Changing Times Put Many Hospitals on Critical List : Medicine: As shift to managed care favors mega-chains, small institutions have been forced to close or specialize.

By DOUGLAS P. SHUIT

June 3, 1995 12 AM PT

TIMES STAFF WRITER

It seemed like a wake: the last day in the life of Downey’s old Rio Hondo Memorial Hospital, the first day of its transformation into a 24-hour urgent care and rehabilitation center.

The doctors were saying goodby not just to a hospital, but to an era in medicine based on informality and first-name relationships.

“We hated to turn anyone away,” lamented Dr. Bernard Rothman, a soft-spoken, gray-haired surgeon. “A doc would call for a patient without money and say, ‘We have a Mr. Smith. He has a hernia to be repaired. What do you say, Bernie? Would you do it?’ I’d say, ‘How long have you known the family?’ and they would tell me they knew the family and so I would do it, just like that.”

Rothman and other doctors at small hospitals are going through something of a culture shock these days.

Their world went unchanged for decades. But now it is being shaken up by historic numbers of hospital closures.

Hospitals across the nation are being bought and sold, closed or reorganized in dizzying fashion, the result of the managed-care revolution and its focus on cost-consciousness and computer-driven efficiency.

Across America, 949 hospitals closed between 1980 and 1993, two-thirds of them community hospitals like Rio Hondo, according to the American Hospital Assn.

Nowhere are the changes coming faster than in Southern California, where hospitals have been closing at an even more accelerated pace. Since 1991, 37 hospitals in the six-county Southern California region have closed, a rate of about one every six weeks.

In Los Angeles County, such hospitals as Queen of Angels in Hollywood and the Kaiser Permanente facility in Baldwin Park stand empty, and scores of others are being converted into psychiatric hospitals or, as in the case of Rio Hondo Hospital, transitional or rehabilitation centers.

At many of the general acute-care hospitals that are staying open, wings are being sealed off and floors shut down because there are not enough patients to warrant keeping the wards staffed.

From 1960 to 1990, vacancy rates in hospitals were at relatively respectable levels, with 65% to 70% of the beds always full. But now, fewer than half the hospital beds in Southern California are occupied at any one time.

Factors contributing to the empty beds are many. Chief among them are financial incentives created by the managed-care industry that reward physicians and hospitals for keeping their patients out of hospitals or sending them home in the shortest time possible.

For decades, patients and doctors called the shots on hospital care, helped by government and private insurance programs that based payment on individual services received. A patient would choose a doctor, the doctor and patient would choose a hospital, and the hospital would bill the patient’s health insurance company for charges.

Now, with an estimated two-thirds of all privately insured Californians in some kind of managed-care plan, all that has changed.

With even government-financed health programs like Medicare and Medi-Cal steering patients into managed-care plans, hospitals these days often receive a substantial amount of their income from contracts negotiated before patients get to hospitals.

Under the old system, hospitals prospered, which in turn triggered what experts say was massive hospital overbuilding. Now, in the age of managed care, the trend is going in the opposite direction.

Rio Hondo is a case in point. Built in 1955, it originally had 50 beds. Then, with the hospital industry booming, it went to 100 and then 150 beds. But the momentum shifted and by the 1980s, fewer and fewer beds were needed until, in its last months, officials said only 15 to 20 beds were occupied at times.

At the same time, major advances in drugs, surgical techniques and home care services have also prevented many hospitalizations, analysts say. They also point to prevention and wellness programs that have led to such positive trends as a decline in smoking-related illnesses.

With patients being moved in and out of hospitals faster than ever--and the dollars for their care disappearing along with them--many smaller hospitals simply cannot survive, and larger independent hospitals face an uncertain future.

Russ Stromberg, president of Centinela Hospital Medical Center in Inglewood, compares the changes sweeping through the hospital industry to what happened in the grocery business, with neighborhood grocery stores gobbled up by larger chains and then the larger chains merging into mega-chains.

“Unfortunately, the stand-alone medical center is going to go that way,” he predicted. “Everybody who survives is going to join somebody.”

Economically driven strains are also showing in patient care, particularly in the area of obstetrics.

Driven by a focus on the bottom line, industry experts say, two- or three-day hospital stays for routine pregnancies and deliveries have turned into quick-turnaround overnight stays, often of less than 24 hours.

A new study by researchers at UC San Francisco found that shorter hospital stays are contributing to an alarming number of infants who suffer brain damage related to jaundice, an easily treatable condition if caught in time.

The problem, according to Dr. Augusto Sola, author of the study and director of neonatal clinical services at the university, is that “babies are being discharged earlier, with less observation and diagnostic evaluation than in past decades.” Sola said that since it takes 24 to 36 hours for newborns to show signs of jaundice, early discharges may be making it difficult to recognize symptoms.

Equally concerned is Dr. Carol Miller, a UC San Francisco pediatrician and clinical researcher, who said, “Some of the moms just aren’t ready to go.”

The result is a rise in the number of babies coming back to hospitals for after-care.

Catherine Dodd, a registered nurse and spokeswoman for the California Nurse Midwives Assn., said a complaint she commonly hears is that patients are being released in such a weak state that they cannot stand by themselves. “It used to be that you walked out of a hospital, but now you leave on a stretcher,” she said.

Dodd said new mothers go through revolving hospital doors so fast that they often don’t have time to learn to breast-feed in the precious few hours between delivery and discharge. “Breast-feeding isn’t something that comes naturally to everyone. Sometimes it takes time to get the mom and the baby going. We are seeing breast-feeding rates going down,” she said.

Within the industry, just about everyone agrees that there are too many empty beds and that the shakeout under way cannot be reversed.

“We think this is a true marketplace revolution,” said David Langness, a spokesman for the Healthcare Assn. of Southern California. Langness said it was painful to watch one hospital after another go under, but “we think the faster it happens the better for everyone.”

With 530 hospitals in the state and 255 in the six-county Southern California area, the question is not whether they will all survive but how many will still be open five years from now.

“We probably have twice the number of hospitals that we need,” said Terry Hartshorn, president of UniHealth, a large Burbank-based company that owns nine hospitals in Southern California.

One of UniHealth’s hospitals, 302-bed Long Beach Community Hospital, is in an area that dramatically illustrates the kind of competition under way in the industry as hospitals struggle to survive the pressures of the managed-care revolution.

Two other major acute-care hospitals, 816-bed Long Beach Memorial Medical Center and 551-bed St. Mary Medical Center, are within five miles.

Each of the hospitals is less than half full, prompting Ron Yukelson, a spokesman for Long Beach Memorial, to say, “If one of the hospitals went out of business, I don’t think it would register on the radar screen.”

So far, no one is waving a white flag. Rather, they are slimming down and redirecting their energies to outpatients and other programs. St. Mary is developing its “hospital without walls” program, setting up outpatient and in-home care programs. Community Hospital is concentrating on managed-care business. Memorial is aligned in a regional network with other major hospitals, such as Cedars-Sinai Medical Center in Los Angeles and Huntington Memorial Hospital in Pasadena, and is honing its role as a regional specialist in neonatal emergency care.

Still, each hospital is struggling. This year, St. Mary has eliminated 105 staff positions and laid off 26 full-time and part-time employees. Community Hospital announced a reorganization and the elimination of 71 positions. Memorial has downsized significantly, eliminating psychiatric and chemical dependency units and hundreds of jobs in recent years.

Though Long Beach is an extreme example of close-quartered competition, similar scenarios are being acted out throughout the region.

“It’s a blood war now,” commented Centinela Hospital’s Stromberg, who so far has been able to keep his hospital prosperous in the face of the new marketplace challenges.

Overall, many hospitals are still making money. The California Nurses Assn., which contends that cost-cutting has led to dangerously low staffing levels of skilled nurses at many hospitals, said California hospitals reported $1.5 billion in profits in 1993.

Nonetheless, hospitals like Centinela are becoming fewer and fewer. Analysts for the Healthcare Assn. of Southern California are predicting a decline of 15% to 20% in the number of hospital beds the next five years.

UniHealth’s Hartshorn agrees with those predictions. He said that since the first of the year, directors of four small hospitals have approached him to buy their hospitals, saying that they can no longer make it. Meanwhile, UniHealth is negotiating the sale of one of its own, Santa Monica Hospital, to UCLA, a move that would create a new powerhouse on the Westside.

Outright purchases and consolidations are all part of the new environment, as is the increasingly heavy reliance of hospitals on managed-care contracts.

About 95% of the hospitals in Southern California now have at least one managed-care contract, compared to 66% in 1989, according to a new study by the Healthcare Assn. of Southern California.

This dependence on managed-care contracts is a double-edged sword that has helped the hospitals fortunate enough to sign up health plans, but hurt the smaller hospitals that have less bargaining power over prices.

The larger hospitals, particularly chain hospitals, are better positioned to undercut the independents by offering the plans better prices and a wider range of services, essentially getting wholesale prices today in a business that for years was based on getting the equivalent of high retail.

While mega-chains are increasingly dominating the scene, smaller niche hospitals--the nonprofit community hospitals and religious hospitals--are being forced to grow bigger.

Two Catholic hospital chains, for example--the Daughters of Charity National Health System-West and Catholic Healthcare West--recently merged, creating a 23-hospital network, with all but two of those facilities in California. Other hospitals, for the time being at least, are going it alone.

To stay competitive, Centinela Hospital has developed contracts with 27 different managed-care companies. It has formed its own Centinela Hospital Healthcare Network, composed of the flagship 400-bed hospital in Inglewood and nine outpatient clinics from the South Bay to southwest Los Angeles. Emphasizing its sports medicine program, it has become widely known as the official hospital for the pro golfers’ PGA Tour as well as the Los Angeles Lakers, Dodgers and Kings.

Downey Community Hospital is another of the independent hospitals that so far is holding its own, helped in part by its 1991 acquisition of Rio Hondo Hospital, less than three miles away.

One prize for Downey in the acquisition of Rio Hondo was the large number of family doctors who practiced there. In managed-care systems, general practitioners are the traffic cops who control who goes into a hospital.

At the same time, they staff the outpatient clinics used by managed-care plans as alternatives to hospital care.

While this has created something of a boon for family doctors, many of the Rio Hondo doctors clearly are having a hard time adjusting to the realities of the new way of doing business.

They say they are happy with Downey Community, a much more modern hospital, but also miss the ambience and informality of the old hospital, a block-long, one-story building on a commercial strip of Telegraph Road in Downey.

The older hospital is still open, operating under its original license even though on a much more limited basis, and the Rio Hondo doctors still like to gather in the physicians’ dining room there for the morning ritual of coffee and conversation, which dates back decades. Doctors like Rothman not only treated their patients at Rio Hondo, but they had their own babies delivered there, brought ailing parents in for treatment, and turned there first when they themselves had heart attacks.

“The rounds were like a social event,” said Dr. Harold H. Hofkin, 72, one of the original seven family doctors who built the hospital in 1955, each one chipping in $5,000.

Dr. William V. Adler, 67, another Rio Hondo veteran, said he is busier than ever at Downey, but the adjustment has been difficult.

“In the old days, we used to say if you got a new patient a day, your practice was growing wonderfully well,” he said. “With managed care, it’s not uncommon to have 10 or 12 new patients a day.”

Adler said he treated his older patients over a lifetime, but these days, just as he gets to know his new patients, “their insurance changes and you never see them again.”

Dr. Marshall Alan Kahn, who worked at Rio Hondo for nearly 40 years and now makes rounds at Downey in a white smock with a CareMore logo over the breast pocket, said, “The Rio doctors formed this unity together. They grew up with it, and they spent their careers together learning to respect each other’s strengths and weaknesses.

“We feel rather proud that we had the opportunity to experience it,” he said. “Most doctors never had the experience, and now most won’t.”

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Too Many Beds

At any given time in the Southern California, only about half the available hospitals beds are in use, experts say. Managed care policies that require shorter stays and medical advances that have eliminated some stays are also prompting a trend of closures; one hospital closes about every six weeks. Others that stay open are downsizing significantly, in some cases by closing emergency rooms or sealing off entire floors.

One area of Long Beach offers a clear illustration of the problem: Three large acute-care hospitals, representing 1,669 beds, are located within five miles of each other. During 1994, their beds were full less than half the time. Each hospital has announced layoffs or service reductions in recent months.

BY THE NUMBERS

Over the last ten years, 37 hospitals have closed in the six-county Southern California area, excluding San Diego County.

Hospitals open in 1991: 292

Hospitals open in 1995: 255

In addition, at least 55 other hospitals have been converted to more limited uses or have significantly cut back their services.

1. Long Beach Memorial Hospital, 2801 Atlantic Ave.

Licensed beds: 816

Average occupancy rate, 1994: 48.4%

2. St. Mary Medical Center, 1050 Linden Ave.

Licensed beds: 551

Average occupancy rate, 1994: 45.2%

3. Long Beach Community Hospital, 1720 Termino Ave.