The Care of Strangers: the Economics of Hospitals & Hospitality: Chapter One ~ Historical and Contemporary

by faithgibson on May 11, 2014


The Care of Strangers
The Invention of Elective Hospitalization as Economic Engine of American Hospitals

Sort of subtitle: The economic history of American hospitals, how hospitals in America now differ from those in other industrialized countries by having chosen a market-based business model and the ingenious plan invented in 1914 by a famous obstetrician to assure the success of the American model of hospitals as private institutions supported by patients fees:

@@@ Chapter #1 @@@

Phase I: Hospitals as places of hospitable care and custodial services

The word ‘hospital’ originally referred to a place that provided “hospitality”. During the thousand-plus years of history that preceded the scientific discoveries that created modern medicine, hospital were primarily charity institutions founded by religious orders or funded wealthy individuals. Nuns and monks provided simple, inexpensive “hospitality”– that is, basic human services — to the poorest of the poor who, in addition to being homeless, also suffered the additional misfortune of being ill or injured.

From 600 AD until the 19th century, almost all hospitals in Western Europe and North America were charity institutions for the poor. During that era, the idea of privately-owned hospitals as a business model that provided care either to its own to paying customers or the public did not exist.

The very first hospitable institution in our western cultural tradition was founded in 651 CE by the Catholic bishop of Paris. He commissioned the City’s the first real hospital on the left bank of the Île de la Cité, next to Notre-Dame, and dedicated his little hospital to Saint Christopher. Between the 7th and 17th centuries, the number of hospital buildings grew and it eventually became the world renown Hotel-Dieu. One of its original buildings is still in operation today, providing both hospitable and scientific medical care to the poor in the shadow of the famous cathedral. Eventually the bishop of Paris was sainted by the Catholic Church, and is now known as Saint Landry.

Due to the pre-scientific nature of medical care prior to the 20th century, the function of early hospitals was custodial (or palliative) instead of therapeutic. Hospitals care mainly consisted of human services provided by humans to humans – bowls of chicken soup, a cool washcloth, some one give a backrub or empty a bedpan and other necessary acts of compassion. Such rudimentary care had little ability to treat; there was never any attempt to “cure” the diseases their patients suffered from. The best they had to offer was food, shelter, a dry bed and palliative care and someone to hold your hand when you were in pain. This was more along the lines of a hospice than a modern medical center. Patients either got better on their own, or they died

Services provided by the Hotel-Dieu and similar charity institutions were referred to as “the care of strangers”, as only those who had no home or family needed to be cared for in an institution by people they did not know. Unless one was indigent or desperate, no one would ever consider going to a hospital, which were also called “pest houses” and “death houses”. Among those of ordinary means, caring for the ill or incapacitated was a family affair. Doctors made house calls and family members nursed the ill person at home, carrying out the physician’s orders to the best of their abilities. There was nothing that hospitals had to offer that the family and the doctor could do, and do better, in the patient’s own home.

The First Hospital in Colonial America

Exactly eleven centuries after the Hotel-Dieu was established on the left bank of the Seine, the very first brick and mortar hospital in the US was founded by Benjamin Franklin and Dr. Thomas Bond. In 1751 civic-minded leaders were responding to the problem of the “sick-poor and insane who were wandering the streets of Philadelphia”. The idea originated with a Quaker physician, Dr. Thomas Bond, who had studied medicine in Europe and spent consider time at the Hotel-Dieu. He was impressed with the new hospital movement on the European continent, but the idea was a novelty on this side of the Atlantic. Bond and Benjamin Franklin were long-standing friends and Franklin became a strong supporter. Franklin’s backing was necessary to convince others that the hospital project was worthy of support.

A petition signed by 33 people presented to the Pennsylvania Assembly by Benjamin Franklin in 1751. The document acknowledged the many compassionate and charitable provisions for the relief of the poor had already passed by the Assembly, but noted that a small provincial hospital was also necessary. To convince the Assembly that such an institution was strongly supported by the public, he raised 200 pounds for the project from private citizens. A week later the Assembly introduced a bill to establish a hospital “to care for the sick poor of the Province and for the reception and care of lunaticks.” The bill creating the Pennsylvania Hospital was signed it into law on May 11, 1751. The new hospital was originally housed in the former home of John Kinsey, a Quaker who had been Speaker of the Assembly and Elizabeth Gardner, a Quaker widow was appointed matron.

A mere 259 years following these historic but quaint events, the United States now boasts over 8,000 acute-care hospitals. While this is an astonishing accomplishment, the US is still a newcomer when compared to Europe’s extensive history. The development of hospitals in the US includes the most humble of beginnings to the most extensive (and very expensive) brick and mortar buildings such as the 8-acre campus of Johns Hopkins’ in the middle downtown Baltimore. However, the norm for 18th and 19th century America was small private hospitals opened physicians and housed in a spacious older homes. With only 2 to 12 beds, these tiny hospitals usually provided a specialty service such as surgery or care to those with specific disease like tuberculosis.

Phase II:

Hospitals as a staging area for expert services, special equipment and medical supplies

As the practice of medicine advanced over the next thousand-plus years, it gradually took on more of a scientific basis for its services, allowing the function of hospitals to go beyond pallitive care, as hospitals also became a physical location that brought patients, doctors, nurses, other helpers, equipment, supplies and experienced staff together in one place.

This includes transient ‘field’ hospitals housed in tents at the edge of a battlefield or at the scenes of a natural disaster, such as the recent earthquake in Hatti.

Eventually, brick & mortar hospitals began to arise that were increasingly able to go beyond the palliative and custodial aspect of their pre-scientific function as a social institution specifically designed to house the “sick-poor and insane who were wandering the streets”. As the knowledge base of the biological sciences grew, so did the ability of hospitals to add new and (one hopes) effective treatments to there list of services provided.

Coming of Age ~ The best of the best in the US

The first of the large and famous hospitals in the US that are still in business today includes Johns Hopkins Hospital, which started as a philanthropic gift to the city of Baltimore. As a merchant and banker, Johns Hopkins became a wealthy entrepreneur, philanthropist and abolitionist. His interest in charitable works can be traced back to his family, who were long-time members of the Society of Friends (Quakers). In 1807, when Johns was twelve years old, his parents freed all the slaves that run the family’ cotton plantation. As a citizen of Baltimore, he became friends with George Peabody, who founded Baltimore’s the Peabody Institution. Some historians believe Hopkins became determined to use his great wealth for the public good based on his friend Peabody’s advice and example of philanthropy.

After his death on Christmas Eve 1873, Mr. Hopkins estate left $7 million (approximately $123.8 million today) to the city of Baltimore for a university, hospital and medical school. This was the largest philanthropic bequest in the history of the United States at the time. His will asked that his fortune be used to found two institutions that would bear his name: “Johns Hopkins University” and “The Johns Hopkins Hospital”, with instructions that the “thirteen acres of land, situated in the city of Baltimore, and bounded by Wolfe, Monument, Broadway and Jefferson streets” be used to erect a hospital that “shall, in construction and arrangement, compare favorably with any other institution of like character in this country or in Europe”.

In the years prior to his death, he chose twelve prominent citizens of Baltimore to be the trustees for the project and directed them to “secure for the service of the Hospital, physicians and surgeons of the highest character and greatest skill.” Ground was broken in 1877 and the hospital opened in 1889. Hopkins told his trustees to “bear constantly in mind that it is my wish and purpose that the [hospital] shall ultimately form a part of the Medical School of that university.” By calling for this integral relationship between patient care, as embodied in the hospital, and teaching and research, as embodied in the university, Hopkins laid the groundwork for a revolution in American medicine. Johns Hopkins’ vision, of two institutions in which the practice of medicine would be wedded to medical research and medical education.

Today, hospitals are funded by the public sector, which is to say state, federal or local governments or BIA (??%), and nonprofit organizations (??%). A small and ever dwindling number are operated by charities. However, the most well-known are for-profit corporations (also called ‘investor-owned) who operate chains of hospitals all across America.

Phase III: The Economic Foundation of Hospitals in American Healthcare System

One 1/6th of the total economic activity in the US each year is spent on healthcare. With a GDP 14.5 trillion, 2.4 trillion dollars goes to hospitals, physicians, nurses, other types of practitioners, laboratories, diagnostic and dialysis centers, a huge variety of medical service providers, companies that supply drugs, medical devices, equipment like x-ray film, oxygen, IV fluids, bedpans and a host of supportive services and disposable supplies.

Out of that long list of “health care” providers and suppliers in the US, hospitals are the single most expensive component, costing us nearly a trillion dollars every year. Approximately 40% of all personal health care expenditures go towards hospital care {1}, with more than half (56%) paid for the federal government’s Medicare and Medicaid programs; private insurance pays 36%, while 5% are uninsured.

According to data from the US government’s Agency for Health Research and Quality (AHRQ), there were 37.8 million discharges from acute care hospitals in 2002. This is the number of admissions minus the number of deaths. The aggregate charges for this group were $650 billion. Each year, an American’s statistical chance of becoming a hospital patient is approximately one out of eight. For those with acute and chronic diseases it is much higher and for those who are essentially healthy, is it far less.

Modern Day ~ Who winds up in the hospitalized and why?

While people age 65 and up are only 12% of the U.S. population, they account for 35% of all hospital stays. More than a third of all admissions are through the emergency department, while 11% of all hospital stays are for babies born in the hospital.

For American between 18 to 44 years, three times as many women are hospitalized as men. While women represent slightly more than half the population, 60% of hospital stays are for adult members of the female gender, with a one-quarter of all hospitalization for pregnancy and childbirth-related conditions. {check the math à # = 155,000,000 women is US divided by # of hosp.} For patients under 65, the single most frequent reason for hospitalization is childbirth, with more than 4 million hospital births a year a total of 4.3 million pregnancy-related hospital admissions or one out of every 36 American women. The number of hospital births is approximately equal to the number of students that graduate from college each year.

Excluding pregnancy-related conditions, 4 of the top 10 conditions among people ages 18-44 are related to mental illness or substance abuse, with nearly 20 percent of all hospital stays being for care or treatment of alcohol-related mental disorders. For those over 45, the top reasons for admission include cardiac problems, pneumonia, blood infection (septicemia) and other types of infections. Depression is one also of the top 10 conditions treated in short-stay hospitals.

Co-morbidities – making a bad situation worse

‘Co-morbidities’ are coexisting conditions that are not the main reason for the hospitalization but make care more expensive and complicated. Top 10 co-morbidities for adolescents and adults up to age 44 include drug abuse, psychoses and depression. Alcohol abuse is a top 10 co-morbidity for adults ages 18-64. However, high blood pressure (hypertension) is the single most common co-morbidity. Others co-existing problems are lung disease and diabetes. In 2001 the inpatient hospital cost for diabetes with complications was nearly $3.8 billion.

The most expensive and the longest hospital stays are for newborn infants with respiratory distress syndrome (RDS), a condition that affects one out of 12 premature babies or 1% of all live births in the US. Since 1984, the prematurity rate in the US has risen from 8 to 13% {ck most recent #} of all births. Babies born before 29 wks (40 wks is the normal length of pregnancy) have a 60% chance of having RDS, while full-term newborns rare develop this condition unless delivered by Cesarean.

RDS is most expensive condition treated in acute-care hospitals. One of the newer drugs used to treat RDS costs from $450 to $900 a dose. The average hospital cost per baby diagnosed with RDS was $90,000 in 2002. The total cost of treating these babies in the hospital is approximately $2.3 billion. [ref: ch19 thoractic disease txbk]

Four of the top 10 most expensive conditions are related to the care of newborn infants: respiratory distress, prematurity and low birth weight, heart defects, congenital heart defects and lack of oxygen before or during the birth (intrauterine hypoxia). Two of these conditions, respiratory distress and prematurity also have the longest mean length of stay for hospitalizations. Although Medicaid is billed for 18% of all hospital charges, 40% of all newborn stays and 50% of all normal pregnancy stays are paid for by Medicaid.

For premature babies, the risk of developing RDS increases with: Caucasian ethnicity, male gender, cesarean delivery and maternal diabetes. Maternal risk factors for preterm birth include mothers who are very underweight, poverty, being a member of a minority group and poor quality or lack of prenatal care. These issues, which are fundamentally social, have an extremely high initial cost for medical care. They are also associated with on-going burden to society (both in human and economic terms), as a significant number of babies born prematurely will have life-long mental, physical and educational disabilities.

For non-pregnancy hospitalizations, two of the top 10 most expensive conditions are traumas: spinal cord injury ($53,000) and burns ($34,000). Even though long hospitalizations can result in high expense, four of the very most expensive hospitalizations are not associated with length of stay. They are: heart valve disorders, cardiac congenital anomalies, aneurysms, and burns.

Paying for Hospital care on a case by case basis:

As of 2009, charges for an average hospital stay (5 days) totaled $17,000. While only 12% of the U.S. population is over 65, 44% of all hospital stays are paid for by Medicare, which is the most common insurer for the elderly. Seventy-five percent of Medicare hospitalizations are for physical illness or injury, while 25% are for depression or other mental conditions.

About 17% of the U.S. population is uninsured, while only 5% of all hospital patients are uninsured. Said another way, insured people are hospitalized 3½ times more frequently than those without insurance. Among uninsured patients, 3 of the top 10 conditions are substance abuse or mental health, 23% of all hospitalizations in this group for treatment of substance abuse.

Almost 12 percent of the U.S. population is covered by Medicaid. This federally funded program covers children and adults under 65 who are disabled, have acute or chronic medical conditions (including pregnancy) and meet the stringent criteria set by each state for being classified as “medically indigent”. This includes having a very low (or no) income and having few or no economic assets. Medicaid pays for a third of babies born in the hospital, over a third of all stays for fetal distress and 42% of all stays for complicated pregnancy. [ref: AHRQ stats, plus specific # on RDS from Ch 19 thoracic textbk]

The economics of hospital-based services as an element of national healthcare:

Finding information on hospital economics was surprisingly difficult. My Google search on the combined annual revenue for hospitals got few hits, and nearly all were not what I was looking for. There was however, one important exception: For $249.00 I could buy generalized data from a nation-wide hospital association that may or may not have had the information I was seeking. However, they wouldn’t allow me to preview the data or get my money back if their database didn’t match my inquiry. Apparently, data on hospital use and hospital revenue in the US is only available through the major hospital associations, and they consider it to be proprietary information.

Hospitals in general are the product of historical, social, political, cultural, and economic forces. The type of non-governmental acute-care hospitals represented by trade organizations such as hospital associations mentioned above have a political and economic foundation that is very unique to the United States. At every stage in the development of bio-medical services and the brick and mortar institutions that determined who, how, what and where these services were provided, the story of hospitals in the US has been a layered and complex story.

The unique nature of these services and mechanisms of economic compensation were often shaped by cultural aspirations far more than the medical science of the time, the interests and values of society as a whole or the personal experience and economic realities of individual patients.

In the academic literature about the healthcare system, these three distinctions are identified as the population level, the clinical level and the individual or “lived” level. [identify the these three levels; cite from ref: AMA Jour of Ethics, 2004]

A 1990 paper published in the journal Health Matrix titled “Health care in the distended society: the American hospital in its social contexts” points out an underlying aspect of this situation which is rarely acknowledged or taken into account when pondering the issues of the modern hospital in America. Its authors state:

“That we have as many hospitals as we do, that they are organized and financed the way are, … practice the kind of medicine and provide the services they do … is a result of past decisions in which concerns about health often played only a marginal role.

Institutional inertia — that institutions once set in motion cling tenaciously to life –means that a set of historical facts which have little to do with health care has saddled the United States with a hospital system that now distorts our health care expenditures and even affects how we think about disease and health.” [emphasis added]

[Health care in the distended society: the American hospital in its social contexts. Vogel MJ. Health Matrix. 1989-1990 Winter;7(4):3-11 Temple University PMID: 10304259 [PubMed – indexed for MEDLINE]

What is being eluded to by these authors is the fact that the hospital system is the US has diverged broadly form its European roots, and it has developed independent of the classic origin of hospitals, which was an expression of humanitarian values designed to meet socially-defined goals and to serve the public interest.

What we have now is something “else”, something that could be better or it could be worse, or it could be merely ‘different’. The proof as they say is “in the pudding”, but for sure we need to know more, understand better and figure out the conundrum that is our healthcare system.

Hospitals are the capstone in our healthcare system and yet the important historical and economic elements surrounding hospitals are totally missing from the public discourse. A cultural amnesia and miasma of half-truths has informed our understanding (or more accurately, our mis-understanding) of the subject. This wealth of mis-information generally leads us to believe that nothing can be done to make our system more ‘patient friendly’ and affordable, while maintaining the therapeutically effectiveness we associate with modern medicine in America.

We wrongly assume or believe what we are told — that our only choices are ‘either/or’ propositions, that a system of patient-centered care is either prohibitively expensive OR medically inadequate. The other end of this same either-or conundrum is the notion that we must abandon our ideas of personally satisfying care in order to have affordable access to the newest or most effective medical care.

Always we must bend ourselves to fit an immutably unbending system, as if it was sent here from outer space and had to be accepted by us, like the laws of gravity.

In the face of a huge national debt, unemployment and a lack-luster economy, very vocal political and economic forces are continue to insist that the United States can no longer afford to underwrite ‘entitlement’ programs such as Medicare and Medicaid. This assumes the historic configuration of for-profit medical services and corporatized hospital care is fixed in stone and that its inherent properties — the very nature of medicine and medical institutions — requires them to be as they are now, and to remain that way forever.

According to this rather depressing thought process, if we live someplace that doesn’t provide access to hospital-based services or cannot afford them, we will just have to go without, because nothing can be done about these problems. This negative perspective would have us believe that our only choice is to ration care based on economic circumstances. Those without income and those with too many medical needs, or medical problems that are expensive to treat will either have to suffer in silence, or like the fictional character Willy Horton, they will simply have to: “go gently into that good night”. Surely our country can do better than that!

The question before us is whether the story that we think we know is the whole story. Is healthcare really an ‘either/or’ proposition that forces us to choose between affordability and effectiveness? Knowing the whole story as I do, I say this is a false premise.

The real issue and what  most people don’t realize, is that the ‘hole’ in the American healthcare system is a knowable (in fact, already known) and it something that people of good will and average intelligence can resolve.

What is missing in our healthcare-hospital system is not mysterious, expensive or impractical – it’s not some pie-in-the-sky idea like finding the cure for cancer, reforming campaign finance laws or wiping out terrorism. Fixing these problems would allow us to provide vastly superior care to each individual and dramatically reduce the unproductive cost, especially for Medicare and Medicaid.

Knowing the history of hospitals and the reasons behind for the economic decisions that ultimately shaped our currently American hospital — why we did what we did — is a game-changer.

As someone wiser than I once observed: “Truth doesn’t need to be defended, only revealed.”

Link to Chapter Two