In January, for three days, there were no acute care beds for adults anywhere in the San Fernando Valley. Every one was taken. Doctors with patients recovering from surgery or suffering from a particularly bad case of the flu had nowhere to send them; they were forced to call hospitals in other parts of the city. For Arnold Schaffer, CEO of Providence Saint Joseph and Providence Holy Cross in Burbank and Mission Hills, respectively, the experience was a perfect illustration of just how bad things are getting for local hospitals. “I had doctors calling me up and begging me for beds. I’m just a white collar worker, I’m the CEO but I can’t free up a bed,” said Schaffer. “They were calling me from all over town, saying ‘there are patients in my office, I have to put them somewhere.’ Even though I knew it was bad, in January of this year I really had a very large professional and emotional reaction.” Schaffer said the worst part about the lack of beds in January was the fact that there was no particular crisis facing hospitals at the time, the flu season wasn’t very bad this past year, the crisis was simply a reaction to the dwindling number of hospitals in the Valley. Should we ever face a serious crisis like another earthquake or a terrorist attack, Schaffer said, we simply won’t have the capacity to deal with it. The costs plaguing hospitals are familiar. After the 1994 earthquake, the state passed laws requiring California hospitals to spend billions of dollars to improve seismic standards. A law passed requiring hospitals to have specific number of nurses for every patient also hit budgets hard by driving up nurse salaries, hospital administrators say. MediCal reimbursement rates that are among the lowest in the state make it impossible for hospitals to cover the state’s poorest residents without losing money, administrators claim. Most hospitals, even the largest ones able to secure good reimbursement rates from private health plans, are forced to turn to capital raising campaigns in order to expand their services or purchase the newest technology. Right now, Providence is relying heavily on charity in order to pay for two expansion projects. Providence is in the early stages of a $33.1 million campaign to pay for a cancer center at St. Joseph’s, and Holy Cross is kicking off a $7.5 million campaign to expand its emergency room. “Philanthropy plays a very key role, when I can’t amortize my losses, I can’t generate enough (money) to pay for equipment to keep quality high and technology high in a competitive market; philanthropic contributions allow us to do that,” Schaffer said. Unfortunately, Schaffer said, Southern California does not have a strong philanthropic base dedicated to supporting hospitals, especially smaller ones. The large, famous hospitals like Cedars Sinai are able to pay for the latest technology and attract the best doctors, further distancing themselves from hospitals in poorer communities, Schaffer said. Holy Cross and St. Joseph’s are lucky to be located in fairly affluent communities, but other hospitals in poor areas have virtually no protection against rising costs. Historical perspective It wasn’t always this way for hospitals. David Levinsohn, CEO of Sherman Oaks Hospital said that when he moved to Los Angeles from South Africa in 1978, hospitals took full advantage of an overly generous Medicare system. “When I first arrived here, I thought I’d died and gone to heaven,” Levinsohn said. “Your Medicare program was a cost-based system. That meant if you bought a catheter for $5, the Medicare program would pay you $5.50, so you’d make 50 cents on that sale. If you paid $10, you’d make a dollar, because it was cost plus 10. So it was a very wasteful system . . . the more you spent on a product, the more you made.” Relationships with private health plans were just as good, Levinsohn said they paid pretty much whatever hospitals asked. In 1983, there was a fundamental change in the system of Medicare reimbursements. Instead of a system in which rates were paid based on hospital bills, they were now paid based on the diagnosis. No matter how much it cost a hospital to treat a patient, the reimbursement rate was going to be the same for everyone. Hospitals did fine for a while, he said, but over the years rates started to get lower, making it harder for hospitals to stay in business. As life expectancies have increased to a point that the creators of Medicare never would have imagined, hospitals are treating more and more senior citizens. The next wave to hit hospitals was managed care, and hospitals could only look on while HMOs started conducting utilization reviews and limiting the amount of time that they would pay for a patient’s stay in a hospital. Those reviews, combined with improved technology and surgical techniques that hastened patients’ recovery, started emptying hospital beds. Forced to bargain Hospital CEOs were forced to bargain with health plans, offering to accept lower rates in order to get more patients. Smaller hospitals, especially those that were independently owned, started to close. Finally, hospitals were hurt even more when doctors and private companies started setting up their own surgery or imaging centers. The revenues from the expensive procedures which hospitals used to pay for the sickest patients were now being done by companies that didn’t have to be open seven days a week and 24 hours everyday. Although there have been efforts to bring those procedures back into hospitals, it’s a challenge in a world in which reimbursement rates, because of Medicare and recent workers’ compensation rates, aren’t what they used to be. Sherman Oaks Hospital, like Providence, is forced to turn to private fundraising when it wants to buy new equipment or expand its emergency room. Smaller hospitals are especially vulnerable, said Jim Lott, executive vice president of the Hospital Association of Southern California. Hospitals with high tech centers of excellence, like cancer centers or transplant facilities, can get better rates and better paying patients from insurance companies. Lott said that smaller hospitals are “stuck with the leftovers.” Lott, who said that he knows of at least one more Los Angeles hospital that may forced to close its emergency room soon, describes what could be called the “celebrity effect.” The idea, experts say, is that most people don’t know the dangers of hospitals closing. People expect that there will always be an emergency room or trauma center when they need one. Levinsohn and other CEOs say it will take a real grassroots effort to change health care in a serious way. Many say that until something drastic happens, like the death of a movie star whose car crashed in an area that simply didn’t have a hospital bed open, these closures simply won’t mean anything to most people.