September 4, 2008

Has Carilion Been Good for Roanoke?

In 1989, U.S. District Court Judge James Turk concluded that a merger of Carilion Health System's Roanoke Memorial Hospital with Roanoke Community Hospital would "probably improve the quality of health care in Western Virginia and reduce its costs . . . ."

In a front page article nearly 20 years later, The Wall Street Journal comes to a different conclusion: "The cost of health care in the Roanoke Valley . . . is soaring. Health-insurance rates in Roanoke have gone from being the lowest in the state to the highest."

The same day, The Roanoke Times reported that Carilion's CEO Ed Murphy earned more than $2 million in total compensation last year.

The two articles raise questions that deserve to be answered, not just about Carilion in Roanoke, but about nonprofit hospitals nationwide.

Across the nation, nonprofit hospitals like Carilion are coming under increasing scrutiny, even from Congress, as critics wonder whether they are abusing their tax advantages and forgetting their community missions.

"Some nonprofit hospitals seem to forget that their operations are subsidized with generous tax breaks. They allow their priorities to get out of whack," said Sen. Charles Grassley, R-Iowa.

A majority of the nation's hospitals are now nonprofits and, according to an April Journal article, the nation's nonprofit hospitals are raking in cash like never before. "The combined net income of the 50 largest nonprofit hospitals jumped nearly eight- fold to $4.27 billion between 2001 and 2006," the newspaper reported.

Carilion officials dispute some of the facts in last week's Wall Street Journal article. Carilion spokesman Eric Earnhart told The Richmond Times-Dispatch, "Our prices aren't higher than anyone else's. In fact, they're lower."

That may be true when compared with other hospitals, but prices for similar procedures at local physician practices can be far, far lower, The Journal reported.

You'll pay $4,727 for a colonoscopy at Carilion, about four to 10 times as much as you'd pay at a local endoscopy center. Hospital officials counter that they must subsidize operations like its emergency department and charity care.

They also point out that Carilion is not a monopoly in Roanoke. Lewis-Gale, part of the for-profit HCA Inc. chain, is a successful and growing hospital in Salem.

Murphy says the clinic model embraced by Carilion will eventually lower prices and improve care -- the same promises, we have to note, made when Roanoke's two main hospitals merged almost 20 years ago.

That clinic model might lower prices, but it has deepened Carilion's already extensive control over local health care -- as well as its dominance of the local economy. The strategy of turning doctors from independent practitioners into employees may make sense from the standpoint of managing care, but it also gives Carilion even more competitive advantage.

The growing influence of nonprofit hospitals, especially in places where they may become de facto monopolies has not been matched by increased regulatory scrutiny, despite congressional interest.

Nonprofit hospitals are supposed to serve their communities. Congress needs to take a serious look into whether the current regulatory structure is up to the job of making sure that they do.

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