Unbiased Analysis of Today's Healthcare Issues

Should low quality hopsitals be given more or less money?

Written By: Jason Shafrin - Aug• 25•08

Recently, the San Diego Union Tribune reported that the Sharp Grossmont Hospital in eastern San Diego county was cited for a number of preventable deaths. Reporter Cherl Clark found numerous problems, which included:

staff members restraining a highly medicated, 25-year-old man with schizophrenia in such a way that he was allowed to suffocate. In addition, hospital workers caused the death of an 83-year-old woman who had undergone a hysterectomy by injecting a dangerous anti-narcotic into her bloodstream. Other problems included nurses who did not know or use proper CPR, an unsanitary operating-room mattress held together by tape and glue, unsafe storage and handling of food and kitchen equipment, and use of critical medications such as heparin that had expired up to a year earlier.”

CMS is threatening Sharp Grossmont that it could lose all federal money (i.e., Medicare and Medicaid). Since 50% of Sharp Grossmont’s business comes from Medicare and Medicaid patient, this would be a disaster for the hospital. What should we do with underpreforming hospitals?

In regular markets, when a product has lower quality, people stop buying that product and switch to another one. For instance, if GM stops making high quality cars, people switch to Toyota. The market compels companies to offer a desirable bundle of quality and price or else they will lose business. Because markets are so effective at maintaining high quality, withholding Medicare and Medicaid payments from Sharp Grossmont makes sense, right?

Maybe not in this case. First of all, some hospitals may not be in a competitive market. While urban hospitals must compete with other, nearby hospitals, Sharp Grossmont is supposed to provide medical care for the entire Grossmont Healthcare District, which covers 750 square miles in San Diego’s more suburban and rural East County. This area has more than 652,000 residents and Sharp Grossmont has the busiest emergency department in San Diego County. By reducing funding, individuals who have emergencies will receive even worse care than before.

This is similar to the no child life behind program. Low preforming schools lose money. But these are exactly the schools that need more money to survive. If students had the freedom to switch schools, then penalizing a failing school would make perfect sense since the students could opt for higher quality schools. The failure of low quality schools would not be a problem if students had other schools available for them to choose to attend. If individuals do not have any choice of which school they attend, however, withholding funding from schools or hospitals can make low quality schools worse.

Will Sharp Grossmont be decertified? The CMS threat to withhold funding is likely just a bluff.

Among the 450 hospitals in [CMS certification officer Steven] Chickering’s jurisdiction of Hawaii, California, Nevada and Arizona, 10 to 12 a year have as many major lapses, he said. Ninety-nine percent of those facilities resolve their crises and keep their federal payments, Chickering said.

The federal government knows that removing funding from the only emergency room in a 750 square mile area is not politically feasible. Although individuals may not have much choice of a hospital in an emergency situation, in non-emergency situations patients can decide to drive longer distances to visit physicians at more competent hospitals. If CMS payments are proportional to patient volume, then Sharp Grossmont may take a financial hit due to this lower patient volume without having the hospital decertified.

Decertification is likely not the answer, but having such serious quality lapses reflects poorly on the state of health care in San Diego, and in the U.S. in general.

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  1. […] Shafrin of the Healthcare Economist writes that “individuals who have emergencies will receive even worse care than before” […]