In the Sunday News May 10 lead article headed “$113 MILLION SURPLUS IS A DECREASE FOR LGH”, the newspaper leans over backwards to paint Lancaster General Hospital as a great benefactor of the city and the community while struggling to minimize the implication of so much public money being directed not necessarily in the public’s interest.

The paper quotes President and CEO Thomas Beeman as saying “Things have changed dramatically in the past year. We’re reflecting the rest of the economy.” For the sake of the national economy and especially the auto industry, would that it were true!

As a series in NewsLanc exposed, LGH has been the second most profitable hospital in the state and has one of the lowest levels of contribution to charity.

As also reported and affirmed by a reliable LGH source, the hospital’s dominant position in the Lancaster market place enables it to negotiate higher fees from insurance companies than is possible elsewhere.

However, when insurance companies have to pay higher costs, they need to charge more for their policies. The companies will make their mark up and thus their profits; but the brunt of the high prices falls upon the policy owners, who are we Lancastrians.  So we aren’t talking about LGH’s money; it’s a non-profit institution. We are talking about our money: the public’s money!

Here is some sycophantic misdirection from the article:

“Lancaster Mayor Rick Gray lauded Beeman and LGH. ‘When I talk to other mayors and tell them how much they contribute, their jaws drop.’” If Gray tells them how much LGH is making due to its dominant health care position, the other mayors would probably keel over!

“More than $25 million of the surplus will go to replacing and upgrading equipment.” When equipment is replaced and upgraded, the costs are depreciated over several years and are deductions from profits.  The $113 million this year is after, not before, the costs of “replacing and upgrading equipment” over the past years.  In future years, LGH will charge off this year’s outlays.

“LGH spent more than $50 million last year on care for low-income and uninsured patients.” That would have been expensed, so the $113 million is after allowing for such services.

“The hospital spent more than $1 million last year on wellness programs targeting, among other things, obesity and smoking.” Commendable, but also treated as an expense; so not out of the $113 million profit.

“The hospital offers financial assistance on a sliding scale.” Again, that is expensed, so the $113 million profit is after providing such services which are typical of all hospitals.

The Sunday News goes on: “Beeman said that pharmaceuticals represent one-third of LGH’s costs and cited unnecessary emergency room visits as an ‘inefficient’ way to seek care.” Absolutely! But those inefficiencies are treated as cost and do not come out of the $113 million profit.

Also reported “The hospital distributed nearly $1.9 million in grants last year, of which more than $100,000 went to United Way of Lancaster County.” Isn’t part of that allowed as an expense?

Alex Henderson III, vice chair, is quoted as saying “All the money we make goes back into the community.” True enough, but the issue is how much is bloated compensations, pensions, perquisites, and spending on plant and equipment which should not have the highest priority?

For example, Rick Kastner, Executive Director of the Lancaster County Drug and Alcohol Commission, reports that less than 500 of the 5000 to 10,000 heroin addicts in the county are able to afford or, even if they have the money, obtain treatment.  Would the community not be better off if LGH only made $110 million but another thousand addicts received health care and were able to become constructive and law abiding members of their families and of the community?

This article is not meant to be a put down of the good people of General Hospital who provide commendable expertise and services. Rather, NewsLanc believes that LGH is the one institution that best reflects the needs of the community and has the potential for relatively selfless leadership in the future.  The other four local titans – Franklin & Marshall College, Fulton Bank, High Industries and the Lancaster Newspapers- are duty bound to stockholders or trustees to best represent their special interests.  And they certainly are so motivated!

NewsLanc does believe that LGH has a responsibility to utilize its earnings for the best overall interests of the community from which its disproportionate profits spring.  It could well afford to donate $25 million to $50 million of the $113 million towards public health and education. Furthermore, over time, the gifts would actually earn profits as a result of a healthier and more prosperous community that would be better able to pay its bills without subsidies and charity.

It’s time for Rick Gray, United Way President Susan Eckert, and the Lancaster Newspapers to stop blowing kisses to LGH (to put it politely) for the crumbs LGH allows to fall from the table and call upon the health care system to do far more for the good of the public, which not only is the source of its revenue, but owns the place!

LETTER:

In your editorial on Lancaster oligarchy, you suggest that the amount of profit Lancaster General Hospital, a not-for-profit entity, routinely posts is more than needed for health care purposes and you suggest that they become philanthropists.

Why doesn’t Lancaster General Hospital reduce its charges to its patients, across the board? Wouldn’t that be the most constructive way to rein in the cost of healthcare to this community?

And if Lancaster General Hospital gouges its patients to such an extreme extent that they are posting profits in excess of $160 million, and can’t build and extend their empire fast enough to use it all up, can they even be called “non-profit” any more?

And, while I am at it, if Lancaster General Hospital begins giving away vast amounts of money to charitable community causes, isn’t it really “We the Patients” who are the true community philanthropists, since it is really our money?

If I overcharge someone for my services, then turn around and give a portion of my ill-gotten gains to the poor, that doesn’t make me a philanthropist. It makes me an unethical businessperson trying to salve my own conscience or make myself look good!

REPLY:
NewsLanc published a series of article about the roots of LGH profitability based on research conducted by an analyst borrowed from a national organization. We received a certain amount of cooperation from LGH at the outset before they clammed up when they saw we were skillful in putting together the jigsaw puzzle.

Some of their profitability stems from efficiency. But much is due to the special circumstances of this local market and their dominant position in it.

Most of their revenue comes from third party sources – insurance companies and government. Lower rates would partially trickle down to those paying directly and through insurance programs since the programs’ costs would be reduced. But, in general, there can be a good argument for LGH charging market rates similar to hospitals throughout the state.

LGH clearly does not need to spend $160 million a year, year after year, on expansion and upgrading. So what it can do is provide a larger ratio of its earning to subsidize worthwhile local causes. In its relatively meager giving (one of the lowest percentages in the state for hospitals), LGH prioritizing public health efforts. Were it to re-think its philanthropic responsibilities, it would be able to do much more for current recipients and expand the scope of its philanthropy to include certain types of educational activities such as schools and libraries.

God bless the Steinman family for all the wonderful things they did during the last century. But with the print media moving to the Internet, the Steinman foundation is unlikely to play so large a role for the betterment of our community.

LGH has no need to try to profit through questionable projects at the public expense. Also it is an institution of highly qualified, sophisticated individuals. Its ethos is consistent with service to the community.

Therefore, NewsLanc encourages LGH to make use of its extraordinary prosperity to assume two roles: Expand the amount and scope of its subsidies to important community activities; and also provide an altruistic anchor against the schemes of those who—despite incompetency and sometimes through greed and bullying—have seized the business leadership of our community.

On September 16, the Intelligencer Journal reported that Lancaster School Board Chairman Patrick Snyder said “…he’s pleased with the proposed $1.5 million payment to the district” by the Lancaster General Hospital in lieu of paying real estate taxes. It represented a $300,000 increase from the year earlier.

Yet at the SD of L’s School Board meeting that evening, a librarian from a grammar school explained patiently to the Board that his library has not received a single dollar over the past three years to replace worn out popular books or to purchase new ones. And it appears his experience is typical throughout the system’s libraries due to financial constraints.

Another member of the audience implored the Board to offer appropriate compensation to attract a competent replacement for the open athletic director position in order to stop the free fall of both the physical fitness and sports programs throughout the District.

A $300,000 increase certainly is welcome but it amounts to less that 1/5th of 1% of LGH’s $160 million in profits in 2007. In short, it is petty cash for LGH!

And it is so unfair for them to give so little. As was shown in NewsLanc’s recent series, LGH’s vast profits, second highest in the state, are not just because of the acknowledged competence of its management and staff, but because of very special demographic conditions and market dominance. So at least $100 million of their profit is coming from the regional public in the form of higher insurance payments, state and federal taxes, or excessive direct payments.

It is NewsLanc’s contention that LGH can and should do much better, contributing at least $20 million to county-wide school districts in a manner that takes into consideration the average incomes of student families, and also donating more for public health efforts and other regional worthy causes that benefit the public at large and are especially important to the unfortunate.

When we go for years without purchasing books for our children to read, we certainly don’t need to plow $160 million of the public’s money into LGH management perks and unending expansion.

NewsLanc received a letter from an informed source stating “After reading NewsLanc’s LGH Report#2 (as part of your series of financial reporting on the plentiful treasure chest owned by not-for-profit Lancaster General Hospital), I am dismayed at the lack of edge that the NewsLanc.com reporting offered.”

Far be it for the publisher of NewsLanc to be critical of what every red-blooded business person seeks in order to achieve high profits: market dominance!

In the case of for-profit enterprises, public policy may require regulation, such as is done with utility companies.

But LGH is a 501(c)3, not-for-profit corporation. It has no stock holders. Its purpose is to serve the public.

In the situation of Lancaster General Hospital, it is in part already regulated because Medicare and Medicaid referrals are compensated in amounts determined by the federal government. It is the insurance companies (and thus the insured) and cash paying individuals who pay a premium when there is a collapse in competition.

While the citizenry may have to pay higher premiums and fees, the profits earned by LGH can and should be applied to further our community.

What is needed is more candor and transparency on the part of LGH’s management and greater public participation on how it spends its earnings, be they for excessive executive compensation or perks or on unnecessary investment in medical facilities.

LGH already does so in part. As a 501(c)3, it is exempt from real estate taxes. Yet it makes a contribution to the City of an even greater amount than it would otherwise pay. In the same way, it would be suitable for LGH to contribute more to public clinics and other public health efforts.

It might also provide additional funding for regional charities and make donations to the enhancement of public services such as the local libraries and school systems. LGH’s contributions might be somewhat guided by their beneficial impact on public health.

NewsLanc does not fault LGH for competing successfully. But we do insist on transparency and an open process whereby the public participates in deciding on how earnings are to be put to optimal use.

NewsLanc borrowed the services of Douglas McVay, Director of Research with an affiliated non-profit organization, to determine what circumstances have enabled Lancaster General Hospital (LGH) to earn the second highest profits in the State, amounting to $136 million in fiscal year 2007. Findings are not meant to detract from the efficiency and competence of LGH and the high quality service they provide.

The following is not a definitive list of LGH’s marketing advantages, but only those supported by current data on hand.

1) LGH has a very large—34,000 square foot—emergency department, the biggest in the area. Visits have jumped from 56,287 in 2003 to 93,489 in 2007.

2) LGH has the county’s only Level II trauma center and Level III neonatal intensive care unit. More serious emergency cases are likely to be routed directly to LGH rather than one of the other hospitals in the area. Inpatient admissions originating in LGH’s emergency department rose from 11,425 in 2002 to 16,853 in 2007. In 2002, 36% of admissions originated in the emergency department; by 2007 that had grown to 42%, and it seems to still be trending upward.

3) LGH had been ranked quite highly in annual US News & World Report hospital surveys in some specialties in years past although rankings have slipped recently.

4) LGH markets itself as a “Nursing Magnet Hospital” and claims on its website, “Magnet recognition is a coveted designation to recognize excellence in nursing care.” According to the Center for Nursing Advocacy “Some critics, including the California Nurses Association and the Massachusetts Nurses Association, have argued that the Magnet program is primarily a hospital promotion tool ….”

5) LGH’s affiliate, Lancaster General Medical Group (LGMG), is a “multi-specialty network of physicians and mid-level providers.” Established in 1995, LGMG has “105 physicians and 20 mid-level providers distributed among 16 practices at multiple sites.” Beyond being LGH profit centers themselves, physicians and providers in the Group are also likely to use LGH facilities.

6) LGH established one of the nation’s first residency programs specializing in Family Medicine. This program helps LGH build referral relationships with young physicians who often stay in the Lancaster area—whether or not they work directly for LGH or an LGMG practice.

7) LGH facilities have been redecorated in a tasteful manner. (The entryway on James Streets presents a five star ambience.) As an observer opined “It is like staying at a nice hotel. Even the food isn’t too bad.”

Due to LGH’s growing market dominance, some observers expect both Regional Hospital and Heart of Lancaster cease to be full service hospitals and for a merged LGH / Ephrata Hospital to have a monopoly. Greater transparency and public input will influence LGH, a not for profit corporation, to use its remarkable profitability in the best interests of the community.

All three Lancaster newspapers – The Intelligencer Journal, New Era, and the Sunday News have failed to cover or comment upon the Wall Street Journal’s expose last Thursday of how Lancaster General Hospital (LGH) has been grossly profiting at the expense of our uninsured (for religious reasons) Amish neighbors (and others) by insisting that they pay “charges” in full that LGH routinely discounts to insurance companies by over 50% and even more so to MediCare.

When NewsLanc launched its ongoing investigation into what seemed inexplicable earnings by LGH, the hospital’s unfair treatment of the Amish was on the lips of almost all knowledgeable observers whom we interviewed.

When the Intell published a front page puff piece stating “Though the large size of [LGH’s] facilities alone would seem to guarantee big revenues and profits, LGH is exceptionally efficient inside those facilities, the council report shows”, NewsLanc Watchdog responded, “Even the dullest Introductory Economics student, let alone a reporter and editor worth half their salt, would recognize that a major reason for such unusual profits might be non-competitive market conditions that permit higher prices and thus higher profits than would be normal.”

LNP’s dereliction of journalistic responsibility concerning the overcharge of the Amish is further evidence of the tacit and self serving collusion that has been underway in Lancaster, at least harkening back to the Convention Center project and attacks on former commissioners. The Lancaster Newspapers, with rare and benign exceptions, “sees no evil, hears no evil, and speaks no evil” about the Big Five: F & M College, Fulton Bank, the High Group, Lancaster General Hospital and, of course, itself.

NewsLanc blames the executives of the LNP for this abomination, not necessarily editors and staff.

NewsLanc repeats its demand for a new chair and president of The Lancaster Newspapers so that once again Steinman Enterprises can reliably serve its community, as it did so honorably in the past.

On June 28, the Wall Street Journal published an article entitled “Opting Out’ Old Order’ Mennonites and Amish Who Shun Insurance Face Rising Bills. Should Hospitals Cut Them a Break?”

The WSJ article anticipates one of NewsLanc’s findings in its extensive ongoing research into the causes for Lancaster General Hospital’s exceptional profitability.

NewsLanc’s “editor’s note” to an article in the current newsletter entitled HEALTH: The High Cost of Medical Insurance states:

According to a report from the State, hospitals only collect a fraction of their ‘charges’ from insurance companies and MediCare. But Ralph’s percentage payment is based upon the bloated ‘charges.’ NewsLanc will report more on this in a forthcoming series analyzing the reasons for Lancaster General Hospital’s extraordinary profitability.”

It is NewsLanc’s understanding that LGH accepts payments averaging 44% of its “charges” from insurance companies and an even lesser percentage as payment from MediCare as payment in full. Yet in calculating co-pay responsibilities for those insured or billing individuals not insured, LGH often insists on payment based on the full “charges.”

The WSJ article states in part

“…Complicating matters is that many of these [Amish] farmers won’t buy health insurance: They believe it is the religious duty of their communities to provide for one another when sick. They don’t pay Social Security taxes and reject Medicaid or Medicare benefits, as well as farm subsidies.”

Later the article observes

“Dr. [D. Holmes] Morton has called on the two local hospitals to offer half-price discounts to uninsured Amish and Mennonites, calling hospital bills inflated. He notes that the government and private insurers negotiate reduced rates. The hospitals, both of which are profitable, say they can’t make special provisions based on religious beliefs or anything else.”

“Lancaster General’s chief executive Thomas Beeman calls the discount request unrealistic and unfair. ‘You’re really then putting the burden on you and everyone else,’ he says.”

Somewhat later in the article, the WSJ states “Lancaster General has increased its discount for uninsured patients to 25% from 15%. Mr. Beeman says uninsured patients now receive the same discount that commercial insurers do, though not as much as the government does.” Yet NewsLanc’s review of State statistics would suggest that the discount should by about 56%, not 25% to 15%.

NewsLanc hastens to add that its research is not complete. It awaits responses to questions already being asked of LGH and anticipates posing future questions prior to publication of its research of all the factors contributing the LGH’s extraordinary profitability and whether some of the profit is derived unfairly at the expense of the Lancaster public.

NewsLanc urges readers to click here to read the article, which is is still available to non-subscribers in order to read a detailed and fair account of dealings between the Amish and LGH.

While all delight that Lancaster General Hospital (LGH) enjoys profits for 2007 exceeding $136 million, second highest for any hospital in the state, NewsLanc believes it is in the public’s interest to know the causes of these extraordinary profits and whether, in some manner, they are in part at the inordinate expense of the community.

NewsLanc staff soon discovered that it would require a person of greater skill, experience and patience in evaluating the hundreds of statistics provided by a State agency and gleaned from LGH and other sources in order to comprehensively evaluate matters.

Therefore arrangements were made to borrow the services of Doug McVay, Director of Research for Common Sense for Drug Policy, a sister organization. McVay is the compiler and editor of “Drug War Facts” (DrugWarFacts.org) which is in its sixth edition. He also manages scholarly web sites that serve five thousand individuals a day. The fairness and accuracy of his research is relied upon by academics and media world wide.

McVay has received cooperation from LGH and has requested additional information. NewsLanc prefers to publish a comprehensive report but that depends upon LGH continuing to be forthcoming. If so, a draft of the report would be submitted to LGH for its review and comment before a final version is published.

The purpose of the research is not to find fault. Rather it is to bring transparency to the factors contributing to LGH’s outstanding profitability so that the community can play a more knowledgeable role. LGH is a public foundation established to serve the same community that NewsLanc seeks to inform.