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Why America is losing its best hospitals.

This week, after months of congressional wrangling, President Obama signed historic health care reform into law. For the last ten years, TNR’s resident health care expert Jonathan Cohn has been writing about the big structural problems in our health care system and what can be done to fix them. This week’s archive piece is a Cohn classic: a 2001 examination of why America’s best hospitals were suffering under the existing health care system. Using Boston’s well-regarded Beth Israel Deaconess Hospital as a case study, Cohn warned that great American medical institutions were at risk of compromising patient care because of stingy HMOs and bad cost-containment practices. The new health care bill will curtail many HMO practices that Cohn criticized in his article, bring millions of Americans into the health care system for preventative medicine, and give them access to primary care doctors. In short, Cohn’s piece remains essential reading for anyone interested in how our health care system broke down and how today’s reforms might fix it.

Beth Israel was never Boston’s biggest hospital or even its most prestigious. But, in a city filled with world-class medical institutions, it had a special niche. Locals called Beth Israel “Harvard with a heart”--a reference to the Harvard-affiliated hospital’s devotion to patients’ needs. In 1972 Beth Israel enacted America’s first patients’ bill of rights. At about the same time, it pioneered primary care nursing, which provided each patient with his or her own nurse, who was responsible for managing his or her care throughout each hospital stay. While other Harvard hospitals built their reputations on technologically driven surgical sub-specialties, Beth Israel concentrated on teaching young doctors in what became some of the nation’s best primary care departments. By the early ‘90s, places like the mammoth Massachusetts General Hospital still had more star-studded faculty, treated more rare disorders, and garnered more national attention. But, for less extravagant care, even many doctors preferred the venerable Jewish community hospital sprawled along Brookline Avenue. “A lot of my friends would say, `Gee, if I had to have an operation or have a baby, I’d want to go to Beth Israel,’” recalls Dr. Arnold Relman, former editor of The New England Journal of Medicine. “Patients uniformly said the best bedside attention you could get was at the BI.”

But Beth Israel has fallen on hard times. Over the last two years, Beth Israel--called Beth Israel Deaconess since a recent merger--has bled more than $100 million. In a desperate attempt to balance the books, hospital administrators have cut back on money-losing programs like psychiatry, social work, and nursing, even though those programs were long seen as central to the hospital’s mission. The hospital’s doctors and nurses--once known for their relaxed, humane pace--now scramble to meet productivity guidelines that keep the volume of business high. Members of the staff, past and present, throw around terms like “tragic” and “lost halo.”

It’s not an unusual story. Across the United States, the campaign to cut health care costs in the 1990s hit teaching hospitals hard, since they historically relied upon surpluses from paying customers to subsidize their less lucrative work: academic research, training doctors, and caring for the uninsured. It took a state bailout to rescue the U.C. San Diego Medical Center. Farther north, Stanford University and U.C. San Francisco tried merging to avoid financial crisis; the disastrous marriage dissolved last year. Other hospitals scaled back their commitment to nonprofit work--in the most extreme cases, like George Washington University, by selling off parts of their enterprises to for-profit companies. And in nearly every teaching hospital--in fact, in every hospital, period--the practice of medicine has taken on a rushed, impersonal pace that many health care professionals believe lowers the quality of care.

Did Americans choose this? Actually, no--they chose the opposite. In 1994 Congress rejected a government-run health care system in part because Harry and Louise convinced us that it would “ration” care--that the government would take away good medical care in order to keep costs down. But the end of Clintoncare hasn’t meant the end of rationing. It has simply allowed rationing to proceed with less democratic input, according to the rules of the byzantine and perverse health insurance marketplace. In this shakeout, intangibles like time spent training a new surgeon, nurturing less profitable fields of medicine, or simply sitting by a patient’s bed have been the first things to go. Beth Israel never stood a chance.

No one better personified Beth Israel’s glory days than the man who presided over them, Mitchell Rabkin. Rabkin was just 35 when Beth Israel’s presidential search committee plucked him from the staff of Massachusetts General Hospital in 1966, and he had no major administrative experience. But, as an endocrinologist known for his human touch, Rabkin intuitively grasped that the mission of Beth Israel--a hospital founded by Boston’s underserved Jewish community--was to put patients first.

Rabkin’s innovations became a national model for how hospitals should treat patients and train doctors. Rabkin thought the traditionally rigid hierarchies of hospital care--with doctors reigning imperiously over nurses and staff--impeded collaboration. So he instructed his young physicians to rotate performing more menial hospital jobs, opened up the physicians’ cafeteria to the entire staff, and encouraged decision-making by consensus rather than by dictate. (Rabkin held himself to the same standards and was frequently seen picking up litter as he roamed the halls.) Then, convinced that hospitals “tyrannized patients through institutionalized arrogance,” as a Boston Business Journal profile put it, Rabkin instituted the nation’s first-ever patients’ bill of rights. It guaranteed patients access to all information about their care and the right to participate in decisions about their treatment--radical notions for the time. Years later it became the basis for a statewide law.

Rabkin also elevated nursing. Prior to the 1970s hospitals largely used nurses as anonymous cogs to deliver the basics of bedside care. In Rabkin’s hospital, by contrast, nurses--including a few nurse specialists trained in medical specialties just like physicians--participated in the decision-making process. Beth Israel also started the practice of assigning every patient a “primary care nurse” who would coordinate care, follow the patient from ward to ward, and be on call 24 hours. Not only did this empower the nurses, it guaranteed every patient a knowledgeable contact person who could make the hospital experience less daunting. (Indeed, to reinforce that relationship, Beth Israel saw to it that patients had the same primary care nurse on every subsequent stay at the hospital.) “Beth Israel,” recalls Suzanne Gordon, whose book Life Support chronicled the work of Beth Israel nurses during the early ‘90s, “was the most advanced nursing model in the United States, if not the world.”

Remarkably, Rabkin did all this while elevating Beth Israel’s intellectual stature as well. For much of its existence, Beth Israel’s house staff had consisted mainly of part-timers, private practitioners who spent just a portion of their time at the teaching hospital. Rabkin went on a hiring binge and turned Beth Israel into one of America’s leading research centers. By the ‘90s it was, among independent hospitals, the third-largest recipient of federal research funds in the nation. As Beth Israel evolved from an also-ran into one of Boston’s jewels, the community took notice. “The sensitivity to patient concerns and the excellence of medical and nursing care for which the hospital is known,” The Boston Globe editorialized on the hospital’s seventy-fifth anniversary, in 1991, “are in large measure attributable to Rabkin’s leadership.”

Of course, Beth Israel’s success was also attributable to something else: money. Rabkin had the good fortune to take over as president just after the creation of Medicare. Not only did Medicare provide insurance coverage for every retiree in America, but, from a hospital’s perspective, it provided the best kind of coverage: fee-for-service. For the most part, if a doctor or hospital billed it, Medicare paid for it, no questions asked. Most private insurance worked the same way, which meant that by the late ‘60s the vast majority of Americans had not just coverage but generous coverage. As Paul Starr writes in The Social Transformation of American Medicine, “Almost every conceivable encouragement was given to hospitals to grow.” This flush environment allowed Rabkin to put his frequently costly ideas into practice; it also allowed him to build more facilities. As the ‘90s dawned, Beth Israel embarked upon a massive $440 million construction effort to enlarge its clinical and research capacity.

But by that time health care had already begun a financial retrenchment. During the ‘80s, frustration with the rising cost of health care had finally led businesses, which had borne the brunt of that burden, to move employees into health maintenance organizations and other forms of managed care. HMOs kept spending down by negotiating lower rates with health care providers, restricting referrals, limiting hospital admissions, and reducing the length of hospital stays. The idea was to force financial discipline on the traditionally independent medical industry.

The medical industry, naturally, did not take kindly to this. Doctors and hospitals warned that less money would mean less, or worse, care. But, as national spending on health care continued to skyrocket, public attention increasingly focused on the apparent excess in American health care. And no city seemed to epitomize the glut better than Boston, with its three world-class medical schools and their affiliated, resource-devouring teaching hospitals. “There were at one time four institutions in the city of Boston capable of doing heart transplants,” recalls former Beth Israel physician Howard Hiatt. “Well, one program would have met the needs of the city.” According to a 1993 study commissioned by the city and conducted by Nancy Kane of the Harvard School of Public Health, Boston’s hospitals had collected some $2 billion more than they needed to cover the costs of patient care and research over the previous eight years.

By the mid-’90s, even Rabkin had come to recognize that the old no-questions-asked system was “pernicious,” as he described it to me recently, because it led to out-of-control spending. “No organization maintains itself rust-free forever,” Rabkin said. “It’s very important to take a careful look at what we’re spending and why.” And, as if to prove his commitment to streamlining, Rabkin embraced President Clinton’s campaign for national health care. It was no secret that the president’s plan would squeeze hospitals by keeping overall health care spending in check and, specifically, by cutting down on inpatient care at expensive teaching hospitals. But Rabkin hoped that, in the long run, government would prove a more compassionate manager of care than corporations. At the very least, he figured, a system that guaranteed coverage to every citizen would relieve hospitals like Beth Israel of one of their historic financial burdens: taking care of the uninsured. “With universal coverage,” Rabkin testified at a White House event in 1994, “no one is rationed out of the system.”

In the end, of course, Clintoncare died under the weight of its own complexity. But the failure to enact national health care reform only intensified the private sector’s determination to hold down health care costs on its own--which meant shifting even more employees to managed care and thus giving HMOs even more clout, especially in Massachusetts, where managed care came to dominate the insurance market.

Facing growing financial pressure, Beth Israel brought in a parade of consultants. Their advice: Adapt to the incentives of the insurance market. Like many hospitals, Beth Israel complied, first by buying physician practices on the theory that this would line up a network of primary care providers who would refer patients to Beth Israel beds. The hospital also continued its construction campaign, figuring that the best way to make up for smaller financial margins on each patient was simply to see more patients. And Beth Israel started taking cost containment seriously--much to the chagrin of its staff. “I guess the thing that hit me most was spending hours and hours and hours in committee meetings trying to decide strategies that were going to alleviate the fiscal crunch,” says one surgeon who left the hospital in the mid-’90s.

Still, the change was incremental: The hospital avoided layoffs, in keeping with its historic policy, and Rabkin stressed the need to treat staff with the utmost care: “You can’t pistol-whip employees and expect them to go the extra mile to treat patients with warmth and dignity,” he told the Globe. At first the plan worked. From 1992 to 1995, the hospital cut some $60 million in expenditures, keeping its budget in the black.

But, despite such favorable news, another development was making Beth Israel’s leadership panic: In 1994, Massachusetts General Hospital merged with Brigham and Women’s Hospital to form a massive conglomerate called Partners HealthCare. The idea was to increase their bargaining clout with insurance companies, but the merger also threatened to put Boston’s other hospitals out of business. So Beth Israel looked for a partner of its own, and, in February 1996, it found one in New England Deaconess, a fourth Harvard teaching hospital.

It seemed like a perfect match: Beth Israel’s focus was primary care; Deaconess had made its reputation on a few specialty units with national prominence. Both hospitals had recently built networks of physician practices and smaller community hospitals. The two hospitals’ proximity--they were just a block apart--suggested they could physically merge, thus realizing economies of scale. Beth Israel Deaconess, Rabkin vowed, would be “a single streamlined entity rather than just a fatter institution.”

But, around the country, hospitals attempting similar partnerships were learning the hard way that institutions rarely mesh in practice as well as they do on paper. Hospitals, particularly teaching hospitals, have distinct cultures that reflect the peculiarities of their populations. Throw in the rivalries inherent in combining two institutions--each department can have only one chief, after all--and mergers can quickly destroy institutions that took generations to build. In the worst cases, like Stanford-UCSF, the mergers have fallen apart. In many more, like the merger between New York University Medical Center and Mount Sinai Medical Center, hostility has festered and earnings are down.

Beth Israel Deaconess had it as bad as any. For one thing, the merger proponents had glossed over some key financial problems in the marriage. Because Deaconess, like Beth Israel, had gone on a building binge in the early ‘90s, the combined entity was stuck with heavy debt and a lot of extra space. The purchase of physician practices turned out to be a boondoggle that cost Beth Israel Deaconess millions more. Nor did the physical proximity prove as useful as had been hoped: A few hundred yards is not the same as next door, and shuttling patients from one building to the other was not an easy task. Integrating procedurally was no picnic, either: The hospitals had different filing systems, different administrative procedures, and different computer networks. Eventually, the hospital would lose some $35 million because of technological incompatibility in the billing department. Trickiest of all, the two institutions had drastically different cultures. “The way problems got solved at Beth Israel historically was, they’d break out the bagels and cream cheese and sit around a conference table and hash it out,” remembers one surgeon heavily involved in the merger. “At the Deaconess, it was run more like a military organization, with the chief of staff or the chairman of the department deciding what was going to happen.”

As if all this weren’t difficult enough, the financial picture for U.S. hospitals got dramatically worse when Congress passed the Balanced Budget Act of 1997. After years of watching Medicare grow faster than private-sector health care spending--by then under control, thanks to managed care--Congress dramatically reduced hospital reimbursements under Medicare. The logic seemed compelling enough: Why should the government pay more than business for health care? But hospitals had come to rely on Medicare’s excess to make up for lost revenue on private patients. Academic hospitals in particular depended upon the extra Medicare money to finance research, teaching, and care for the poor. With that money gone, Beth Israel Deaconess, like many teaching hospitals, plunged into a full-fledged crisis. After years of surpluses, it started posting losses in 1997.

The hospital’s troubles spilled into full public view in May 1998, when two patients admitted for routine surgery died after complications with their anesthesia. Anesthesiology had been ground zero in the conflict between the two hospitals. According to physicians involved in the fight, some BI anesthesiologists thought their Deaconess counterparts were concerned only about their paychecks, and some Deaconess anesthesiologists thought their BI counterparts were mollycoddled academics who couldn’t handle a professional workload. Shortly before the deaths, the entire Deaconess anesthesiology staff--some 40 doctors in all--walked out. An in-house memo--obtained by the Boston Herald--called the situation a staffing “crisis,” though a subsequent state investigation found no relationship between the deaths and the personnel problems.

Eventually, it fell to James Reinertsen to put the pieces back together. In 1998 Reinertsen took over from Rabkin as director of CareGroup, the nonprofit parent company for Beth Israel Deaconess. Reinertsen was in many ways Rabkin’s diametric opposite. With his crisp business attire, aloof manner, and talk of hospital efficiency, he came across as more CEO than physician--exactly what the search committee wanted. “The idea was that he would put a more businesslike feel to the place,” says one former Beth Israel physician familiar with the search. “At that point, the institution was awash in red ink. The notion was, there had to be a complete change.”

And there was. After Beth Israel Deaconess lost $71 million in 1998, the hospital brought in Deloitte Consulting. Their mission: to find ways of making Beth Israel Deaconess “smaller, different, and better,” as then-hospital President Herbert Kressel said. “We need to achieve a sense of operational discipline--which we have not had before--around how we manage our time, our schedules, what the doctors are doing with their time, and the like,” Reinertsen said in an interview for a PBS “Frontline” show that would air in 2000. In May 1999 the hospital broke with its no-layoffs policy and announced it would reduce hospital staff, though most of the cuts were in management personnel. Kressel was out as hospital president shortly thereafter, because, according to the Globe, Reinertsen thought he was making changes too slowly. In January 2000, Beth Israel announced it would cut costs by $20 million--and several hundred jobs--though it promised bedside care wouldn’t be affected. “This kind of event is difficult, but it’s necessary,” a hospital spokesperson said. “This is one part of a larger strategy to turn this hospital around and make it better.”

Necessary, perhaps. but did the changes really make the hospital better? While the recent firings didn’t include bedside nurses, they did include most of the nurse specialists, whom bedside nurses consulted when dealing with unusual cases or particularly sick patients. Primary care nursing continues to exist in the old Beth Israel building, but close patient-nurse contact has been dying a slow death. With fewer support staff--the result of outsourcing and downsizing--to handle a greater patient volume, nurses say they can only do the bare essentials of their work: One nurse told me that patient requests for attention can go unanswered for five, ten, or 15 minutes. “During my nine months of fieldwork, I never saw a nurse sit down and talk with a patient,” writes Dana Weinberg, a Boston sociologist and author of Why Are the Nurses Crying?, a dissertation (soon to become a book) on the merger and its effect on nursing. “The care is shoddy,” one nurse told Weinberg. “It doesn’t feel safe from a practitioner’s standpoint.”

Michael Rosenblatt, the hospital’s current president, says the data on patient outcomes and complications suggest otherwise. “There’s no evidence that quality has declined,” he told me. But most of the physicians I interviewed echoed the nurses’ sentiments. “Everybody involved in the hospital sensed a palpable difference in the quality of care that was being delivered,” recalls a surgeon who recently left Beth Israel. “The care was technically OK, but the stuff that makes it high quality was gone. The hospital used to be spotless. Now there was stuff on the floor or coffee cups left on stairwells.... [W]hen you saw your patients in the office, they complained. That was a huge change.” Another physician, still on staff, says doctors now typically spend about half as much time with patients as they did a decade ago: “There’s more paperwork. The managed care referral problems are worse than ever.... The beds are unavailable.... The nurses are more overworked. Their morale is decreased. The place is dirtier. On every level, quality is down.” “People are going home sicker,” says Andrew Brotman, who was chief of the Beth Israel Deaconess psychiatry department after the merger. “This has costs for their families and their caretakers, which aren’t exactly measured.”

Last September, Beth Israel Deaconess unveiled one more reorganization plan--the most radical to date. It called for shifting psychiatry, plus part of dermatology and orthopedics, to other hospitals in the CareGroup network while beefing up more lucrative specialties like cardiac surgery and organ transplantation. (After howls from mental health advocates, the hospital agreed to leave some beds open for psychiatric patients.) Shortly thereafter, it announced it would attempt to raise cash by allowing a pharmaceutical manufacturer to purchase the right of first refusal on Beth Israel Deaconess research--an arrangement that would raise questions about the hospital’s independence from industry influence. Once again, health consultants cheered the moves.

In the last few months, Beth Israel Deaconess’s finances have started to improve: Deficits are down, and patient volume is up. But, assuming it does survive, it won’t be the same hospital it was ten or 15 years ago. And that’s unfortunate. While there was wastefulness in Boston’s health care market a decade ago--the city was probably due for a hospital shakeout--one would have hoped market pressure would have penalized substandard hospitals and rewarded good ones. Instead, Beth Israel is in trouble largely because it provided good care, which is necessarily expensive. Because it took on burdens like caring for the indigent and training young doctors, which American society largely refuses to shoulder. And, perhaps, because it made some ill-advised business decisions.

All of which might have been worthwhile if, say, downsizing Beth Israel had freed up resources that were then spent on more pressing health care needs, like expanding health insurance or improving preventive care. But the same market forces that pummeled Beth Israel are wreaking havoc throughout the health care system. It’s useful to remember that, just ten years ago, the experts confidently predicted that Boston--and most other major cities--had far too many hospital beds. Today Boston and most other major cities have far too few. The city’s emergency rooms are constantly diverting patients to other hospitals because they have insufficient staff, particularly nurses, to handle the flow. If market forces continue to run amok, Boston’s hospital scene will soon resemble a monopoly--with the Partners behemoth the only one left standing and the bed shortage worse than it is now.

Which brings us back to the question: Who voted for this system? Even if there’s a plausible argument that Beth Israel-style care was a luxury America could no longer afford, it would have been nice if that decision had been made by the public. Based on the country’s reaction to talk of rationing in 1994 and the recent momentum behind HMO reform, the intangibles of Beth Israel-style care seem to matter to people quite a lot. Maybe Americans would have been willing to put more of the nation’s wealth into health care if they knew it would mean having a more humane experience in the hospital, being cared for by better-trained physicians, or making sure nobody went without health insurance. Maybe they wouldn’t have. Too bad we never found out.