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The cost of a shrinking hospital sector

The purposeful shrinkage of the hospital industry has

The purposeful shrinkage of the hospital industry has led many medical facilities, most notably those in poorer neighborhoods and rural areas, to lack the resources and space needed to effectively combat the coronavirus pandemic. Credit: Getty Images/iStockphoto/doyata

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With the health care industry stretched beyond its capacity because of the COVID-19 pandemic, the validity of certain premises accepted by so many, for so long, must be questioned.

We have seen the purposeful shrinkage of the hospital industry for at least the past 20 years. “There are too many beds” has been a common refrain from government officials and others, resulting in the closing of many public and private hospitals, and a marked reduction in the number of beds in remaining hospitals. The impact has been particularly acute in hospitals serving poorer neighborhoods and rural areas. The unrelenting shift from inpatient to outpatient services has accelerated the unfortunate trend.

As a health policy professor, strategic planner and former health care administrator, the deficits in the hospital industry’s ability to meet the needs of this rapidly growing pandemic were perhaps inevitable.

The push to reduce inpatient capacity can be attributed to multiple sources, which together have led us to this moment, including:

  • There was and still remains the belief that a major portion of health care that is provided is unnecessary, wasteful or even fraudulent, resulting from the continuance of a fee-for-service reimbursement model.
  • With the launch and growth of health maintenance organizations and other managed-care models, there was an accompanying restraint on utilization of services. This has been accomplished by requiring prior authorizations and strict review processes for hospital stays.
  • Outpatient procedures have replaced many inpatient admissions.
  • Inpatient lengths of stay have been shortened.
  • Regulations and processes from the Centers for Medicare & Medicaid Services have included a two-day rule in which patients going to the emergency department must stay in the hospital for at least two days to be considered inpatient, and a 30-day readmission that permits denial of reimbursement for unplanned readmissions to the hospital, even if it is for reasons other than the initial admission.
  • Post-discharge audits have led to major categories of short-stay admissions to be reclassified as outpatient care, resulting in sharp reimbursement cuts to hospitals.
  • State regulatory agency policies looked more favorably on hospital applications to grow outpatient facilities and other resources.
  • Advances in diagnostic and treatment technologies have provided support for earlier detection of disease and less invasive, more effective treatment, which have permitted a continued shift to more outpatient care. 

Shrinking inpatient capacity has been seen by managed care, government payers and regulators as a way to reduce current and future health care costs. In addition, inventory stockpiling is often seen as an unnecessary cost because, under most circumstances, hospitals have been able to quickly receive ordered supplies and equipment.

But overreliance on these “just in time” inventory practices means that a hospital can be left without needed resources when suppliers are unreliable and/or fail to deliver, or when we face a health care crisis like COVID-19.

Our nation’s shift away from manufacturing has compounded the issue. There is now dependence on China and other foreign manufacturers for so many crucially needed health care items, such as clinical masks.

Predominantly embracing cost control and efficiency to drive health policy underscores the failure to fully appreciate the role the health care industry must play to protect the health and safety of the public to meet current and inevitable increased demand.

When we emerge from the COVID-19 crisis, the critical resource shortages hospitals have experienced must lead us to rethink and transform how we approach health care policy and hospital capacity in the United States — lest we risk being unprepared for the next pandemic.

Walter Markowitz is an assistant professor in the health professions department at Hofstra University.

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