The Proposed Closing of Rancho Los Amigos National Rehabilitation Center

The Proposed Closing of Rancho Los Amigos National Rehabilitation Center Endangers the Health of Disabled Medi-Cal Patients Who Reside in Los Angeles County INTRODUCTION I am Professor of Health Services and Director of the Health Reform Program at the Boston University School of Public Health, where I have taught since 1983. I have been retained by the Western Law Center for Disability Rights to offer my opinion concerning certain effects of closing Rancho Los Amigos Hospital. For the reasons set forth in this report, it is my opinion that: • Closing Rancho Los Amigos Hospital will harm many of Rancho’s Medi-Cal inpatients and outpatients because they will not be able to obtain adequate substitute inpatient and outpatient care at surviving hospitals or other settings. • Los Angeles County has not succeeded in accurately estimating the savings it would accrue by closing Rancho Los Amigos Hospital. • Any dollar savings that might seem to be won by closing Rancho will tend, in practice, to be offset by higher costs of care to Medi-Cal and to the remaining County health care system—if needed alternative care is provided to Rancho’s displaced patients. If needed alternative care is not provided, the apparent savings will be won at the cost of undermining patients’ health. These opinions rest in part on some 30 years of professional work on hospital closings, relocations, mergers, and other reconfigurations in 51 U.S. cities and several states.1 I have followed some 1,200 urban acute general hospitals and other special hospitals from 1936 to 1997, and am currently updating this study through early-2003. This work has been supported from time to time by the Office of the Secretary of the U.S. Department of Health and Human Services, the U.S. Health Care Financing Administration, and the Robert Wood Johnson Foundation. I have twice testified before committees of the U.S. House of Representatives on urban hospital closings nationally, and have occasionally investigated or testified on individual hospital closings, relocations, and other reconfigurations in Cincinnati, Detroit, Manchester (New Hampshire), Philadelphia, Washington, D.C., in other cities, and in the three southern New England states generally. These are some of the main findings from my 51-city study concerning causes or predictors of hospital closings: • hospitals located in African-American communities are substantially more likely to close, decade after decade, even after controlling for other predictors of closing; • hospitals that close are actually more efficient (less costly) even after adjusting for case mix/severity of illness, than are surviving hospitals—this is not a case of survival of the fittest; and • larger hospitals and teaching hospitals are more likely to survive than are smaller and less specialized non-teaching hospitals. Other findings from this 51-city study concern the effects of hospital closings generally. The observed pattern of closings of acute general and other special hospitals in the 51 cities appears to be associated with reductions in access to care, increases in cost of care, and some improvements in technical quality of care. This is because smaller, more accessible, and less costly hospitals are more likely to close, while larger, less accessible, and more costly teaching hospitals are likelier to remain open. Most Americans believe that a functioning free market is almost always the best method of making important economic decisions. I strongly lean in that direction. Unfortunately, for a host of reasons, we do not seem to enjoy the benefits of a free market system in urban hospital care—a system that would weed out the inefficient and less needed hospitals. Rather, it appears that a considerable number of needed and relatively low-cost hospitals are forced to close. The overall configuration of hospital care has apparently been changed in some ways that are markedly undesirable—less accessible and more costly. Entire districts of large cities are without hospitals today. The northern half of St. Louis, extensive parts of Philadelphia, and the eastern half of Washington, D.C., for example, are entirely lacking in hospitals or almost entirely lacking. The harm is not restricted to inpatient care. Hospital closings disrupt patterns of ambulatory care as well. Physicians in private practice, for example, who admitted to a hospital that is now closed may choose to retire or to relocate their practices, depriving a district of both its hospitals and its doctors. One other finding from the 51-city study that is salient here is that it is relatively easy to close a hospital and to dismantle its system of care. But after the harm associated with the closing is perceived, and it is decided to re-open the hospital, it usually proves very difficult to restore and recreate the services that were lost. One of the reasons is physical: a physical plant that was grandparented before it was closed must be brought into full compliance with building codes and life-safety codes before it can be re-opened. Another reason is human: teams of clinicians who were dispersed can be reassembled only with great difficulty. And the difficulty tends to increase with the underlying 2 complexity of the system of care. Both problems tend to make re-openings prohibitively costly. In addition to this long-term study of hospital closings, I have done a fair amount of work on hospital survival generally 2 and also on long-term care services for elderly and other disabled citizens. 3 The opinions expressed in this report rest in part on my work on hospital survival and on long-term care services for elderly and other disabled citizens. The opinions expressed in this report also rest in part on my review of the great bulk of the items included in the Beilenson Administrative Record on Rancho Los Amigos. I teach public health students about health administration, finance, and planning, and medical students about the realities of health care finance and delivery. I serve as a trustee of Waltham Hospital, a community hospital in Waltham, Massachusetts, as a member of the Visiting Committee of Franciscan Children’s Hospital and Rehabilitation Center in Boston, Massachusetts, and as a member of the Massachusetts Attorney-General’s Advisory Group on Health Care Reform. I formerly served on the long-range planning committee of the Joslin Diabetes Clinic in Boston; as a vice-president of the Health Planning Council of Greater Boston, the former regional health systems agency; as a member of the Massachusetts Secretary of Health and Human Services’ Health Finance Working Group; and as the chair of the Health Equity and Public Hospitals Caucus, American Public Health Association. My undergraduate degree in economics is from Brandeis University. My doctorate in city and regional planning (specializing in health care) is from MIT. An accurate copy of my curriculum vitae is attached. 3 I. WILL MEDI-CAL AND “MEDI-CAL PENDING” PATIENTS BE ABLE TO OBTAIN ALTERNATIVE CARE IF RANCHO CLOSES? A. This Is a Matter of Degree This question should be framed as one of proportions and probabilities. That is, if Rancho Los Amigos National Rehabilitation Center (hereafter “Rancho) were to close, what share of Rancho’s Medi-Cal patients will be able to obtain alternative care elsewhere? To what extent will surviving caregivers be available, able, and willing to serve Medi-Cal patients? And if Medi-Cal patients obtain alternative care, to what extent will it be approximately equal in competence, appropriateness, and overall quality to that formerly provided at Rancho? For convenience, I will sometimes refer to Rancho’s patients as “rehabilitation” patients to distinguish them from patients who do not have chronic health problems or disabilities that today require Rancho’s services. 1. A moving target Today, some hospitals may accept certain numbers of Medi-Cal rehabilitation patients. Some take only or mainly those Medi-Cal patients who face medical emergencies and who enter through the ER. Other hospitals may also take non-emergency patients admitted by physicians with privileges at a given hospital. While it is not easy to extrapolate with certainty from current to future behavior, one assessment is likely. Relatively few non-profit or for-profit hospitals that take some Medi-Cal rehabilitation patients today are likely to be able and willing to take appreciable numbers of additional Medi-Cal rehabilitation patients in the wake of Rancho’s closing. This is partly because the average Rancho patient exhibits a high level of clinical need and partly because Medi-Cal pays most hospitals substantially lower rates per patientday than it pays Rancho. 2. Overall assessment: How many Medi-Cal patients would surviving hospitals really be able and willing to accept? According to Maureen Dyer Stevens, President and CEO of the California Rehabilitation Association, which represents 22 facilities in southern California alone, the Association’s members are “unable to absorb the majority of patients currently treated at Rancho.” Further, the Association’s “providers do not offer highly specialized services and treatment of ventilator dependent quadriplegics, pediatric, and severe brain injury cases offered by Rancho. . . .”4 Dyer goes on to describe three types of harm: Existing rehabilitation hospitals and rehabilitation units in Southern California do not have in-depth expertise or specialized services for ventilator dependent quadriplegics, (175 inpatients), pediatric (60 inpatients), and severe brain injury (85 inpatient) cases which currently [are] treated by Rancho Los Amigos National Rehabilitation Center. Because of limited specialized rehabilitation services available in Los Angeles County for these populations after the closure of Rancho, as many as 1,400 rehabilitation inpatients 4 will likely be without needed rehabilitation services, creating bottlenecks in the healthcare system, trauma room and acute care hospitals at a much higher cost to the County of Los Angeles. The high volume of specialized care provided to pediatric, adult inpatients and outpatients at Rancho led to the development of expert treatment teams able to achieve excellent outcomes with medically complex patients. Dr. Ed Newton, Interim Chair of the Emergency Department at LAC + USC, asserts that: If Rancho Los Amigos Rehabilitation Center closes it would be a disaster. Patients admitted through trauma often need long-term rehabilitation. We need Rancho as an outlet to transfer uninsured patients to. I know of no other facility that will take uninsured patients requiring rehabilitation care. Patients requiring that care need long-term specialized rehabilitation care. We have neither the bed space nor the medical expertise and technology to provide that care. If Rancho closes, we will have to keep those patients in our acute care hospital. For example, we now provide initial medical care for patients with spinal cord injuries and transfer those patients to Rancho for extended hospitalization. Without Rancho Los Amigos, that patient would have to remain in our hospital, taking up a much-needed bed.5 Dr. Brian D. Johnston, Chair of the Department of Emergency Medicine at White Memorial Hospital, asserts that closing Rancho would grievously harm both Medi-Cal and uninsured patients: The Rancho Los Amigos patients are among the most complicated and difficult patients to treat in Los Angeles County. . . . To take these patients out of the Rancho environment and drop them elsewhere is simply outrageous. The current County system cannot absorb them, especially not after the October 2002 drastic ambulatory care reductions and the proposed further bed reductions at LAC-USC. . . . The private sector simply dies not have the capacity to absorb these patients either, especially those who lack Medi-Cal, Medicare or other insurance coverage to pay for the high level of care hat they need. Even those Rancho patients with Medi-Cal would have a very difficult time finding another facility willing to treat them. The Medi-Cal reimbursements levels do not approach the cost of providing services, and those impose a liability on providers who meet the needs of this population. Further, while most hospitals are compliant with the Americans with Disabilities accessibility requirements, not every private hospital has the rehabilitation facilities and services that these patients need. Further, it would be extremely difficult for any provider to step in and determine the appropriate medical treatment for a former Rancho patient. These patients’ Rancho Los Amigos doctors know them and are familiar with their needs. Another provider would need to know their antibiotics, any previous infection history, which specific organisms they carry, and their previous level of function. Some of these patients’ charts weigh 15 to 20 pounds. If another provider did not have immediate access to the medical chart, treatment would become more difficult and impose needless risk on patients and practitioners. Rancho patients will thus be deprived of medically appropriate care, and be at greater risk of illness and possibly death should the County close Rancho. 6 5 This problem is exacerbated, to an unknown but probably considerable degree, by the nature of the medical problems facing many of Rancho’s patients. If Rancho is closed, to the extent that its patients’ problems are chronic, not acute, Rancho’s former patients would be likely to fall to the bottom of the waiting list at County DHS hospitals’ increasingly crowded emergency rooms. That is because patients facing life-threatening emergencies understandably take priority in those ERs. B. Are Substitute Services Available at Other Caregivers? 1. What is the likely need for care at alternative settings? What share of Rancho’s patients will need special care elsewhere—and special help in organizing that care? Alternatively, what share can be expected to work out alternative arrangements simply by using the telephone directory to call doctors, hospitals, therapists, and other clinicians that accept Medi-Cal and work out reasonable substitutes if Rancho were to close? One way of getting at this matter is to consider the patients currently served at Rancho. Rancho serves both rehabilitation and acute patients. Dr. Garthwaite asserts that 40 percent of Rancho’s inpatient days are for rehabilitation, implying that the rest are for more or less routine care of a nature that can be provided at many or most hospitals.7 But this does not seem to be the case. Rather, from my review of the declarations in the Beilenson Administrative Record on Rancho, I conclude that the patients who Dr. Garthwaite considers “acute” are patients with complex and long-term health care needs who are getting help with one acute aspect of their chronic care. Providing acute care services like surgery to patients who have many long-term health care problems can not be expected to be the same as providing seemingly similar acute care services like surgery to patients who are essentially stable, who are in good overall health, and who enjoy good overall functional ability. As Forer and Duvall write: Most of Rancho’s acute inpatients have a disability or chronic illness. Inpatient acute services may include wound care, tendon transplants, baclofen pump implants, reconstructive surgery for burns and decubitis ulcers, gerontology, renal and hepatic disorders, neurogenic bowel or bladder, or uncontrolled spasticity associated with disabilities or chronic illnesses. 8 Dr. Garthwaite’s comment tends toward minimizing the need for Rancho’s special services by 60 percent of Rancho’s patients on a given day. Given the declarations assembled in the Beilenson Administrative Record, it would appear incautious at best to accept Dr. Garthwaite’s comment as accurate without careful examination of the patients who are receiving services at Rancho that are categorized by Dr. Garthwaite as “acute.” Both the Blue Consulting Report performed for DHS 9 and the Gill/Balsano report prepared for the California Community Foundation 10 focus on the availability of substitute rehabilitation beds. Blue Consulting stated that the supply of licensed 6 rehabilitation beds in the county is adequate, but noted high occupancy rates. Blue Consulting noted, however, that substitute hospitals would not be able to provide “the same amount and type of high level service that rehabilitation patients currently receive at RLANRC due to budget constraints and the reported shortage of nurses and therapists.”11 Gill Balsano found a shortage of at least 150-200 rehabilitation beds in Los Angeles County without factoring in a possible closing of Rancho.12 It is suggested here that the availability of substitute special acute care inpatient services for Rancho patients is also a very serious matter, one that has apparently received little attention to-date. The state of California should therefore carefully assess the availability of services for Rancho’s acute—non-rehabilitation Medi-Cal patients. a. Inpatient care Rancho Los Amigos is projected to provide 72,647 patient-days of care in the 04-05 fiscal year, for an average daily census of 199.0 patients. Assuming 207 beds set up and staffed, that translates into an average annual occupancy rate of 96.2 percent.13 Of these some 33,858 patient-days were expected to be for Medi-Cal patients, or 46.6 percent of the total. b. Outpatient visits Of the 58,848 visits projected at Rancho for fiscal year 04-05, some 30,021 visits (51.0 percent) are expected to be by Medi-Cal patients.14 8,941 unduplicated outpatients in fiscal year 2001-2002 61% of visits were Medi-Cal—5,000 patients to move to new medical home for OP services What is the physical capacity of rehabilitation providers in Los Angeles County to meet this need for outpatient care? This is a very important matter, as the importance of hospitals as providers of outpatient services is fairly well-documented. The work of Bindman, Keane, and Lurie assessed the effects of the closing of Shasta General Hospital through a case comparison. Bindman and colleagues succeeded in following patients of Shasta General, a county hospital. In the year after the closing, they found a doubling in the share of patients lacking a regular provider, a rise of more than one-half in the share reporting a denial of care, a drop in perceived health, and a rise in pain. Patients of a surviving county hospital experienced no deterioration.15 How important are urban hospitals as providers of ambulatory care? Hospitals’ provision of ambulatory services varies by city and by neighborhood. Several forces seem to affect hospitals’ importance. Hospital-based physicians have become increasingly important in lower-income areas.16 German and Shapiro found that Baltimore elders often depended heavily on hospital provision of ambulatory care.17 7 Nationally, in 1996, African-American citizens depended twice as heavily on hospitals to organize and deliver ambulatory care (32 percent of their ambulatory care visits were in hospital ERs or OPDs) as did white citizens (15 percent).18 As noted earlier, hospitals in African-American neighborhoods have been substantially likelier to close, as have smaller hospitals (which tend to devote greater shares of their resources to ambulatory care). Even when all patients are insured and when overall primary care physician supply is adequate, as in Canada, residents of neighborhoods with higher ER use suffered lower incomes and were more likely to be minority citizens.19 Taken together, these findings suggest that the pattern of hospital closings subjects African-American citizens to disproportionate risk of disruption of ambulatory care services. Given the evidence that patients in lower-income neighborhoods and African-Americans depend heavily on hospitals to provide outpatient care, it is reasonable to expect that Medi-Cal patients also depend heavily on hospitals to provide outpatient care. This is certainly true of a substantial number of Rancho’s patients each year. Outpatient care for Rancho’s patients should be hospital-based in order to draw on the expertise that they require. By voting with their feet and by other means, Rancho’s Medi-Cal outpatients have signaled their conclusion that Rancho’s services have constituted the most effective and efficient means of meeting their critical clinical needs. For example, Rancho discharged 127 inpatients with spinal cord injuries at the cervical level. Many will require ventilator support. Unfortunately, very few of the surviving hospitals provide either inpatient or outpatient services for ventilator-dependent patients. A substantial share of Rancho’s spinal cord-injured patients are children or young adults, who are likely to need and benefit from decades of care. Most other hospitals tend to orient their services toward older adults. 2. Current rehabilitation bed capacity Some 1,053 rehabilitation beds are estimated to be needed in Los Angeles County.20 According to data compiled by Forer and Duvall, 34 licensed acute inpatient rehabilitation providers in Los Angeles are licensed for 946 beds. These providers currently staff some 734 of those beds. These 734 beds constitute only 69.9 percent of needed beds. If, as estimated, Rancho operates 100 beds that should be categorized as rehabilitation beds, the closing of Rancho would result in only 634 staffed rehabilitation beds in Los Angeles County, or only 60.2 percent of needed beds. It is possible to speculate that the rehabilitation bed deficit will actually worsen further in the unlikely but certainly possible event that the HealthSouth system melts down in the wake of the unfolding financial scandal afflicting that company.21 What, for example, would become of HealthSouth’s partnership with UCLA for a 56-bed rehabilitation facility that folds in UCLA’s prior 11 beds? Further, the rehabilitation care system may already 8 be characterized by a measure of instability. For example, San Gabriel Valley Medical Center closed all of its rehabilitation beds in 2002. Today, fully 95.5 percent of empty rehabilitation beds are in private hospitals.22 These beds are apparently empty not because of lack of need but rather because of some combination of lack of money to pay for care and lack of staff to provide care. 3. Current non-rehabilitation bed capacity Little is known regarding the bed capacity of surviving hospitals to admit and care for non-rehabilitation patients displaced by Rancho’s closing. As these patients seem to account for about 1,673 (56.7 percent) of Rancho’s discharges in fiscal year 2001/2002,23 considerable resources must be made available to serve them. For the reasons discussed earlier, in Section I.B.1, these patients’ acute care needs are extremely complex and are very often intimately tied to their rehabilitation needs. Arranging alternative care for the Medi-Cal patients in this group will be a challenging job. Unlike rehabilitation beds, acute care beds for these patients should not be in short overall supply. Rather, the clinical capacity and competence to address the acute care needs of Rancho’s displaced Medi-Cal patients is the limiting factor. 4. What is the availability of Rancho’s clinicians to relocate to other caregivers to provide substitute services? How much of the aggravated rehabilitation bed deficit associated with Rancho’s closing might be offset by attracting clinicians displaced by Rancho’s closing to surviving hospitals? Some might suggest that availability of care at other hospitals would be enhanced if Rancho’s skilled physicians, nurses, therapists, and other clinicians were willing to relocate to those other hospitals. But at least four problems might militate against such relocation. First, some of Rancho’s skilled clinicians may not be willing to continue to work in rehabilitation under circumstances that make it impossible for them to provide the type and quality of care that their patients need. Some might retire. Others might go into administration or into other careers. Second, some of Rancho’s skilled clinicians may not be willing to relocate to a new hospital if that new hospital requires them to start at bottom of seniority ladder, and work Saturday nights again. Third, it appears that the effectiveness of Rancho’s care rests in part on the whole being greater than the sum of the parts. Therefore, even if Rancho’s clinicians were able and willing to work elsewhere, the process of dismantling and dividing up Rancho’s services and its caregivers is likely to reduce these clinicians’ effective caregiving capacity. 9 Fourth, even if skilled Rancho clinicians relocate within the County system, in part to take advantage of the 25-year retirement package, they can’t be expected to relocate as workers in intact rehabilitation programs, leaving them effectively unavailable to displaced Rancho patients. Further, even if the clinicians were to relocate, there is little reason for confidence, as discussed later, that the hospitals or other caregiving organizations that hired displaced clinicians would be oriented toward serving the Medi-Cal inpatients and outpatients whose care was disrupted by Rancho’s closing. C. Would Potential Substitute Caregivers Be Willing to Serve Medi-Cal Patients? 1. General observations Fully 53 percent of Rancho’s inpatient rehabilitation patients in fiscal year 2001/2002 (678 of 1,280) were covered by the Medi-Cal program.24 I see no reason to disagree with Forer’s and Duvall’s assertion that 300-500 of these patients “may not be able to secure comparable alternative services from other rehab providers” each year.25 My own assessment is that the share of displaced Medi-Cal rehabilitation patients who may not be able to secure comparable alternative services annually will be toward the high end of Forer’s and Duvall’s projection. This is owing to a combination of lack of available beds, lack of available clinicians, lack of adequate financing, and lack of adequate care of comparable coordination, continuity, experience, and overall clinical effectiveness. These caregiving and financing problems may well be worsened by patients’ own disorientation and disruption of often long-standing relations with clinicians and institutions in the wake of a closing of Rancho. Some hospitals may be willing to serve Rancho’s displaced Medi-Cal patients but simply lack the beds to do so. Some County DHS hospitals, for example, might be willing but are already entirely saturated—in their emergency rooms, in their inpatient beds, and in their outpatient clinics. Some private hospitals have some empty rehabilitation beds, but these hospitals would typically be paid by Medi-Cal at rates that fall well below the cost of effective and efficient care of Rancho’s patients. Rancho is expensive, but its high costs are clearly attributable in large part to its complex case mix. It serves patients who need a great deal of complex and multifaceted care that can be difficult to coordinate at any one time, and to ensure continuity of service over time. Potential substitute caregivers’ willingness to serve Rancho’s Medi-Cal patients will be influenced in part by the costs of these patients, in part by Medi-Cal’s payment rates, and in part by other factors—such as their own clinical capacities. 10 Today, all rehabilitation patients in Los Angeles County have made the best arrangements for their care that they, their families, and their caregivers have been able to arrange. It can therefore be expected that any change will result in a degradation in levels of service. If that change is accompanied by a substantial diminution in the revenue available to pay for rehabilitation and for associated acute and outpatient care, then patients can not be expected to receive adequate and appropriate care. Because the Medi-Cal revenue available to other hospitals to serve Medi-Cal patients will clearly be substantially less than is available today at Rancho, the adequacy of care for displaced Rancho patients can be expected to drop markedly, other things equal. The Blue Consulting report prepared for County DHS raised grave reasons for worry in this regard. It noted that substitute private hospitals might serve only some of the displaced Rancho patients—particularly those of lower acuity. “County facilities would likely need to absorb the remainder of these patients.” 26 But how many of Rancho’s Medi-Cal patients would have to be absorbed by County DHS facilities? At what cost? With what quality of care? With how long a waiting time in the ER and in obtaining an inpatient bed in a County system that is apparently saturated already? With what consequences for quality of care? The state and the County have not answered these questions. They should answer these questions before proceeding with Rancho’s closing. One example: the Blue Consulting report notes that “No private facility has been identified to take adult or pediatric respiratory-dependent quadriplegic patients, regardless of payer type. It is not clear where this population will go.” 27 Over 127 patients, receiving 6,000 patient-days of care, are involved annually. When these patients surface at County DHS facilities, it will be extremely difficult to absorb them. And if they are served, care will be cut to less gravely-ill patients. This is one reason why it seems inappropriate for County DHS to list the closing of Rancho under the heading of “System Reforms.” 28 2. Costs of serving Rancho’s patients Dr. Garthwaite prefaced his earlier-cited assertion that only 40 percent of Rancho’s patient-days were for rehabilitation by saying that Rancho’s cost per inpatient day is around $1,400. “According to consultants, costs exceeding $800 make it very difficult for a hospital to remain viable.” 29 Dr. Garthwaite’s statement is surprising in light of the assertion by Forer and Duvall that “based on our experience in California, many rehab providers have costs/day between $900 and $1,250/day.”30 Further, using data reported by hospitals themselves, I have calculated that all California community hospitals (including nursing home units) showed an average cost per patient day of $1,592.93 in hospital fiscal year 2001.31 (Please refer to the following exhibit.) 11 Costs have risen substantially since then, as we are now in hospital fiscal year 2003 for almost all hospitals. Exhibit California hospital costs, total, 2001 Hospital Statistics Total expenses Gross inpatient charges Gross outpatient charges inpatient charges % of total inpatient expenses, estimated at 71.8% of total patient-days IP expenses/patient-day $39,559,376,603 $75,039,514,757 $29,444,438,788 71.8% $28,411,218,409 17,835,799 $1,592.93 Using data from hospitals’ Medicare Cost Reports (HCFA/CMS-2552), I have estimated the average inpatient cost per patient-day at five U.S. rehabilitation facilities.32 While there is considerable variation, even among well-regarded institutions, it seems clear that rehabilitation can be costly—substantially more costly than Dr. Garthwaite appeared willing to acknowledge. Exhibit Cost per Patient-Day at Five Well-regarded Rehabilitation Facilities Facility The Institute for Rehabilitation and Research, Houston Rehabilitation Institute of Chicago Casa Colina National Rehabilitation Hospital, Washington Shepard Center, Atlanta Rancho Los Amigos Cost/patient-day Year $1,681 2000 $1,779 $1,088 1,265 1,912 1999 2000 2001 2001 Reputational score (USN&WR) 41.0 3. Rancho serves very sick people As the data in the following exhibit show, Rancho serves patients who are in very considerable clinical need. Rancho’s case mix index is 1.79, compared with 1.29 for the average of 42 members of the California Rehabilitation Association and 1.09 for all of the 806 hospitals participating in the Uniform Data System for Medical Rehabilitation. 12 68.6 -10.9 4.7 12.7 Similarly, at the time they are admitted, Rancho’s patients have much lower ability to perform basic self-care, as indicated by their much lower-than-average FIM (Functional Independence Measure) scores. A much greater share of Rancho’s patients have qualifying co-morbidities. In keeping with the greater level of disability and the great co-morbidity level of its patients, Rancho’s length-of-inpatient stay is much longer. At the same time, Rancho discharges four-fifths of its patients to the community, about equal to the national average (though slightly below the California average). Only two other facilities in Los Angeles County serve ventilator-dependent quadriplegics—Northridge and Casa Colina. The two have a total of 8 beds. If Rancho’s care to Medi-Cal patients is dispersed to other hospitals in Los Angeles County, the cost of providing comparable services to treat these Medi-Cal patients can be expected to be greater than it is today. That is because Rancho has been able to achieve economies of scale through higher volume and greater expertise. It serves its seriously disabled patients more effectively and efficiently. Exhibit Rancho Los Amigos National Rehabilitation Center: Comparative Statistics 33 Statistic Rancho Los Amigos Number of inpatient rehab. facilities Total Annual Rehab Admits/Institution Medicare share of admissions Case Mix Index (all payers) Percent with Qualifying Comorbidities Average Length of Stay Percent with Stroke Percent with Brain Injury Percent with Spinal Cord Injury Percent Ventilator Dependent Percent with Neurological Conditions Percent with Lower Extremity Fractures Percent with Joint Replacements Percent with Other Orthopedic Admission FIM Score Percent of Community Discharges 1,166 15.0% 1.790 48.5% 28.38 26.6% 15.9% 16.7% 11.7% 15.6% 1% 2% 0% 48.5 80% 13 CRA California 42 336 61.8% 1.2945 28.4% 15.97 32.1% 10.3% 8.7% 2% 6.9% 8.6% 13.4% 2.6% 63.9 86% UDSMR Nation 806 553 70.9% 1.094 19.6% 15.35 18.2% 5.2% 5.0% 1.5% 4.1% 9.8% 23.4% 4.7% 70.2 79% As noted in the preceding exhibit, Rancho has averaged 1,166 patient admissions annually, far more than either the California or national averages per hospital. Rancho’s case mix-adjusted cost per patient seems to be relatively low in relation to the disability levels of its patients at time of admission, and to the outcomes of its care. This is partly because Rancho appears to be relatively efficient. This is in line with the overwhelming bulk of the literature on the association between volume and cost. Flood found that care in low-volume hospitals was associated with an extra 4,000,000 days of hospital care in one year nationally.34 Finkler estimated that consolidating cardiac surgery among several Los Angeles hospitals would save 32.9 percent of total cost annually. This reflected the offsetting cost associated with greater travel time to one consolidated surgical program.35 And Mahrer reported a substantial saving even in semi-variable and variable costs of cardiac catheterization when a regional facility was built to serve eight Kaiser Foundation hospitals in the Los Angeles area.36 And Rancho’s case mix-adjusted cost per patient, in relation to the outcomes of its care, appears to be relatively low in part because its clinical performance appears to be relatively high. This assertion is in line with the overwhelming bulk of the literature on the association between volume and quality and outcomes, as discussed later. 4. Revenue associated with serving Medi-Cal patients a. Medi-Cal payments Medi-Cal payment rates to different hospitals are central to assessing surviving hospitals’ willingness to accept Rancho’s Medi-Cal patients. First, few rehabilitation hospitals are oriented to serving a large share of Medi-Cal patients. Rancho is remarkable in this. One reason is that, because Rancho’s patients tend to be younger, relatively few have been disabled long enough (29 months) to qualify for Medicare. As noted in the previous exhibit, only 15 percent of Rancho’s inpatient admissions are covered by Medicare, compared with an average of 62 percent at the 42 California Rehabilitation Association members, and with 71 percent nationally. Other Los Angeles facilities are not accustomed to serving large numbers of Medi-Cal patients for various reasons. Depending on the facility, these reasons may include the following: • Some number of these hospitals’ physicians are not willing to accept any or many Medi-Cal patients at current Medi-Cal payment rates for physicians’ services. • Medi-Cal payments to these hospitals are not adequate to cover the costs of caring for the more disabled Medi-Cal patients. • These hospitals lack the financial resources to subsidize substantial possible losses associated with serving greater numbers of more-disabled Medi-Cal patients. • Over time, through higher Medi-Cal payment rates, and through serving substantial numbers of patients with rare disabilities, Rancho has accumulated superior clinical expertise in its many programs, so Medi-Cal patients prefer to seek care at Rancho. 14 As a result of these and other factors, fewer than one-third of the rehabilitation facilities in Los Angeles County facilities that were surveyed by the Western Center for Disability Rights accepted Medi-cal without limitation. (Please refer to the following exhibit.) Of these nine facilities, four are primarily geriatric facilities. A large number of facilities in Los Angeles County substantially restrain service to MediCal patients currently. This level of restraint poses a large barrier to the delivery of substitute services to the Medi-Cal patients who would be displaced by the closing of Rancho. The exhibit on the following two pages summarizes the results of a survey of the 30 hospitals with inpatient rehabilitation beds that were listed in the Blue Report.37 Exhibit Medi-Cal Acceptance by 30 Rehabilitation Facilities in Los Angeles County, March 2003 a. Accept Medi-Cal in significant numbers or do not otherwise limit (9) Brotman Medical Center 25 beds, no outpatient Casa Colina Childrens Hospital of Los Angeles 33 beds plus outpatient 30 beds Henry Mayo 17 beds plus outpatient Northridge Hospital Medical Center (20%) 18 beds plus outpatient Pacific Alliance Medical Center (30%) 23 beds plus outpatient (mostly geriatrics) Presbyterian Intercommunity Hospital (5-10%) 15 beds plus outpatient (majority geriatrics) Providence St Joseph Medical Center 20 beds plus outpatient, primarily geriatrics Garfield Medical Center 28 beds (mostly geriatric) b. Less than 2% Medi-Cal (3) Encino-Tarzana Regional Medical Center 24 beds plus outpatient Glendale Adventist Medical Center (less than 1%) 28 beds plus outpatient Good Samaritan Hospital 23 beds plus outpatient 15 c. “Very low” or “low” percentage (7) St Mary Medical Center 46 beds Queen of Angels/Hollywood Medical Center 28 beds plus outpatient Huntington Memorial Hospital (“very few”) 24 beds plus outpatient Long Beach Memorial Hospital 40 beds plus outpatient Methodist Hospital of Southern California (“very few, rarely accept”) 20 beds plus outpatient Alhambra Hospital 17 beds Providence Holy Cross Medical Center (“only a few, less than 5%”) 13 beds, no outpatient d. No Medi-Cal only – only patients with Medi-Cal AND Medicare) (3) Citrus Valley Medical Center 12 rehab beds, no outpatient Valley Presbyterian Medical Center 17 beds plus outpatient Glendale Memorial Hospital 14 beds plus outpatient (older geriatrics, age 85+) e. No Medi-Cal at all (4) Lancaster Community Hospital 13 beds plus outpatient Lakewood Regional Medical Center 10 beds, no outpatient UCLA Medical Center 11 beds Centinela Hospital Medical Center 26 rehab beds plus outpatient Note: four facilities refused to respond ---------------- 16 Facilities that do not accept Medi-Cal patients today or that inhibit the number of MediCal patients they serve can not be expected to change their behavior unless they are paid more, other things equal. In many instances, Medi-Cal might have to make higher payments to the physicians in private practice who do or would admit and care for MediCal patients at these hospitals, before they agreed to serve Medi-Cal patients or to serve more Medi-Cal patients. Medi-Cal rates of payments for inpatient care are set partly through competitive bidding and partly through negotiation. Rates are not widely or publicly known. A given hospital will typically have a rate for ICU care, pediatric care, and medical-surgical care. The medical-surgical rate also covers rehabilitation services. These are said to be the estimated Medi-Cal rates at various hospitals in California:38 Rancho Los Amigos Santa Clara Medical Center Riverside County Average, private hospitals in Los Angeles County $1,600 $1,253 $1,300 $ 750 A Medi-Cal patient who is displaced by the closing of Rancho and actually obtains care at a private hospital in Los Angeles County will be paid for at a much lower Medi-Cal rate. Total revenue available to finance care for severely ill patients will be sliced substantially. It is my understanding that Rancho’s total payment per all-inclusive patient-day—from Medi-Cal and from the special state payments under SB 855, SB1255, and SB1732 combined—can currently be estimated to be on the order of $2,600. That estimate is apparently derived roughly in this way: Medi-Cal payment $1,416 SB855, 1255, 1732 payment $1,184 Total payment $2,600 (The difference between the $1,600 and the $1,416 figures for Medi-Cal payment per patient-day may be explained in part by reference to different fiscal years, and in part by the possibility that the $1,600 figure is estimated.) If this total payment of $2,600 per patient-day exceeds the actual cost of serving an average Medi-Cal inpatient at Rancho, then that surplus can be considered to be a cross-subsidy to help underwrite care for low-income uninsured inpatients. Outpatient visits to Rancho by Medi-Cal patients are now reimbursed at Rancho’s cost, under the current Medi-Cal waiver. This makes Rancho clearly the preferred provide of outpatient care for disabled Medi-Cal patients in Los Angeles County. Closing Rancho would clearly deprive its Medi-Cal patients of this financing. This means that if another hospital sought to serve either inpatients or outpatients displaced by Rancho’s closing, those other hospitals would suffer substantial financial pain: That other hospital would be paid an inpatient rate on the order of $750 and it would not be reimbursed anything close to the actual cost of outpatient care. 17 b. If Rancho closes, how much revenue that now finances care of Medi-Cal patients could be lost? Another meaning is that closing Rancho is likely to render a very substantial share of today’s Medi-Cal dollars unavailable to serve Medi-Cal patients in the future. How much money is involved? In fiscal year 2001/2002, some 678 rehabilitation patients were admitted to Rancho. At Rancho’s overall average length-of-stay of 28.4 days, Medi-Cal patients received some 19,250 patient-days of care.39 18 Exhibit Costs, Revenues by payer, inpatient + outpatient, FY 1999/2000 Total costs Medi-Cal Revenue SB 855, 1255, 1732 Medicare Other Total Operating Subsidy $123,880,824 $37,693,262 $44,863,806 $5,505,888 $3,064,987 $32,752,880 $27,097,187 $3,394,778 $1,290,734 $1,327,913 $21,083,765 $150,978,011 $41,088,040 $44,863,806 $6,796,622 $4,392,900 $53,836,645 % of inpatient revenue 100.0% 30.4% 36.2% 4.4% 2.5% 26.4% % of outpatient revenue 100.0% 12.5% 0.0% 4.8% 4.9% 77.8% Inpatient Outpatient Total Source: Rancho Los Amigos National Rehabilitation Center, Medical Services Summary: Summary of Costs and Revenues, FY 1999 / 2000 Actual. Projected patient-days and outpatient visits by payer, FY 04-05 Medi-Cal Total Medi-Cal pending Patient-days 72,647 33,858 5,006 Outpatient visits Medicare 7,954 Insurance, other self-pay 3,956 CIP 21,873 8,597 2,896 17,334 58,848 30,021 % of inpatient days 100.0% 46.6% 6.9% 10.9% 5.4% 30.1% % of outpatient visits 100.0% 51.0% 0.0% 14.6% 4.9% 29.5% Source: Rancho Los Amigos National Rehabilitation Center, FY 04/05 Projection Patient Days by Payor (Base Model) 19 As shown in the preceding exhibit, Medi-Cal provided 30.4 percent of Rancho’s inpatient revenue in fiscal year 1999/2000. c. Special state payments Some health care dollars (SB 855, SB1255, and SB1732) come from the state to Los Angeles County and function somewhat like a block grant. That is, they can be divided up among different County-owned DHS hospitals and are not lost when one County DHS hospital closes. Instead, they shift to another hospital. These funds are of vital importance. As shown in the preceding exhibit, they provided 36.2 percent of Rancho’s inpatient revenue in fiscal year 1999/2000. 5. Overall financial condition of alternative caregivers Alternative hospitals’ willingness to accept inpatient and outpatient Medi-Cal patients who are displaced by Rancho’s closing will be modulated by the overall financial condition of these alternative hospitals. Sadly, there appears to be a substantial mis-match between the financial capacity of accredited rehabilitation facilities in Los Angeles County and the capacity of those that are not accredited. Consider this: Apart from Rancho, seven of the nine inpatient rehabilitation caregivers in Los Angeles County that are accredited by the Commission on the Accreditation of Rehabilitation Facilities (CARF) have Medi-Cal contracts. These seven hospitals have 178 staffed beds. These seven hospitals had a relatively low total financial margin in fiscal year 2001 of 1.47 percent.40 By contrast, the 24 remaining inpatient rehabilitation caregivers (22 not CARF-accredited but holding Medi-Cal contracts and two CARFaccredited but without Medi-Cal contracts) had a relatively high total financial margin of 3.10 percent—more than twice as great. These relationships are summarized in the following exhibit. Similarly, the seven accredited hospitals with Medi-Cal contracts had less in the way of financial reserves relative to the overall size of the hospital. Their total financial equity at the end of fiscal year 2001 equaled only 54.5 percent of total revenue. At the remaining 24 hospitals, equity was 78.1 percent of revenue. By both measures, total margin and equity as a share of total revenue, the accredited hospitals with Medi-Cal contracts were in markedly inferior financial circumstances. Therefore, these hospitals’ capacity to shoulder the financial burden associated with serving greater numbers of severely disabled Medi-Cal inpatients and outpatients must be considered markedly inferior to that of the other hospitals. 20