The state's decision to restrict eligibility for its health insurance programs will also increase emergency room traffic, while adding to the *inefficient cost of health care. In recent years, HCMC has worked hard to establish a user-friendly outpatient model for preventive medical care at its downtown facility and three satellite clinics. To ensure familiarity and continuity of care, 25,000 patients have been assigned to coherent teams of doctors, nurse practitioners, nurses, and clerical staff, who work together in what amount to group practices, known internally as the blue firm, the yellow firm, and the orange firm. This has been especially effective in creating a rapport with the hospital's immigrant population. Overall, HCMC patients fail to show up for approximately 32 percent of their scheduled outpatient appointments, but for Somalis, the "fail rate" is 16 percent, and for Russian immigrants, it is eight percent.

The impact of denying state health insurance to undocumented persons and eliminating outpatient care for single adults under the GAMC program is already taking a toll on health care at the hospital. "I have several people with very strong illnesses who can't get their care even here now," says Dr. Carmen Divertie, who works primarily with the Spanish-speaking population. "I have many patients in late stages of COPD [chronic occluded pulmonary disease], who, because of the new rules, are required to get really sick in order to be able to get treatment and medication. I have another patient who has sleep apnea. Clinically, we knew what he had. But he needed a test [to confirm the diagnosis] and we couldn't give it to him. He ended up coming to the ICU several days later, and it was very expensive, where we could have taken care of him for much less money as an outpatient." Once the patient is admitted to the ICU, the hospital at least has a chance of getting paid for its more expensive critical care through the federal government's emergency Medicaid services. Due to eligibility restrictions wrought at the Capitol this year, any outpatient test, diagnosis, or treatment is no longer paid for by the state.

"It's really frustrating," Divertie says. "I had the wife of this patient come crying to me, saying 'do something.' And you have to tell them that they have to come up with a certain amount of dollars to have anything done."  

Although HCMC administrators emphasize that none of the 190 positions recently cut from the budget were clinical personnel, employees integral to the clinical process, such as some social workers and interpreters, were let go. "When the doctors heard about these layoffs, they were like, 'This is crazy. Those are the ones who help us take care of and talk to the patients!'" says Dr. Louis Ling, who works in the emergency room. "It's made a difference. Now we rely more on relatives or nonverbal communication, and it is harder for us to get a clear sense of what's wrong. It takes much longer to treat people, and so [other emergency room patients] end up waiting longer. I don't know if it compromises care. But it certainly delays care."

There have been other "crazy" obstacles imposed on treatment at HCMC that betray how little politicians know or understand about the lives of indigent people. In the last session, legislators saved millions of dollars by requiring co-payments from patients that ranged from between one and three dollars on drug prescriptions to $25 for eyeglasses and "non-emergency" visits to the ER. While these costs may seem negligible to middle-class residents, HCMC employees report that many patients are so poor that they can hardly afford bus fare one way to the hospital. With fixed incomes that barely exceed $200 a month and a variety of ailments that require multiple medications, they are forced to choose between food and medicine.

"People are self-selecting which medicines they will take," says Mary Kurvers, manager of the medicine clinic at HCMC. "I had a gentleman the other day who transferred down to Willmar to live with his sister, who has eight prescriptions and could only afford about three. When I got his prescriptions sent down to him from Target, I found out he was refilling different meds depending upon how he was feeling." One night in the emergency room a couple of weeks ago, Dr. Ling saw a patient who had had a heart defibrillator installed. Because the man couldn't afford his blood pressure medication, his heart was racing, causing the defibrillator to shock him at regular intervals, with a force that made him cry out in pain.

Especially when it comes to the mentally ill, for whom even the smallest barrier can seem insurmountable, the HCMC staff often helps patients through the prescription process. But now that a portion of the hospital's social workers has been laid off, nurses and nurse practitioners often fill that role, which has become more complicated with the implementation of co-payments. "Last week we had a situation with a woman whose multiple chronic prescriptions have to be administered and monitored by the clinic," says Dr. Scott Davies, chief of the Department of Medicine at HCMC. "Because of that, the patient didn't have to go to the pharmacy--except now, she has to go and pay the co-pay, and the system isn't set up to do that. We had an RN spend three hours last Friday arranging it so the woman could leave a dollar at our north block lobby for one prescription. With benefits, RNs make about $50 an hour. So we spent $150, not to mention all the hassle, to get that one prescription filled properly. It would be cheaper to just go out and drop dollars in the street.

"Obviously, we'll get more efficient at this, and I'm not against people being more responsible for their care--if they're capable of it," Davies emphasizes. "But mental health is a very hard problem that impacts so many issues, particularly in a safety-net hospital. We need not only the acute and the chronic support system, but the social support system."


The "Solution"

As the state legislature was cutting hundreds of millions from Minnesota's health care budget this spring, the Hennepin County Board of Commissioners, following one of the recommendations from last year's McKinsey study of HCMC, convened a 14-member task force in April to consider changes in the way the hospital is governed. Specifically, the task force was asked to come up with a governance structure that could "maximize the effectiveness and efficiency of HCMC while meeting its mission as a public safety-net, teaching hospital."

On September 2, the task force--headed by Irving Weiser, the chairman of RBC Dain Rauscher, the 10th-largest securities firm in the nation--dutifully reported that "HCMC's mission cannot be preserved by leaving things the way they are," and offered three primary recommendations for changing the status quo. First, it urged Hennepin County to "create a not-for-profit corporation with a diverse and experienced board" to take over management of the hospital. Second, it called for the county to use its low-interest borrowing power to provide $30 million in capital expenditures so that HCMC can upgrade its technology and physical plant enough to continue attracting paying customers in competition with private hospitals. Last, but hardly least, instead of the county simply reimbursing HCMC for outstanding deficits accrued while providing indigent care, the task force recommended that such care be paid for on a "formula basis" that would enable the new governing board to budget for the treatment of indigents.  

As of now, at least a slim majority of the seven county commissioners seem inclined to adopt all those recommendations. Proponents point out that public safety-net hospitals across the country have been moving away from direct ownership and operation for years now. In this context, creating a nonprofit corporation is less radical than selling off or closing down parts of HCMC. As the task force notes, a board comprised of members with diverse experience in the health care industry would be better equipped to predict and respond to constant changes in the marketplace than the county commissioners. Besides, the commissioners would retain final say over HCMC's budget, and could dissolve the outside board after five years if it wasn't working.

But as Sen. Linda Berglin (DFL-Minneapolis), the reigning expert on health care in the legislature, says, "I worry that this would remove elected officials from some of the responsibility, and therefore some of the commitment, to the hospital. [Supporters of the governance change] say they want to maintain the mission of the hospital. Well, you could maintain the mission and just not maintain as much of it as you do today. It is clear to me that they want to put the hospital on a budget and one of two things will happen--they will reduce their personnel costs somehow or they will reduce the amount of care they do. Or both."

Indeed, one of the financial advantages--and points of contention--involved in a shift to a nonprofit corporation is that HCMC employees may no longer enjoy the job classification structure and pension benefits they receive as county workers. Some change on this front may be welcome, and inevitable--even commissioner Peter McLaughlin, who is skeptical about a wholesale change in governance, acknowledges that "it's pretty clear we need some relief from the unions on job categories, so we can become more flexible and agile." Promotions weighted heavily toward seniority of service, for example, don't provide that maneuverability.

On the other hand, most of the county commissioners have been helped into office by the support of labor. Even commissioner Mike Opat, who has been one of the county's most enthusiastic advocates for changing the status quo at HCMC, says, "I'm not interested in scuttling the pension of someone who has worked at the hospital for 20 years," and is open to negotiating with unions over wages and benefits for new employees under the nonprofit structure. Unfortunately for hospital staffers, the creation of an outside board for HCMC is likely to require legislative approval; right now the people with the most clout at the Capitol are the budget-cutters who are hostile toward unions.

The least contentious among the task force recommendations involves the boosterish belief that with an infusion of capital and a commitment to better marketing and fundraising by an outside board, HCMC can garner more profitable, privately insured patients. As Weiser notes, one natural source of new business could come from the wealthy folks who have moved into luxury condos along the river in downtown Minneapolis. But even here, McLaughlin wonders aloud "why we would relinquish control of the hospital and at the same time give them a $30 million going away present. Obviously, anyone could manage the hospital better when you put that much money into it."

Of all the issues and obstacles surrounding the operation of HCMC, the most intractable is how the hospital can provide indigent care on a cost-effective basis. Arguing for a set budget, Irving Weiser asks rhetorically, "Why should indigents be the only people who don't have a formula for reimbursement of their care?" One answer might be that the formulae for other patients' reimbursement are dysfunctional--the feds and the state lowball payments for the care of the elderly through Medicare and the poor through Medicaid, leaving price inflation of private insurance to pick up the tab. Inevitably, payments for indigent care would be similarly understated, leading to compromised care or even higher rates for those with private insurance. On the other hand, is it fair for Hennepin County taxpayers to have to make up the hospital's deficit when 20 percent of HCMC's patients come from outside the county?

"Unless something changes, we are going to have to start rationing care, which is really scary," Opat says. "People coming from out-state with type-two diabetes or some other time bomb that is not going to explode today; if they are coming to critical care, we may at some point have to say no. Otherwise, we will have to sell the hospital. There are factions on our board that wouldn't mind a For Sale sign on it now, but I'm not one of them. We have to find a way to make this work."  

"The county is claiming that the feds and the state provide reduced payments and property taxpayers can't be expected to make up for it, so somehow there needs to be a way to reduce their obligations," Berglin says. "I'm sympathetic to what they are saying, but here is the problem: We know without a doubt that if you reduce the care you provide, at some point you pay even more. People are going to get sicker, and more expensive."

"This governance change doesn't solve the failed financing of health care that we have in this country and it doesn't address any of the trends--the recession, higher prescription drug costs, higher insurance premiums," says McLaughlin. "It might create a board that thinks poor people shouldn't get as much service or compensation for employees should be changed, but that doesn't solve any of the fundamental problems."

On the inside of HCMC, Dr. Scott Davies grapples with the consequences of this dysfunctional system every day. "There is a federal law known as EMTALA--the Emergency Medical Treatment and Active Labor Act. It says if you walk into this hospital, or any hospital, vomiting blood or in shock, you have to be treated and stabilized. You can't turn them away. Now 80 percent of our admissions come in through the ER, so we see a lot of unstable people who need expensive treatment. Our national health care costs are now 13.5 percent of the gross national product--health care administration alone is 3.5 percent. In Canada the percentage is less than seven percent, and administration is less than a half percent.

"Somewhere, at some point, it is all going to fall apart. Will it be at 20 percent of GNP? Who knows? But it is going to happen. I'm afraid that minor changes won't keep it from happening. We need a basic structural reform of how we spend money on health care.

"Let me give you an example," Davies says, shaking his head sadly. "We had a patient who had been diagnosed with hypertension when he was in prison. He saw a prison doctor every six months and got treated with medication to control his blood pressure, at a cost of about 30 bucks a year. He gets out of prison last October at age 39, still very young. He's living with his family, his wife and kids, and he has a full-time job that, like most entry-level jobs, pays no benefits. He has no access to pills or to a doctor that he can afford. He wakes up in the middle of the night short of breath, his speech slurred. He calls 911 and gets taken to our ER; has CAT scans and MRI scans and emergency neurosurgery to evacuate the bleeding in his brain. We spent probably $200,000 on his whole acute management. He ended up dying of this massive stroke, but if he had recovered, he probably would have had to go into a nursing home at age 39, where society would pay $100,000 a year to keep him until he died.

"As a government, these are the choices we have made. This man has a legal right to be treated in a very aggressive and expensive manner for his stroke. He would have had a legal right to be cared for in a facility for the rest of his life. But he has no legal right and nobody has any legal obligation to provide the 30 bucks a year he needs for medicine that could well have prevented this from happening. I ask you, does this make sense?"

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