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Balancing act

Town specializes in health economics, industrial organization and applied econometrics. His research focuses on competition in the health care marketplace.

Town specializes in health economics, industrial organization and applied econometrics. His research focuses on competition in the health care marketplace.

He has studied the impact of hospital network formation on competitive outcomes, the roles of competition in determining hospital quality and the appropriate antitrust policy in health care and health insurance markets.

He is a former assistant professor in the graduate school of management at the University of California-Irvine and a staff economist in the U.S. Department of Justice's antitrust division.

Town spoke with Herald Staff Writer Dorreen Yellow Bird.


Does Altru Health Systems have a case? Based on what you know about for-profit and not-for-profit hospitals, what is likely to happen in Grand Forks if Aurora Medical Park's proposal to build a new hospital goes forward?
I would say that the incumbent hospital has a point. For-profit or specialty-type hospitals are there for a reason; they're there to make profit. They make more profits if they attract more profitable patients, who are going to be those who have insurance or are Medicare patients with high-paying diagnoses.

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On the other hand, competition does some important things, and the interjection of a little competition might not be a bad idea, as well. There are ways to deal with concerns such as uncompensated care. Clearly, incumbent hospitals and doctors want to protect their ground, and keeping competitors out is one way to do that and maintain their monopoly control.
What will happen if, as Altru claims, a new hospital "cherry-picks" the high-paying customers and leaves uninsured and underinsured patients to Altru?
Hospitals can't necessarily dictate which patients they're going to take and which patients they're not going to take. So, the new for-profit hospital may not be able to say, "We're going to take only the high-paying patients," and then all the high-paying patients automatically are going to go there. That's not necessarily the case.
Are you saying that a for-profit hospital cannot choose which patients they will take based on their ability to pay?
No. They can try to do that. Absolutely, and I think that is something to be concerned about. But there are other ways of solving that problem then simply preventing them from building.
How would you solve it, then?
One way would be to put a special fee on the hospital. Grand Forks could tax them, in other words. Also, remember that the for-profit hospital will generate tax revenues, and Altru will not. So, the tax revenues could be used to support uncompensated care.

I think the knee-jerk reaction in these circumstances is to say, "Well, these for-profit hospitals will 'cherry-pick' or 'skim the cream,' take the profitable patients, leave the poor patients for the existing hospitals and that will kill the existing hospital." The outcome probably is not going to happen that draconian. The for-profit hospital probably will attract more profitable patients than the existing hospital, but likely not enough to drive the existing hospital into bankruptcy. And if the community is worried about paying for uncompensated care, there are ways to do that, like I said.

There is a middle ground here that can make the patients better off which, in the end, is what we want. Often in these battles, the debate is about what's good for the hospital and what's good for the doctor, but the patient gets left out. It's important to keep in mind that patients often benefit from competition.
Let's return to the question of how to keep balance between the hospitals. Talk a little more about making sure both hospitals treat uninsured or underinsured patients.
You could strike an agreement with both hospitals that a certain percentage of their patients need to be uncompensated care, or they have to have a rule in place for the treatment of patients who can't pay.

Remember, just because a hospital is a not-for-profit institution doesn't mean it's going to treat a lot uncompensated-care patients. There is this presumption that because they are not for profit, they behave differently from for-profit organizations, and it's not that clear. There have been a lot of actions taken by both federal and state governments against not-for-profit institutions that were not providing enough uncompensated care. It's important to keep in mind that not-for-profit organizations are not innately benevolent.
Give us some examples of how this has or has not worked.
I don't have specific examples; I think the research on this is in its early phase and a little bit inconclusive about the impacts of profit in specialty hospitals. I think there are impacts on the bottom line, but I don't know how much.

That isn't necessarily a bad thing. Patients want to go where they can get the best care for the best price, or at least the best likelihood of keeping their insurance premiums down. Competition can work to improve both of those dimensions.

I don't know how it works in North Dakota, and it would be interesting to note whether Altru has a specific policy regarding the treatment of uncompensated-care patients. That would be an important part of equation.

It would be nice to get both hospitals to agree to a similar formula for the treatment of uncompensated care. For example, patients with incomes below 100 percent of the poverty line would be treated for free if they're not on Medicaid. Patients between 200 percent and 400 percent of poverty would pay, say, 25 percent of the bill's charges, and people whose insurance won't pay would pay 50 percent of the charges some kind of rule.

In California, hospitals are required to file their policy regarding uncompensated care those type of rules with the state.
Anything else?
It is important to remember there's a lot of gray here. It's also important to know that a lot of people are trying to protect their turf. Physicians value money just as much as the next person.

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Sometimes, we think of health care organizations and physicians as always looking out for the best interests of the communities; and while that does weigh into their decision-making, their own best interest has as much weight as anything else.

It is always important to keep in mind what people's incentives are in these kinds of public debates.

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