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How a legendary New Orleans hospital is struggling to finally change its ways

From the April 1999 ACP-ASIM Observer, copyright 1999 by the American College of Physicians-American Society of Internal Medicine.

By Deborah Gesensway

When it comes to health care for its residents, New Orleans boasts some notable contradictions. Its uninsured population is one of the highest in the country, yet there exists universal access to what is considered top-quality medical service. Managed care has yet to make any substantial inroad into the Big Easy, but its physicians and hospitals are nevertheless feeling enormous pressure to change the way they do business.

At the junction of these inconsistencies is what locals call "Big Charity," the oldest, continually operating hospital in the country, which dispenses the lion's share of all medical care in the city. Despite its longstanding role in New Orleans health care, Charity Hospital is grappling with ways to significantly change the way it operates. Analysts say that unless the hospital can respond to threats like the growth of managed care in both Medicaid and Medicare, changes in how the federal government pays for care for the poor, and increasing competition from for-profits, it may not survive another century.

Safety net

Charity Hospital is such a critical component of New Orleans' health care because it serves one of the nation's largest metropolitan concentrations of the poor and uninsured. Louisiana ranks fifth in the country in the percentage of its population without health insurance; its poverty rate is the fourth worst in the nation. In New Orleans, 22% of the residents have no insurance and just over half of the city's adults get health insurance through their work. (Many of the city's jobs are in the relatively low-paying tourism and service industries.)

Add the fact that there is no effective system for delivering primary care throughout the neighborhoods, and it is not surprising that the "underlying health status indicators here are terrible," said Kenneth Thorpe, PhD, of Tulane University's Institute for Health Services Research. A 1998 report published by the state identified Louisiana as 48th in the country based on various health indicators, including higher-than-expected rates of cancer, diabetes and infant mortality.

Health care officials are quick to point out that without Big Charity, those numbers would be worse. "We need to maintain a public hospital system because we have such a large number of indigent patients in Louisiana," explained Dwayne A. Thomas, FACP, Charity Hospital's medical director.

Nevertheless, Charity's role in serving as the city's health care safety net is coming under scrutiny. Two years ago this summer, after years of criticism that the state and a public health care authority had neglected and otherwise mismanaged the system, Louisiana legislators turned the management of the hospital and its little sister charity hospitals across the state over to the Louisiana State University (LSU) Medical System. Besides insulating the hospital system from Louisiana's notorious politics, the goal of selecting LSU to run the hospital was to rationalize a traditional, but untenable, arrangement in which management of the hospital yo-yoed back and forth between the city's two medical schools.

The state also changed the hospital's name, so that the facility once called Charity Hospital is now officially known as the Medical Center of Louisiana at New Orleans. The rationale was to get the community to view the hospital not just as the health care provider of last resort, but as one that patients with insurance might choose.

With plans on the drawing board for constructing a critical care tower on the campus, Dr. Thomas is looking forward to the day when the new name can be flashed in neon across a heliport-topped skyscraper roof that New Orleans' residents can be proud of. "I think we are on the threshold of making this a place where people will say they want to go," he said.

In addition to the management shakeup and the image makeover, the state scrutinized the hospital's physical plant. Its old Art Deco-era building was charming but unfit to house a modern hospital, so the state moved most of Charity's services to the former Hotel Dieu hospital, now renamed University Hospital. Instead of occupying beds in old-fashioned wards where curtains were the only means of privacy, the new building allows most Charity patients to recuperate in private and semi-private rooms.

The hospital has made other internal changes, such as in patient scheduling, that were just as important. Over the years, going to the doctor in Charity's medical clinics had become an all-day event where patients would be seen on a first-come, first-served basis. "Patients would come in the morning and bring their lunch and expect to stay all day," explained John E. Salvaggio, MACP, professor of medicine at Tulane University and author of a history of Charity Hospital.

To change that, the hospital recently rolled out a computerized appointment system that gives patients appointments for specific times. But old habits die hard, and plenty of patients still show up whenever they want, remembering the way the system used to work not that long ago.

The slow pace of change

Local analysts point to such stories as examples of how the pace of change can be excruciatingly slow in New Orleans. And, they emphasize, it's not a problem associated only with Big Charity.

Most doctors in New Orleans and its suburban parrishes, for example, still practice in solo or very small group practices. The only large group practice is the Ochsner Clinic, with about 400 physicians; the next largest group has about 50 physicians. There has been little interest around the area in physician practice management companies. As Dr. Thorpe explained, "The doctors really don't need them because the market is really not that much different than it was 15 or 20 years ago."

Since there are few large private employers outside of the hospitals and the universities, there is no real demand for lower costs or for managed care, explained Frank A. Riddick Jr., FACP, head of educational and research activities at the Ochsner Clinic and its former CEO. "If anyone dominates the market here, it's the hospitals, which limp along with miserable occupancies," he said.

Even pressure from the nation's two largest for-profit chains, Tenet and Columbia/HCA, which have bought many of the region's hospitals, has not significantly changed the city's health care landscape. The remaining not-for-profit hospitals have formed a loose alliance, but not much has come of their efforts. The city's hospitals have been buying physician practices and sponsoring physician-hospital organizations, but very few large groups have formed as a result of their efforts.

Against this backdrop, it comes as no surprise that managed care has made few inroads into New Orleans. Slightly less than a quarter of the city's population gets its health care through managed care plans, and Louisiana ranks 32nd in the country when it comes to HMO penetration. Most of the managed care that does exist in the state is what experts describe as "level two," reminiscent of California in the 1970s and characterized by little capitation and restrictive utilization controls.

Even the state's Medicaid program has not yet been affected by managed care, but expectations are that change is coming, and sooner rather than later. Many of the changes at Charity Hospital, from automating the scheduling systems to installing disease management programs, are designed to prepare the system for that eventuality.

"We are anticipating that at some point in time, Louisiana will develop a managed care Medicaid program, and when they do, we are hopefully going to be in a much better position to deal with that," Dr. Thomas said. As it is now, neither the doctors nor the information systems can cope with the requirements of anything other than fee-for-service medicine, he said.

Other factors

Even as officials at Charity anticipate the arrival of Medicaid managed care, they are already making changes to address other forces.

Historically, New Orleans' health care has been driven by strong hospitals that need to put heads on beds. Since physicians are largely unorganized and purchasers are too weak to make demands, there have been few incentives to control costs or utilization. Louisiana, in fact, has led the country in Medicare expenditures per beneficiary, according to Dr. Thorpe, all of which can be traced to a tradition of providing health care through subspecialists and in hospitals. "It is really the last bastion of fee-for-service medicine in the country," he said.

Charity Hospital, for instance, has a reputation for providing top-quality care for the acutely ill but of being less good for anyone else. The reasoning is simple: "There are so many acutely ill people that have to be taken care of first," explained Richard M. Lauve, FACP, a former LSU faculty member and now vice president for clinical affairs at VHA Gulf States, a cooperative of not-for-profit hospitals in Louisiana, Mississippi and Tennessee. "Although the care is of high quality once you receive the care, the lines are long."

That reputation has had serious financial effects for the hospital. First, it means that once Charity's patients get some sort of insurance—a Medicaid card, for instance—they typically take their business to another hospital or doctor outside Charity. Charity loses a potential source of income that it could use to help subsidize the costs of providing so much free care. This had been a particular problem with obstetrical care, Dr. Lauve said, with some of New Orleans' other hospitals even targeting their ads to pregnant women with Medicaid cards.

No one expects this system to last, particularly when you consider that the federal government, through coverage for its employees and for Medicare/Medicaid beneficiaries, is the city's single largest health care payer. Until now, largely because of the rates Medicaid pays and the way the federal government compensates hospitals for providing a disproportionate share of the care to a community's poor, Charity Hospital has been able to cover the costs of its inefficiencies. According to an LSU Medical Center Division of Health Care Services report, Medicaid revenues comprised nearly 84% of the Charity system's budget in fiscal year 1996, while Medicaid patients made up only 20% of its active patient population.

The federal government has already closed a loophole in its disproportionate share funding formula that had been bringing Louisiana significantly more federal funding than it was due. As a result, becoming better at providing more care for less is the only long-term strategy to keep Charity Hospital in business, explained Cathi E. Fontenot, ACP-ASIM Member, the medical director of the LSU faculty.

The hospital has made a number of changes to operate more efficiently and effectively stretch its budget, Dr. Fontenot said. They include installing a computer system linking the charity system's 10 hospitals so that results of lab tests and X-rays done at one place do not have to be repeated at another site just because different sites cannot share information.

In addition, the Charity hospitals have begun buying supplies together in bulk. Charity has even recently contracted with a billing firm that is investigating whether some of the no-pay patients may actually have some insurance that the hospital can go after. And by becoming a level one trauma center, Charity Hospital has attracted more private insurance reimbursement.

"We would like to attract people with insurance, but I wouldn't want to give the impression that we want to compete with the guy in private practice," Dr. Thomas said. The goal, he said, is to ramp up some of the tertiary and quaternary care services in areas such as neurosurgery and cancer care so that Charity becomes a major referral hospital in the region. "It's the only way we can serve the community of people that we have to serve and be here for education and research. ... We don't get tons of state dollars to support the hospital. The state doesn't write us a check. We have to support ourselves."

Ups and downs

Officials at the hospital say that increasingly, that bitter reality is settling in. "Everyone here is committed to survival of the charity system, and we know that if we do survive, a big reason will be because we maximized reimbursement from every possible source," Dr. Fontenot said.

The Charity system has to survive, she explained, "because it cares for such a huge indigent population, and I can't see the other hospitals—whether they are for profit or not-for-profit—taking the bull by the horns and accepting any responsibility for these patients."

Despite the challenges that lie ahead, not everyone is pessimistic. Dr. Salvaggio, for one, explained that the history of Charity Hospital resembles a sine wave. "When the economy is good and the condition of the city is good," he said, "the health of the hospital goes way up. When some catastrophe strikes or there's an oil bust or something, it goes down. In the mid-80s it seemed horrible. Everyday in the newspaper you would read about the hospital possibly closing. Now, it's up again."

Will the changes underway insulate Charity better from these cycles? Dr. Salvaggio is optimistic, in part because LSU and Tulane are working together for its benefit for the first time in a long time. Dr. Thomas thinks some of the success Charity is starting to have with new disease management programs that show that poor people can be taught to use health care services differently-and more cost-effectively-means public hospitals can be competitive.

Dr. Lauve is among the less sanguine. He sees the changes underway at Charity as nothing more than a well-intentioned way of bolstering an institution that since 1736 has had a wonderful history but which has now outlived its usefulness.

"This is not a wealthy state," he said. "We cannot continue to prop up an overutilized, undermaintained system while at the same time we have an oversupply of beds in the other systems. At some point, there is going to have to be an increase in the nonpaying patients that are seen in private hospital systems. When that happens, I think there will be a financial incentive on the part of the hospitals to move quickly into managing the care of those patients better."

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