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The Healthcare Divide

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FEMALE NEWSREADER:

In Los Angeles County, 10 people are getting sick with COVID every single minute.

LAURA SULLIVAN, Correspondent, NPR:

Earlier this year, LA County was the epicenter of the winter COVID surge.

FEMALE NEWSREADER:

Hospitals in this area say they’re preparing to ration care.

FEMALE HEALTHCARE WORKER:

Ready?

MALE HEALTHCARE WORKER:

One, two, go.

LAURA SULLIVAN:

In East LA, LA County-USC Medical Center was regularly seeing more COVID patients than any other hospital in the region.

MELIZA DE JESUS:

I’m sorry to meet you this way. OK. Coming in.

Nobody deserves to die alone.

OK, here’s your mom.

And we allow family members to see their relative before they pass.

ERIKA SARCO CLIMACO:

Mama. [cries] I told her that I love her.

MELIZA DE JESUS:

But that's the truth of COVID. There are some that's going to win, there are some that’s going to lose.

ERIKA SARCO CLIMACO:

Ma! Ma!

LAURA SULLIVAN:

COVID exposed long-standing inequities in America—

FEMALE NEWSREADER:

We are now getting a look at data that reveals racial disparities in medical outcomes.

LAURA SULLIVAN:

—and turned a spotlight on the hospitals that serve low-income, working-class communities like East LA.

MALE NEWSREADER:

It’s a huge problem not just in the Latino community, but also in the Black community.

LAURA SULLIVAN:

This is a story about those hospitals, largely government-funded, whose primary mission is to care for the poor and uninsured. They’re called safety-net hospitals.

BRAD SPELLBERG, M.D., Chief Med. Director, LAC+USC:

Why are safety nets hit the hardest? Because our patients are vulnerable. We serve a community of working poor. We serve people who are working essential jobs.

Buenos días, señor.

Homeless patients. Patients with mental illness. Substance abuse addiction disorder. We are expected to care for the patients the other hospitals won’t care for.

LAURA SULLIVAN:

More than 70 million Americans rely on Medicaid and roughly 30 million have no insurance at all. But at a time when safety nets have never been more needed, they’re in crisis—and, it turns out, have been for years.

MALE NEWSREADER:

Community leaders plan a protest tomorrow, hoping to stop the planned closing of Westlake Hospital.

MALE NEWSREADER:

Announcement from Hahnemann University Hospital that it, too, will cease operations.

FEMALE NEWSREADER:

A demonstration was held tonight for the hospital that mostly serves Black, Latino and low-income people.

BRUCE SIEGEL, M.D., MPH, Pres. & CEO, America’s Essential Hospitals:

I think we're on the brink of a precipice. Even before the pandemic, many of these hospitals were losing money, and the pandemic is only going to make that worse.

LAURA SULLIVAN:

Over the past year, FRONTLINE and NPR have been trying to understand why safety nets have been struggling so much while other hospitals have been doing so well.

You know, HCA, one of the first and biggest hospital systems in the country, posted a $3.8 billion profit last year, also during COVID. What do you think is going on there?

BRAD SPELLBERG:

It is a little unfathomable to me how a hospital system could be making a huge profit in the middle of a COVID pandemic, but honestly, nothing surprises me anymore. This system itself makes no sense, and when you have a system that makes no sense, there are going to be some winners and there are going to be some losers. Is that how you want your healthcare to be delivered?

LAURA SULLIVAN, Correspondent, NPR:

In the foothills of southeastern Tennessee, the city of Chattanooga has been growing steadily for years.

LAURA SULLIVAN:

It has three sizable hospitals, and its largest is downtown—the 680-bed, county-owned Erlanger. It’s Chattanooga’s safety-net hospital.

SUDAVE MENDIRATTA, M.D., Chief, Emergency Dept., Erlanger:

We've got a gunshot going to 11. Come with me.

LAURA SULLIVAN:

Dr. Sudave Mendiratta started at Erlanger in 2008 and is now chief of emergency medicine.

SUDAVE MENDIRATTA:

So if 6 goes to 101, and burn's going to 6—

Chattanooga is my hometown, and when I had the opportunity to come work at Erlanger, I was excited to work with a diverse patient population.

Musical chairs. We’ll get through this.

I was excited to be part of a public hospital mission.

If it were easy, everybody would work here, right?

LAURA SULLIVAN:

While many hospitals care for people who are poor or uninsured, as a public hospital, Erlanger is obligated to take all patients, regardless of their ability to pay.

SUDAVE MENDIRATTA:

Erlanger performs vital services not just in some specialties like trauma or stroke or cardiac care, but just the day-to-day healthcare for most Americans who don't have access otherwise. Because of that, and that we're open 24/7, 365, we've become a convenient option for healthcare for those who may not have a doctor.

We’re working on getting you a space so we can get you better treatment, OK?

Our doors are open all the time, regardless of where you come from. It's the most pure form of medicine.

LAURA SULLIVAN:

In recent years here, the number of patients on Medicaid—

SUDAVE MENDIRATTA:

Hello, ma'am.

LAURA SULLIVAN:

—or with no insurance has been climbing.

SUDAVE MENDIRATTA:

Again, I'm Dr. Mendiratta, and thanks for being so patient with us this evening. I just wanted to hear a little bit more of your story.

TERESA ATKINS:

I have been clean from 2007 till June of last year.

SUDAVE MENDIRATTA:

Oh, that's fantastic. That long of a time?

TERESA ATKINS:

I wouldn't even came now because I know it's a process, but rehab put me out.

SUDAVE MENDIRATTA:

So the only reason you came here to the emergency room tonight is because you weren't able to continue with your rehab.

TERESA ATKINS:

Honestly, yes. I don't have insurance and I don't have a doctor, so I didn't have no choice but to come to the emergency.

SUDAVE MENDIRATTA:

Yeah. Well, that’s what we’re here for.

TERESA ATKINS:

Yes, sir. So does that mean you guys are going to give me—

SUDAVE MENDIRATTA:

Yes, ma’am. You’re going to be ready to go back, OK?

TERESA ATKINS:

We're lucky to have Erlanger. I don't feel like that they change the way they would treat me, as in if I needed this scan and didn't have no money, they still did it. And I like that. I like to be somebody no matter where I go. I don't like to be less-than, and they've always treated me that way, like I was somebody.

LAURA SULLIVAN:

But to take care of people like Teresa, safety-net hospitals face a fundamental problem: They often don’t get enough money from the government to cover the costs. So they have to look elsewhere to survive. They have to attract a lot of insured patients that pay well. And in Erlanger’s case, that means it has to compete against its two crosstown rivals, both part of national hospital chains.

Memorial belongs to one of the largest groups of nonprofit hospitals in the country. Close by is Parkridge Medical Center, part of the nation’s largest for-profit chain, the Hospital Corporation of America—HCA.

Former Sen. Bob Corker was the mayor of Chattanooga in the early 2000s and saw the challenges facing Erlanger.

SEN. BOB CORKER, (R) Tennessee, 2007-19:

So you have this competition that's taking place between a safety net facility that's owned by the public, a for-profit facility that, generally speaking, around the country is well-run, a nonprofit Catholic hospital, all engaging in similar practices in order to garner market share. And yet Erlanger's at a disadvantage.

LAURA SULLIVAN:

That competitive disadvantage has continually left Erlanger struggling to make ends meet. After years of financial peril, in 2012, the hospital was losing so much money its future was in jeopardy. So hospital leadership made a desperate decision: They would refocus. Like their competitors, they would prioritize attracting profitable patients.

CHRIS YOUNG, M.D., Chief of Staff, Erlanger:

The patient that is the most profitable is the healthy patient who's coming in for a simple surgery and going home. That's the patient that you can make the most money on.

Hello, sir. I’m Dr. Young.

LAURA SULLIVAN:

Dr. Chris Young is chief of the medical staff. He’s been practicing at Erlanger for 30 years and supported the change in strategy.

CHRIS YOUNG:

All right. We’re going to take good care of you.

MALE PATIENT:

Yeah, I hope you do.

CHRIS YOUNG:

Yes, sir.

I think the approach was we're going to need to make money in a competitive environment. We’re going to have to shift our patient mix into a more profitable patient mix. And we're going to use those profits to keep Erlanger alive, keep it functioning on some level.

I want you to take some big, deep breaths for me, just as big as you can.

LAURA SULLIVAN:

The hospital cut some expenses and staff benefits. And by tapping into additional federal funds and borrowing heavily, it began aggressively expanding over the next six years.

ERLANGER PROMOTIONAL VIDEO:

A health system living up to a higher standard.

LAURA SULLIVAN:

It opened a new campus in the suburbs to attract a wealthier clientele.

ERLANGER PROMOTIONAL VIDEO:

The Erlanger Orthopedic Institute is blazing new trails.

LAURA SULLIVAN:

It invested in specialty practices with high-margin profits.

ERLANGER PROMOTIONAL VIDEO:

The Erlanger Heart and Lung Institute is bringing together experts from all over the world.

LAURA SULLIVAN:

And it bought a smaller regional hospital.

ERLANGER PROMOTIONAL VIDEO:

—with six hospitals and over 5,500 employees.

SUDAVE MENDIRATTA:

We had new helicopters, which we were so excited to talk about our regional reach. There was a sense of excitement that we were part of the cutting-edge healthcare system.

JENNIFER LOPEZ [on promotional video]:

Please join me in giving sick and injured children every chance to get better. Put your money where the miracles are.

CHRIS YOUNG:

There was a big advertising campaign.

ERLANGER PROMOTIONAL VIDEO:

This is world class. This is Erlanger.

CHRIS YOUNG:

That was kind of, in my view, was a little bit over the top, in terms of it. But the positive effect was it did allow people to think, "Well, this is going to be fine."

SUDAVE MENDIRATTA:

I was not astute enough to interpret financial statements, but I assumed, through the banners, through the Super Bowl advertisements, through the glossy mailers, the fancy robots that we were buying, that Erlanger was doing not just good, but Erlanger was doing great. That Erlanger was doing things that got the attention of Wall Street.

ERLANGER PROMOTIONAL VIDEO:

A leader on a global scale.

LAURA SULLIVAN:

But despite all the investments and expansion—

ERLANGER PROMOTIONAL VIDEO:

This is Erlanger.

LAURA SULLIVAN:

—the strategy wasn’t working for everyone.

While Erlanger had its eyes elsewhere, in the working-class neighborhoods on the south side of Chattanooga, the immigrant population was growing, and with it, the community’s healthcare needs.

KELLY RODNEY ARNOLD, M.D., Founder, Clínica Médicos:

Karla? Buen día. Doctora Kelly. Cómo estás?

KARLA DOMINGO DOMINGO:

Bien.

ARNOLD:

Bien?

LAURA SULLIVAN:

Dr. Kelly Rodney Arnold runs Clínica Médicos. She got her start working as a staff physician at Erlanger.

KELLY RODNEY ARNOLD:

Clínica Médicos, really, there was nothing like it. It was the first bilingual medical home for a population that largely seemed voiceless, seemed castaway and in many ways seemed dismissed.

LAURA SULLIVAN:

Since the clinic opened, thousands of low-income patients, many without insurance, have been seeking primary care here—the kind of care that Erlanger hadn’t been prioritizing.

KARLA DOMINGO DOMINGO:

[Speaking Spanish] Here, the care is very good because they speak Spanish. Not everybody speaks English.

KELLY RODNEY ARNOLD:

How’s your new job going?

ROBERT ACEVEDO:

It’s good.

The clinic was an alternative because it's something we could afford.

KELLY RODNEY ARNOLD:

So it’s along here on the back.

ROBERT ACEVEDO:

Yeah.

She makes $13 an hour. Now I'm making $16 an hour. But it's not enough.

LAURA SULLIVAN:

When you were watching Erlanger do the expansion and spending a lot of money on its facilities and its equipment and its campus, what did you see happening? What did you think of it?

KELLY RODNEY ARNOLD:

It was disheartening, really, and it was insidious, because as things got bigger and wanted to get bigger, and wanted to become world class, the very mission became eroded. Chasing margins—that was put at the front of the train instead of the patient.

LAURA SULLIVAN:

Do you think that affected some patients more than others?

KELLY RODNEY ARNOLD:

Of course. And those patients who aren't as empowered absolutely get pushed by the wayside.

LAURA SULLIVAN:

By 2019, there were problems inside Erlanger, too. Its new strategy wasn’t covering its rising costs.

CHRIS YOUNG:

We had a lot of growth, but that didn't translate into profit.

LAURA SULLIVAN:

Why doesn't having more patients mean more profit? It seems like in any other business, the more customers you get in the door, the more money you're making.

CHRIS YOUNG:

Well, first of all, they need to have—to be able to pay for their service, OK? You can't add up on volume if you're not being paid for it. And so that's where people started running into trouble.

LAURA SULLIVAN:

The troubles were especially acute in the ER, where doctors were warning leadership that the ratio of nurses to patients had become dangerously low.

When did you start to think the expansion wasn't working out?

SUDAVE MENDIRATTA:

We knew that when we did not have capacity to care for patients, yet we accepted more, that was an issue. We were seeing patients in hallways and in the waiting room. It became very clear that spending money as an organization to gain market share and to increase volume was not effective to deliver quality care.

CHRIS YOUNG:

Over time, people became discouraged. Many people left. They didn't feel good about the care that was being given. We looked to hospital leadership to say, "Why aren't we changing this?" And clearly it was because of financial concerns.

LAURA SULLIVAN:

It all came to a head in April 2019.

CHRIS YOUNG:

There was one day where it just became painfully apparent that we can't continue to operate the hospital in this way.

LAURA SULLIVAN:

The emergency room was overwhelmed, short on beds and staff. A man arrived with trouble breathing. After initial tests, he was placed back in the crowded waiting room. There wasn’t space to admit him.

Five hours later, he was unresponsive and died.

SUDAVE MENDIRATTA:

That was a very clear marker that this has gone too far. I still carry this guilt with me, that I may have been complicit in something that caused harm. It's the first part of the Hippocratic oath: Do no harm. And yet, when we are constrained within a system that caused harm, it's a moral dilemma for us as physicians.

LAURA SULLIVAN:

Soon, the medical staff had had enough. They wrote a letter to the hospital’s board of trustees saying they had "no confidence" in the leadership “to ensure the quality and safety of patient care.”

The board never publicly commented on the man’s death, but it pledged to address the doctors’ concerns. By the end of 2019, the board brought in new leadership and staffing levels were improving. But once again Erlanger was losing millions and in financial crisis.

So that strategy of going after the market share, going after the high-margin procedures, that's a strategy that has worked for some hospitals. Why didn't it work at Erlanger?

SUDAVE MENDIRATTA:

Because we could not only take the patients with the best insurance for the highest-profit procedures. That inherent discord of fulfilling our safety-net hospital mission paradoxically hamstringed the ability for us to have a targeted healthcare marketing strategy towards higher-income ZIP codes and performing the higher-margin procedures.

CHRIS YOUNG:

We talk a lot about health systems, but the reality is we have a healthcare marketplace. And so people are selling healthcare to customers. And so for us to survive, we have to compete, but we have to accept all patients. That's our burden. That's our mission. We don't have the luxury of picking and choosing.

BOB CORKER:

Erlanger is an incredibly important facility here in our community. The needs of our community would not be dealt with appropriately without Erlanger being here. But at the end of the day, that competition and that overlap and that grab for market share is actually not good for the community.

LAURA SULLIVAN:

The competitive pressure on safety-net hospitals in America took off about 50 years ago amid a wave of change in an unlikely place, two hours down the road from Chattanooga.

Nashville made its name on music, but the industry that’s made the city what it is today is healthcare.

PAUL KECKLEY, Managing Editor, The Keckley Report:

Healthcare is a big business. When we talk about healthcare being a $3.9 trillion industry, just think about that industry having its tentacles, its roots, in and around Nashville.

LAURA SULLIVAN:

Paul Keckley lives in Nashville and is a longtime industry analyst.

PAUL KECKLEY:

It’s 400-plus companies just in Nashville, plus about 150,000 people that are employed in the industry that live in Nashville. Pretty big business.

LAURA SULLIVAN:

Some of the biggest for-profit healthcare companies in the country got their start here. The hospital chain LifePoint, with about $7 billion in revenues. Community Health Systems, with 84 hospitals in 16 states. And HCA, one of the first for-profit chains.

Jeff Goldsmith was a consultant with HCA in its early days.

JEFF GOLDSMITH, Pres., Health Futures:

It is an exceptional institution. And I say that as a shareholder.

LAURA SULLIVAN:

What is the secret to their success that other hospitals should be learning from?

JEFF GOLDSMITH:

Operating discipline. They're very focused. They don't run off and chase rabbits. They don't get distracted by the shiny object. They've stayed in the business of managing hospitals. And if you go visit their corporate offices, it's basically the same corporate office they had 40 years ago, when I worked with them.

LAURA SULLIVAN:

HCA bought its first hospital in 1968, just years after the marketplace was flooded with revenue from two new government health insurance programs, Medicare and Medicaid.

The hospital industry had long been dominated by nonprofits. Now, entrepreneurs saw opportunity. And companies like HCA emerged as key drivers of competition.

JEFF GOLDSMITH:

What began happening in the '70s is that you had corporations that began acquiring hospitals and chaining them together to try and achieve economies of scale and efficiency.

THOMAS FRIST, M.D., Pres., Hospital Corp. of America [archival video]:

We got the idea to do this thing from seeing what Holiday Inns 10 years before had done in changing basically the travel industry.

JEFF GOLDSMITH:

The managerial challenges of running a hospital increased dramatically during the '70s and '80s. There was a steady increase in the complexity of the business; a steady increase in the cost and capital requirements associated with staying in the business; and a steady improvement in the quality of the management trying to do all of that stuff, all at the same time.

MALE NEWSREADER:

The for-profit hospitals say they’ve introduced sound management to the hospital industry. They say they can raise money faster, build new hospitals quicker and offer quality care.

LAURA SULLIVAN:

Is this an issue where the for-profit hospitals came in and said, "We see a problem and we can fix this. We can do it better." Or was this a situation where they came in and just said, "We see a situation where we can make money."

PAUL KECKLEY:

It's both, but it began with "we can build a better mousetrap." So what investor-owned operators would do is go into communities where there was a large hospital that had operated pretty much by its own rules and they'd say, "We're going to compete with you. And if we put in a competing hospital we'll get better service, we'll get lower cost and every patient's going to have a choice."

MALE NEWSREADER:

Now hospitals are going head-to-head competing for your business.

LAURA SULLIVAN:

As the for-profit industry expanded—

FEMALE NEWSREADER:

A growing phenomenon: hospitals that operate for profit.

LAURA SULLIVAN:

—controversies followed over who was being left behind.

MALE NEWSREADER:

One of the biggest controversies about profit-making hospitals is how they treat people who cannot afford to pay at all.

LAURA SULLIVAN:

And questions over a widening divide.

MALE NEWSREADER:

They’re usually in prosperous suburbs and usually in states where there’s little regulation of hospital rates.

PAUL KECKLEY:

Location is half the battle for producing return to shareholders. Is it a market where you've got a few large employers that have very attractive health benefits for their employees and they happen to have a workforce that's in their 30s and 40s and 50s? That's a better scenario than if you're in a market when they're all in their 70s and their problems are very severe chronic conditions. So what's clear is they are in the business to make money for their shareholders, for their stockholders.

MALE NEWSREADER:

It’s the biggest merger in history outside the oil industry.

LAURA SULLIVAN:

Over the decades, the size and the scale of hospital companies grew as consolidation swept through the industry, giving rise to massive healthcare systems.

JEFF GOLDSMITH:

The entire health system was consolidating. It wasn't just in the investor-owned sector.

FEMALE NEWSREADER:

The multibillion dollar deal between New York Hospital and Presbyterian Hospital—

JEFF GOLDSMITH:

You had a parallel development of systems in the nonprofit world during that period of time.

FEMALE NEWSREADER:

—produces a network that includes nearly 30 hospitals and healthcare facilities.

JEFF GOLDSMITH:

It really didn't matter whether they were investor-owned or not-for-profit, because they were all trying to do essentially the same thing. In this industry, geography is destiny. It's your fate. And if you can't figure out how to spread the cost of managing that enterprise and managing that risk across a large enough population, you drown.

MALE NEWSREADER:

The only hospital in Chicago’s Bronzeville community just announced it will close next year.

LAURA SULLIVAN:

And that’s what was happening to many safety-net hospitals as they’ve tried to live up to their mission and stay afloat in this increasingly competitive marketplace.

FEMALE NEWSREADER:

After serving Northeast D.C. for more than 150 years, Providence Hospital officially closed.

PAUL KECKLEY:

Investor-owned is growing dramatically, but it's doing so at a point where the pie is actually shrinking. The number of hospitals is going down and the percentage of hospitals operating that are owned by investors is going up, and those are happening at the same time.

LAURA SULLIVAN:

For-profits now make up about 24% of the hospital business, and some big systems like HCA are stronger than ever. Its stock price has more than doubled in the last four years.

Do you worry at all that there is a growing divide between the safety-net hospitals and the for-profits, and even the nonprofits?

JEFF GOLDSMITH:

Geography is destiny.

LAURA SULLIVAN:

Does that mean that there's a growing divide?

JEFF GOLDSMITH:

No. There's no question that there are significant differences in the economic circumstances of these institutions. But so much of those differences depend on the geography and the economics of the patients that they serve. And that hasn't changed at all.

LAURA SULLIVAN:

And when people say that other hospitals, for-profit and nonprofit hospitals, make too much, that it's not fair, are they wrong?

JEFF GOLDSMITH:

The real problem is the inequities in the society as a whole have reached the point where we really need to address them. And the disparities in the circumstances of the hospitals are an outgrowth of a failure of social policy and politics. That's what I believe. I'm not going to blame the hospitals.

LAURA SULLIVAN:

Back in Chattanooga, we wanted to take a deeper look at the divide between Erlanger and the other two main hospitals, the nonprofit Memorial and HCA's for-profit Parkridge.

We got access to a database of financial information that hospitals report to the federal government.

It offered a glimpse into how Erlanger was stacking up against its crosstown competitors. In 2019, the year before COVID, Parkridge reported $78 million in operating profit, a margin of almost 24%. Memorial took in $40 million, a nearly 7% margin. Erlanger lost about $13 million.

HCA declined our request for an interview, but it said in a statement that the government data "can't always be used to accurately calculate margins." It also said in 2019 nearly a third of Parkridge patients were on Medicaid or uninsured.

BOB CORKER:

Both the nonprofit and the for-profit benefit from Erlanger being here.

LAURA SULLIVAN:

From having Erlanger in the market?

BOB CORKER:

Certainly. By having a safety-net hospital in the market, where more of the lower-pay, no-pay patients are going to go, ends up being of benefit to the other facilities.

LAURA SULLIVAN:

Chattanooga is just one market, but it reflects disparities in the industry, according to Bruce Siegel, who represents more than 300 safety-net hospitals around the country.

BRUCE SIEGEL, M.D., MPH, Pres. & CEO, America's Essential Hospitals:

So when we look at our membership, before the pandemic close to half our hospitals were losing money in a given year. The average was about a 1% or 2% positive margin. It's very minimal. Some years, the average has been negative. The average American hospital had a margin of closer to about 7%.

LAURA SULLIVAN:

Seven percent.

BRUCE SIEGEL:

Yes, average. And there are some hospitals in America who have profit margins of 10%, 15%, 20%. We've seen this divergence, and to some degree it's always been there, but I think the pandemic has made it much worse. And I think that gap has just opened further.

LAURA SULLIVAN:

This gap exists in large part because Medicaid often doesn’t pay enough to cover the costs of care, leaving hospitals about $19 billion short every year. To help offset these losses and the costs of caring for the uninsured, the government gives hospitals additional Medicaid funding. They’re called “supplemental” payments.

How important to the viability of safety-net hospitals are supplemental payments?

BRUCE SIEGEL:

Oh, supplemental payments are absolutely critical. They can be the difference between keeping your doors open or going under. When you're being paid so much less on a Medicaid patient, and you're caring for people for whom you get paid nothing, completely uninsured patients, supplemental payment can be a difference between life and death.

LAURA SULLIVAN:

Diane Rowland was a top adviser to Congress for the Medicaid program.

When did the federal government decide that these safety-net hospitals needed supplemental funding?

DIANE ROWLAND, Fmr. Chair, Medicaid commission:

The program really began around 1980.

LAURA SULLIVAN:

OK.

DIANE ROWLAND:

The federal government wanted to maintain access for the Medicaid population that they knew needed to use these hospitals because many of the for-profit hospitals had very low Medicaid patient loads. So if these safety-net hospitals were where the population that was low-income was going, they wanted to make sure that they had enough substantial cash flow to be able to stay operative and to maintain the quality of their services.

LAURA SULLIVAN:

Medicaid funding is split between the federal government and the states, which are responsible for distributing the money, including the supplementals, now about $50 billion a year.

Can the public see how much money is going out in these supplemental payments and what it's being used for?

DIANE ROWLAND:

Well, it's a black box.

LAURA SULLIVAN:

It's a black box?

DIANE ROWLAND:

You can see how much is going out in different parts of the supplemental payment, but it's not very clear, always, where it's going.

LAURA SULLIVAN:

We tried to take a look at how the money was flowing to hospitals in Chattanooga and across Tennessee. We analyzed annual hospital filings and obtained supplemental payment information from the state Medicaid agency, TennCare. The data covered 2015 to 2019.

Following a methodology used by numerous Medicaid experts, we found that for the six hospitals designated as safety nets, the uncompensated costs of caring for Medicaid and uninsured patients increased by 31%. But the supplemental payments only increased by 5%.

At the same time, we also saw that some for-profit and not-for-profit hospitals received much greater increases in supplemental payments.

Medicaid officials in Washington and Tennessee would not agree to an interview. But in a statement, TennCare said the disparity we found is not reliable because it does not take into account key factors, like care provided to out-of-state patients. They said the payment formulas are approved by the federal government and that overall, 40% of the supplemental money went to the safety nets.

We just looked at Tennessee. Is there reason to believe that this could be going on elsewhere in the country?

DIANE ROWLAND:

I think that it's going to vary. Your findings really show that in Tennessee, there's obviously something worth examining going on. I suspect that one would find similar differences among other states. There's a lot of financing that allows states to make different decisions about how to channel their funds and who to compensate.

LAURA SULLIVAN:

Who does that hurt?

DIANE ROWLAND:

It hurts equity. It hurts targeting the funds to the most needy places for the most needy populations.

BRUCE SIEGEL:

Everybody's chasing every dollar. Folks get really smart about these formulas and smart about the politics. And if a safety-net hospital is seeing their support through these payments drop over time, that troubles me a lot. When I look at large safety-net hospitals in America, the expense, what it costs just to run that hospital, increases about 5-6% per year.

LAURA SULLIVAN:

I see.

BRUCE SIEGEL:

So that hospital will fall further and further behind.

LAURA SULLIVAN:

That’s what was happening at Erlanger, where its supplemental payments only rose by an estimated 3.6%, despite a 53% jump in the uncompensated costs for Medicaid patients and the uninsured.

Before COVID hit, what kind of financial shape was Erlanger in?

BOB CORKER:

It was in a tough financial shape. Erlanger was left in a situation where it was in significant financial distress.

LAURA SULLIVAN:

As the pandemic took hold, the hospital had to furlough nurses and staff. It closed down more than 80 beds, its future more uncertain than ever.

In August 2020, Sen. Corker was called to a meeting.

BOB CORKER:

I got a call from the mayor of the county, which is the entity that really has direct control of the hospital. And he'd received a call from someone that neither one of us had ever heard of, who wanted to come and meet with him about making an offer.

LAURA SULLIVAN:

It was a meeting with a new company out of Pennsylvania that was set up to buy distressed safety-net hospitals.

BOB CORKER:

Part of my role was to ask probing questions, which I did. And as soon as they walked out the door we looked at each other and, you know, the only thing that might come out of this that could be positive would be for there to be some type of community conversation about how Erlanger figures out a way to not be in a constant crisis financially.

LAURA SULLIVAN:

They were offering nearly half a billion dollars and had the backing of private equity investors.

MALE NEWSREADER:

Time now for the good, the bad and the ugly.

LAURA SULLIVAN:

It was part of a growing trend of investors turning to the healthcare industry for high-margin returns.

MALE NEWSREADER:

—agrees to be bought by private equity firm Blackstone Group.

MALE COMMENTATOR 1:

We thought it was coming. It’s now come.

MALE COMMENTATOR 2:

That’s right.

MALE COMMENTATOR 1:

This is a big private equity deal, right?

MALE COMMENTATOR 2:

It is a big private equity deal.

LAURA SULLIVAN:

Over the past decade, private equity investments in healthcare have doubled.

MALE NEWSREADER:

Hospitals and medical staffing controlled by private equity firms.

PAUL KECKLEY:

Private equity's business model is perfect for hospitals. Private equity wants to buy an asset that's undervalued, reduce its operating cost, borrow a lot of money, which ends up as debt on the balance sheet, and then sell the hospital to somebody else in five to seven years, having made a 20% compound annual rate of return on their money. Buy it, lean it, leverage it, sell it.

LAURA SULLIVAN:

With the Erlanger offer on the table, I headed to Rhode Island, where I’d heard there was an escalating fight over the role of private equity in two safety-net hospitals there.

MALE NEWSREADER:

The fate of Fatima Hospital and Roger Williams Medical Center rests in the hands of the Health Department and the attorney general.

LAURA SULLIVAN:

The state was deciding whether to allow a private equity firm to sell its controlling stake in the hospitals.

MALE NEWSREADER:

Both have conducted hearings regarding who has control of the hospitals.

LAURA SULLIVAN:

But the sale was facing stiff opposition from the hospital unions.

When I first got to Providence, I sat down with the top union leaders from one of the hospitals.

You guys are so far away. [laughs]

Both had been big boosters of the 2014 deal that gave ownership of the hospitals to the private equity firm and its partner, Prospect Medical.

So you’re hearing this group, Prospect Medical, is coming in. What are you guys thinking?

LYNN BLAIS, RN, Nurse, Our Lady of Fatima:

This was the white knight coming in to save us.

CYNTHIA FENCHEL, Medical Sec., Our Lady of Fatima:

Exactly. We were being saved.

LAURA SULLIVAN:

By this group. What made you think that?

LYNN BLAIS:

Because they came in with all the promises of what they were going to do to make us succeed. They were going to provide the financial stability that we needed to continue to move forward.

CYNTHIA FENCHEL:

We felt that it could be good. It could save jobs.

LAURA SULLIVAN:

How long did that sense of happiness last?

CYNTHIA FENCHEL:

I would say not even two months for us.

LAURA SULLIVAN:

Wow. What did you start seeing?

CYNTHIA FENCHEL:

We started seeing layoffs. Not only management, but the workers. They started laying off, cutting hours.

LAURA SULLIVAN:

What else started concerning you?

LYNN BLAIS:

We were always used to being able to just walking into the supply closet, reaching for what you need and knowing it’s there. And we find now that doesn’t happen. You call down to the supply room and say, "We need more saline." "Oh, we’re out of stock. It’s on back order."

LAURA SULLIVAN:

And you hadn’t had that experience before? In all—

LYNN BLAIS:

No. Even when we were in the worst of times, we always knew we had what we needed for the patients.

LAURA SULLIVAN:

During this time, did you ask somebody, anybody at Prospect, "What’s the deal here?"

LYNN BLAIS:

We wanted to know what the story is. Why are these things happening? "Well, this is the system, and this is how the system works, and this is how we’re going to survive." And when we couldn’t get the answers or we couldn’t get the responses that we needed, then we started our own campaign.

LAURA SULLIVAN:

Facing repeated staff cuts, the union went to war against Prospect over its contract and working conditions, even created attack ads.

Union ad

UNAP VIDEO AD:

Prospect Medical Holdings is a California-based for-profit that took over Fatima Hospital, Roger Williams Medical Center—healthcare facilities that provide critical care to thousands of Rhode Islanders everyday. What do we know about—

LAURA SULLIVAN:

The man behind the campaign was union attorney Chris Callaci.

CHRIS CALLACI, Gen. Counsel, United Nurses and Allied Professionals:

We started to do some research on them, and we were able to start to find out that there was a pattern of conduct with them. The Department of Public Health in California had gone in and done some inspections in some of their hospitals and found all sorts of problems.

UNAP VIDEO AD:

In California, Prospect’s hospitals were cited by federal regulators for a long list of stunning violations.

CHRIS CALLACI:

And we looked at that and we thought, "OK, that’s a problem."

UNAP VIDEO AD:

It looks like Prospect Medical Holdings may have brought some of their West Coast safety problems with them to Rhode Island.

CHRIS CALLACI:

And so more and more of this started turning up.

UNAP VIDEO AD:

From California to Rhode Island, Prospect can’t be trusted.

CHRIS CALLACI:

And as they continued to buy hospitals after they bought the Rhode Island hospitals, you then started seeing communities there starting to complain about the same things.

LAURA SULLIVAN:

We presented the union’s allegations to Prospect and its private equity owner, Leonard Green & Partners, but neither would agree to an interview. In a statement, Prospect called the claims untrue and said they had good relations with the hospitals’ unions and staff. They said they’d invested more than $100 million in the hospitals in Rhode Island and received awards for the quality of their care.

But just a couple hours from Providence, in Waterbury, Connecticut, I heard many of the same complaints about Prospect’s ownership of a hospital there.

PASTOR RODNEY WADE, Long Hill Bible Church:

We come into the space every night. We don’t come to tear down. We come to lift up.

LAURA SULLIVAN:

On the north end of town, at the Long Hill Bible Church, Pastor Rodney Wade told me about his concerns.

RODNEY WADE:

We come to talk about those things that really matter in our world.

I just started to see my members in and out of the hospital, in and out of the hospital. And I started to question that. "Where is so-and-so at?" "Oh, they’re not here. They went back to the hospital." And my position was, "Wasn’t they just at the hospital?"

LAURA SULLIVAN:

You’re wondering if they’re not getting the right treatment the first time—

RODNEY WADE:

Right.

LAURA SULLIVAN:

—and the problem isn’t getting solved.

RODNEY WADE:

Right. Why are they going back? Did they receive quality care the first time?

LAURA SULLIVAN:

I see.

FEMALE NEWSREADER:

Prospect Medical Holdings bought Waterbury Hospital last October. One year in, and some local religious leaders are raising concerns.

LAURA SULLIVAN:

Wade and other local clergy arranged a meeting with the hospital CEO.

RODNEY WADE:

And so when he finally came in the room, he asked us, "What is it that you want?" And we started to articulate it and out of nowhere, he kind of leans back in his chair and he says, "Why don’t ya’ll worry about what ya’ll worry about and let us worry about the hospital?"

I would say at that moment it became crystal clear to me that this was not going to be a pleasant journey. But it also started to create this sense of, if we’re coming here in good faith, why doesn’t he want to talk?

LAURA SULLIVAN:

I also sat down with two veteran healthcare workers at Waterbury Hospital. They, too, had problems with the way Prospect was running things.

ROMONA BARNES, Surgical asst., Waterbury Hospital:

They were looking at giving us paper towels to wash patients. Not washcloths, paper.

LAURA SULLIVAN:

Paper.

ROMONA BARNES:

I said, "How do you charge a patient all this type of money and you give them a paper towel to wash themselves for the day? This is unacceptable."

MARYLIN ANTHONY, RN, Nurse, Waterbury Hospital:

Isn’t that about the same time they told us to not change the linen?

ROMONA BARNES:

Right. You change the linen what, once a week?

MARYLIN ANTHONY:

Every third day.

ROMONA BARNES:

Every third day.

LAURA SULLIVAN:

In a hospital?

ROMONA BARNES:

In a hospital. Yep.

LAURA SULLIVAN:

Do you feel like these changes that have happened since Prospect came have affected the care of the patients?

ROMONA BARNES:

Oh, yes. This is the worst I’ve seen it in the 30 years that I’ve worked for Waterbury Hospital.

LAURA SULLIVAN:

In 30 years.

MARYLIN ANTHONY:

I got an email the other day that told us to stop talking in the hallways about being short-staffed because we don’t want the patients to think that their care is going to be compromised. Their care is compromised.

ROMONA BARNES:

Staffing is such a big piece of it. And supplies. You’re constantly waiting for supplies to come in. I mean, if you’re doing a—

LAURA SULLIVAN:

Still.

ROMONA BARNES:

Right. Yes.

LAURA SULLIVAN:

Almost a year into COVID you’re still fighting over this supply issue.

ROMONA BARNES:

Yes. Still fighting for supplies. Just your basic stuff to do your daily—

LAURA SULLIVAN:

Just masks and gloves and gowns.

ROMONA BARNES:

Everything, yeah.

LAURA SULLIVAN:

In its statement to us, Prospect said most union members are satisfied with the company’s safety practices, including efforts to ensure adequate PPE during the pandemic.

But staffing, supplies and quality of care were only part of the controversy. In Rhode Island, what had really gotten the attention of regulators were financial maneuvers by Prospect and its private equity partner.

TRAVIS FOX:

Hello, Senator, welcome.

LAURA SULLIVAN:

Maneuvers that have been under review by the Rhode Island attorney general, the Department of Health and a state Senate committee. Its chairman is Louis DiPalma.

What do you think so far, now that you've been looking into these hospitals?

SEN. LOUIS DiPALMA:

I'm extremely concerned. Our Health Services Council, which is an arm established by the General Assembly, hired a consultant. Their review and analysis raises some caution flags.

LAURA SULLIVAN:

What kind of caution flags?

LOUIS DiPALMA:

They have a note coming due in 2022. Not quite certain how they're going to pay for it. They are heavily leveraged, and they went and paid almost $500 million in dividends to shareholders.

LAURA SULLIVAN:

It’s this dividend payment that’s at the crux of the fight. In 2018, Prospect borrowed over a billion dollars and paid out $457 million of it to its investors.

What did you think when you heard that the owners of Prospect had given a 400 and some million dollar dividend payment to themselves and their investors?

CHRIS CALLACI:

So what I thought was, "This is boundless greed." They go to struggling communities that need these safety-net hospitals to provide care and that they’re going in there and they’re taking advantage of these communities and these people to buy these assets, borrow against the assets to then free up capital to make these grotesque dividend payments.

LAURA SULLIVAN:

In a letter to Congress, the private equity firm Leonard Green & Partners rejected any implication it mismanaged Prospect or put its own financial interests ahead of the hospital's. In a statement to us, the firm said that Prospect’s financials are solid and the debt from the dividends has been repaid.

And Prospect told us it has always acted in good faith, never losing sight of the best interests of its employees, patients and communities.

Prospect Medical would say, "Look, we kept your hospital open, but we are here to make money and we’re not making a secret about it." What’s so wrong with that?’

RODNEY WADE:

But you’re dealing with people’s lives. And when you’re dealing with people’s lives, if you endeavor to just simply make money at the expense of people, then for me that’s problematic.

FEMALE NEWSREADER:

Battle over hospitals. A showdown between a hospital company and Rhode Island’s attorney general—

LAURA SULLIVAN:

Just last month, it was reported that the Rhode Island attorney general will require Prospect to put up at least $120 million in escrow to ensure the hospitals’ viability.

MALE NEWSREADER:

Well that is not sitting well today with the owners of Prospect, and they are threatening to shut down Fatima.

LAURA SULLIVAN:

Prospect says if it can’t get an acceptable deal, it may close both hospitals.

In Chattanooga, opposition to selling Erlanger to private equity investors quickly took hold.

BOB CORKER:

I can't imagine Erlanger ever taking a private equity deal unless it just got to the most dire of circumstances, which would be irresponsible for our community to let happen. I can't imagine that selling to a private equity firm would ever be something this community would want to see happen with Erlanger.

LAURA SULLIVAN:

But even those opposed to private equity say dramatic change may be needed.

CHRIS YOUNG:

We've come to the point where we're failing in terms of being able to run the hospital sufficiently. If we can't get funding from the public sector, we're going to have to go to the private sector in some form or fashion to get the funding that we need.

LAURA SULLIVAN:

You're talking about investors.

CHRIS YOUNG:

Uh, yeah. We're going to have to go to the private sector.

LAURA SULLIVAN:

For now, like many safety nets, Erlanger’s losses have been buffered by COVID relief funding from the federal government. The hospital got about $75 million in federal grants.

BOB CORKER:

Because of the federal government's inputs as a result of what happened with COVID, they actually ended up with about double the amount of cash on hand than they had had in the past. But that's—that'll be good for a while, but then they'll face the same challenges that they face as a safety-net hospital in our community.

CHRIS YOUNG:

Unless there's a substantive change in the way safety nets are funded, things are simply going to keep going in the direction they are, which is there will be great disparities in how patients are taken care of.

LAURA SULLIVAN:

You're saying it's just going to keep—

CHRIS YOUNG:

That divide is only going to grow.

JEFF GOLDSMITH:

The problem is that we have 30 million people without health insurance coverage and we need to fix it. That's the problem.

LAURA SULLIVAN:

You think if those people had health insurance, we wouldn't have to worry about the safety-net hospitals?

JEFF GOLDSMITH:

Yeah. You'd still have issues about whether Medicaid paid a sufficient amount of money to cover the cost of caring for them. You'd still have that issue. But you wouldn't have this gaping hole in health coverage that we have today.

LAURA SULLIVAN:

Over the past decade, more and more states have expanded Medicaid to cover the uninsured, though 12, including Tennessee, have yet to do so.

BRUCE SIEGEL:

Medicaid expansion is a good thing, don't get me wrong. But even if everybody's on Medicaid, it pays less for any kind of service than what private insurance does. So Medicaid expansion, great thing, but it's only a part of the puzzle and part of the solution. When we see hospitals struggling because they take care of lots of Medicaid patients and get paid less because Medicaid pays less for care, that is completely a result of the structural racism baked into the fabric of how we pay for healthcare and how the Medicaid program has been underfunded over time.

LAURA SULLIVAN:

You're saying that because so many Medicaid patients, statistically, could be people of color.

BRUCE SIEGEL:

Well, they are. And that is part and parcel of how the healthcare system is structured today.

BRAD SPELLBERG, M.D., Chief Med. Director, LAC+USC:

How long are we talking about?

ARCELIA MARTINEZ, RN:

He’s been here 24 days.

LAURA SULLIVAN:

Here in LA and around the country, the pandemic is subsiding. But the financial problems facing safety nets are only growing.

How urgent a crisis do you think the safety nets are in right now?

BRAD SPELLBERG:

Well, I think the entire healthcare system is in a huge crisis, and I think safety nets are the canary in the mine of that crisis. They’re going to go down first.

How are you guys handling this?

ARCELIA MARTINEZ:

We just get to see the complications of the disease. It’s just almost like a spiraling.

BRAD SPELLBERG:

One could hope that we’ve all learned something from the last 12 months. I know that that’s asking for a lot, but one could hope. The question is, at a broader level, will society have learned the value and importance of safety-net hospitals? And will society have learned that the system we have in place is not capable of handling stressors like COVID, and in fact was not very functional even before COVID?

LAURA SULLIVAN:

There is this group of players who’s doing quite well.

BRAD SPELLBERG:

They’re doing what they’re supposed to do. In the rules that we have set up, there are winners and there are losers. And the winners are winning big. Are we mad at them for doing what the system is saying they should do? What their board of directors is saying they should do? If you’re mad, change the rules.

54m
4009_Taliban Takeover
Taliban Takeover
The Taliban take over Afghanistan, and the threat of ISIS and Al Qaeda intensifies.
October 12, 2021