Of course proprietary hospitals are not new in this country. Since the past century, many small hospitals and clinics have been owned by physicians, primarily for the purpose of providing a workshop for their practices. In fact, the majority of hospitals in the United States were proprietary until shortly after the turn of the century, when the small doctor-owned hospitals began to be replaced by larger and more sophisticated community or church-owned nonprofit institutions. The total number of proprietary hospitals in the country decreased steadily during the first half of this century. In 1928 there were 2435 proprietary hospitals, constituting about 36 per cent of hospitals of all types; by 1968 there were only 769 proprietary hospitals, 11 per cent of the total.1 However, there has been a steady trend away from individual ownership and toward corporate control. During the past decade the total number of proprietary hospitals has been increasing again, mainly because of the rapid growth of the corporate-owned multi-institutional hospital chains.
There are now about 1000 proprietary hospitals in this country; most of them provide short-term general care, but some are psychiatric institutions. These hospitals constitute more than 15 per cent of nongovernmental acute general-care hospitals in the country and more than half the nongovernmental psychiatric hospitals. About half the proprietary hospitals are owned by large corporations that specialize in hospital ownership or management; the others are owned by groups of private investors or small companies. In addition to the 1000 proprietary hospitals, about 300 voluntary nonprofit hospitals are managed on a contractual basis by one or another of these profit-making hospital corporations.
The proprietary hospitals are mostly medium-sized (100 to 250 beds) institutions offering a broad range of general inpatient services but few outpatient facilities other than an emergency room. Some are smaller than 100 beds and a few are larger than 250 beds, but none would qualify as major medical centers, none have residency programs, and few do any postgraduate teaching. Most are located in the Sunbelt states in the South, in the Southwest, and along the Pacific Coast, in relatively prosperous and growing small and medium-sized cities and in the suburbs of the booming big cities of those areas. Virtually none are to be found in the big old cities of the North or in the states with strong rate-setting commissions or effective certificate-of-need policies.
Although there are no good, detailed studies comparing the characteristics and performance of proprietary and voluntary hospitals, there is a generally held view that proprietary hospitals have more efficient management and use fewer employees per bed. It is also said that fewer of the patients in proprietary hospitals are in the lower income brackets and that fewer are funded through Medicaid. One prominent hospital official told me that proprietary hospitals generally have per diem rates that are comparable to those in the voluntary hospitals, but that their ancillary charges are usually higher. However, this official stressed the lack of good data on these questions.
Last year the proprietary-hospital business generated between $12 billion and $13 billion of gross income — an amount that is estimated to be growing about 15 to 20 per cent per year (corrected for inflation). A major area of growth is overseas — in industrialized Western countries as well as underdeveloped countries — where much of the new proprietary-hospital development is now taking place. Of the two or three dozen sizable United States corporations now in the hospital business the largest are Humana and Hospital Corporation of America, each of which had a gross revenue of over $1 billion last year. Others are American Medical International (AMI) and Hospital Affiliates International (a unit of the huge INA Corporation), with gross revenues last year of approximately $0.5 billion each.
Proprietary Nursing Homes
Proprietary nursing homes are even bigger business. In 1977 there were nearly 19,000 nursing-home facilities of all types, and about 77 per cent were proprietary. Some, like the proprietary hospitals, are owned by big corporations, but most (I could not find out exactly how many) are owned by small investors, many of them physicians. The Health Care Financing Administration estimates that about $19 billion was expended last year for nursing-home care in the United States. Assuming that average revenues of proprietary and nonprofit facilities are about equal, this means that about $15 billion was paid to proprietary institutions. This huge sum is growing rapidly, as private and public third-party coverage is progressively extended to pay for this kind of care.
Another large and rapidly expanding sector of the health-care industry, but one that is even less well defined than the nursing-home business, is home care. A wide variety of home services are now being provided by profit-making health-care businesses. These services include care by trained nurses and nurses’ aides, homemaking assistance, occupational and physiotherapy, respiratory therapy, pacemaker monitoring, and other types of care required by chronically ill house-bound patients. The total expenditures for these services are unknown, but I have been told that the market last year was at least $3 billion. Most of these services are provided by a large array of small private businesses, but there are about 10 fairly large companies in this field at present, and their combined sales are probably in excess of $0.5 billion. The largest corporate provider of home care is said to be the Upjohn Company. About half the total cost of home health care in this country is currently paid by Medicare. As Medicare and private third-party coverage broadens, this health-care business can be expected to grow apace.
Laboratory and Other Services
Last year, about $15 billion was spent on diagnostic laboratory services of all kinds. The number of laboratory tests performed each year in this country is huge and growing at a compound rate of about 15 per cent per year.2 About a third of the diagnostic laboratories are owned by profit-making companies. Most of these are relatively small local firms, but there are a dozen or more large corporations currently in the laboratory business, some with over $100 million in sales per year. Some of these corporations operate laboratories in the voluntary nonprofit hospitals, but most of the proprietary laboratories are outside hospitals and use an efficient mail or messenger service. Including all proprietary laboratories, large and small, in and out of hospitals, probably some $5 billion or $6 billion worth of services were sold last year.
A large variety of services are being sold by newly established companies in the medical-industrial complex. Included are mobile CAT scanning, cardiopulmonary testing, industrial health screening, rehabilitation counseling, dental care, weight-control clinics, alcohol and drug-abuse programs, comprehensive prepaid HMO programs, and physicians’ house calls. Two markets that deserve special mention are hospital emergency-room services and long-term hemodialysis programs for end-stage renal disease.
With the decline in general practice and the virtual disappearance of physicians able and willing to make house calls, the local hospital emergency room has become an increasingly important source of walk-in medical and psychiatric services in urban and suburban areas. The use of emergency rooms has increased rapidly in the past two decades and has stimulated the development of emergency medicine as a specialty. Most third-party payers reimburse for services rendered in hospital emergency rooms at a higher rate than for the same services provided by physicians in their private offices. The result has been a vigorous new industry specializing in emergency services. Many large businesses have been established by entrepreneurial physicians to supply the necessary professional staffing for emergency rooms all over the country, and this has proved to be a highly profitable venture. In some cases, large corporations have taken over this function and now provide hospitals with a total emergency-care package. Once an appropriate financial arrangement is made, they will organize and administer the emergency room, see to its accreditation, recruit and remunerate the necessary medical and paramedical personnel, and even arrange for their continuing education. At least one large corporation that I learned about has such arrangements with scores of hospitals all over the country and employs hundreds of emergency physicians. I do not know exactly how much money is involved or how many physicians and hospitals participate in such schemes around the country, but I am under the impression that this a very large business.
Long-term hemodialysis is a particularly interesting example of stimulation of private enterprise by public financing of health care. In 1972 the Social Security Act was amended to bring the treatment of end-stage renal disease under Medicare funding. When the new law was enacted, only about 40 patients per million population were receiving long-term hemodialysis treatment in this country, almost entirely under the auspices of nonprofit organizations. Forty per cent of these dialyses were home based, and renal transplantation was rapidly becoming an alternative form of treatment. The legislation provided for reimbursement for center-based or hospital-based dialysis without limit in numbers. The result was an immediate, rapid increase in the total number of patients on long-term dialysis treatment and a relative decline in home dialysis and transplantations. The number of patients on dialysis treatment in the United States is now over 200 per million population (the highest in the world), and only about 13 per cent are being dialyzed at home.
Proprietary dialysis facilities began to appear even before public funding of end-stage renal disease but the number increased rapidly thereafter. These facilities were usually located outside hospitals and had lower expenses than the hospital units. Many were purely local units, owned by nephrologists practicing in the area, but one corporation, National Medical Care, soon became preeminent in the field.3 This company was founded by nephrologists and employs many local nephrologists as physicians and medical directors in its numerous centers around the country. It currently has sales of over $200 million annually and performs about 17 per cent of the long-term dialysis treatments in the country. It has recently expanded into the sale of dialysis equipment and supplies and the provision of psychiatric hospital care, respiratory care, and centers for obesity treatment, but its main business is still to provide dialysis for patients with end-stage renal disease in out-of-hospital facilities that it builds and operates. According to data obtained from the Health Care Financing Administration, nearly 40 per cent of the hemodialysis in this country is now provided by profit-making units. This figure suggests that total sales are nearly $0.5 billion a year for this sector of the health-care industry.