Wall Street Journal - Thursday, 1 May 1997.

Across the country, low-income mothers-to-be are discovering that hospitals want to be their new best friend. At Columbia/HCA Healthcare Corp.'s two hospitals in El Paso, Texas, new moms get free car seats. At Mercy Hospital in Pittsburgh, women are invited to baby showers and are given coupons to buy infant clothing and other merchandise. And at Georgia Baptist Medical Center in Atlanta, an expectant mom who decides to enter the hospital's program receives, after her baby's birth, a plush blanket, monogrammed in a choice of colors with the infant's name and birth date.

Shunielle Monroe, an Atlanta resident tired of day-long waits to see a physician at Grady Health System, an inner-city hospital that traditionally has served the city's low-income families, recently traveled to nearby Georgia Baptist.

There, in a new clinic complete with a toy-filled play area and Disney movies for children, the 20-year-old expectant mother was quickly seen by a doctor -- and given a lunch bag, a thermos and a coffee mug with the hospital's logo. "They give you something that shows they want your business," Ms. Monroe says.

That they do, and the reason is Medicaid. As private insurers increasingly turn to managed care and its penny-pinching ways, Medicaid, the federal and state program that funds health care for much of the nation's poor, has emerged as the industry's generous uncle.

That largess first became apparent in the early 1990s, when managed-care companies came to see the welfare rolls as a major source of growth and profits. Now, though, rather than pursue just any Medicaid case, hospitals are aggressively courting the cream of the crop: patients for whom the government ends up paying more, sometimes much more, than the actual average cost of their care. That is especially true for pregnant women.

"People in the health-care field are fighting over the poor people these days, and pregnancy care is where the money is," says Pam Dodge, director of ambulatory care at the urban Magee-Womens Hospital in Pittsburgh. While some hospitals don't dispute the attraction of the money, most say that their first mission is to improve prenatal treatment for poor women who have historically depended upon indigent-care hospitals, county health departments and emergency rooms for care.

The competition for Medicaid moms is worrisome to inner-city hospitals like Grady that serve large indigent populations; they fret that they will be forced to curtail services if profitable Medicaid revenue declines.

Medicaid prenatal care and deliveries are among "the only services that make any money. It helps pay for indigent care at hospitals," says Frederick E. Harlass, chief of staff at Thomason Hospital El Paso, an inner-city hospital that has seen a sharp drop in Medicaid deliveries since the advent of local competition. Potential patients "say, `I want to go to a place with nice wallpaper, carpeting and get a nice steak dinner and a car seat,'" he says.

Others worry that by cherry-picking the most desirable patients, hospitals will ignore less profitable cases. After all, they note, no one seems to be chasing after terminal cancer patients on Medicaid who can wind up costing hospitals much more than the reimbursement they receive.

Fred Gober, whose Atlanta obstetrics-gynecology practice has served a large number of Medicaid women for the past decade, says one of his patients drove more than two hours from her north Georgia home because she couldn't find a nearby doctor who would deal with her abnormal pap smear. If Medicaid pregnancies were to become less financially appealing to health-care providers, Dr. Gober adds, "all the hospitals that are fighting for Medicaid will bail out in two seconds. Patients will be left in the lurch."

Robin is an Atlanta resident who gave birth in February to a daughter in the city's Grady hospital. She is also HIV positive. Robin, who asked that her last name not be printed, says she approached several suburban hospitals about their maternity programs, but her business wasn't encouraged. Each, she says, indicated that they had little experience with HIV -positive mothers. Far from having a simple delivery, Robin says three doctors worked on her for three hours at Grady.

For their part, many of the aggressive marketers counter that their efforts are more about giving women options than about money. "Our focus is not on going out and grabbing them for money," says Linda Massaro, an official with Mercy Hospital in Pittsburgh. "We're just trying to make health care more accessible." (Mercy Hospital receives $3,110.18 for the normal vaginal delivery of a newborn, according to the Pennsylvania Department of Public Welfare.)

What's more, say other hospital executives, low-income families are benefiting from the growth of prenatal programs in hospitals, which help thwart potential illnesses. The families -- and the hospitals themselves, which invariably continue to see those families and their children -- avoid large medical bills when a baby is born healthy. "There's a strong economic incentive here" beyond profiteering, says Rick Wade, a spokesman for the American Hospital Association, Washington, D.C.

Yet others make no apologies for the lure of Medicaid's maternity money. "Health-care providers are going after Medicaid because it's a better dollar than the HMO dollar," says George Ivey, an executive with Georgia Baptist. Not only does Medicaid generally pay as much or more than managed-care companies for deliveries, it often pays faster.

The majority of pregnancies are fairly simple procedures, which allows hospitals to market to the broad maternity population even though some cases might wind up being complicated and costly. "We don't turn patients away," says Mr. Ivey, who says Georgia Baptist once spent about $2 million on a Medicaid baby for whom it was reimbursed $5,000. "You're definitely rolling the dice, but from a bottom-line standpoint, the statistical probability is you'll come out ahead," he says.

Georgia Baptist, which began marketing to Medicaid moms last year, draws in some of its prospects through a direct-mail brochure, which tempts the women with promises of a free gift. Once inside Georgia Baptist's Sheffield Health Care Center, "We show them the blanket and let them feel it," says Nancy Kemp, Sheffield's director.

In years past, hospitals never would have pursued low-income patients to begin with, never mind handing out car seats and blankets. Until the mid-1980s, private insurance was almost a blank check for health-care providers; Medicaid, by comparison, was a pittance. Prenatal care for poor patients, when it was available at all, was found only in county health departments. Often, poor women gave birth in inner-city emergency rooms.

Then in the late 1980s, two forces converged. Science and society began paying more attention to infant mortality and underweight babies and pressured governments to intervene in prenatal care for the poor. As a result, many state Medicaid programs boosted reimbursement rates to private physicians to encourage these doctors to treat low-income women. At about the same time, private insurers and managed-care plans started squeezing the fees they paid to doctors and hospitals for middle-class customers.

"By comparison, Medicaid rates are looking better and better," says Bruce Taffel, an obstetrician whose offices are located in Atlanta's affluent northern suburbs. Nearly 15% of his practice now consists of Medicaid patients. Adds Joseph E. Taylor, a vice president of Grady Health System in Atlanta: "Medicaid for an uncomplicated delivery is very attractive."

In time, the fact that more private doctors were treating more Medicaid patients meant that more low-income women were having their babies in the suburban hospitals where those obstetricians worked. For the hospitals, the math quickly became clear enough. Nationwide, about 40% of all births are funded by Medicaid, because many pregnant women can qualify for Medicaid even if their income is greater than the federal poverty level, the usual standard for receiving benefits. Most of these births are uncomplicated procedures that might cost the hospital as little as $1,200 to $1,500 to perform.

While some managed-care plans pay hospitals a scant premium over cost, the state-administered Medicaid program can be much more generous. The maternity reimbursement rates varies from state to state and even hospital to hospital. But in most states, Medicaid pays at least as well as many managed-care companies. And in some states, the gap between what it costs a hospital to deliver a baby and what Medicaid is willing to pay is far greater.

In Georgia, the state's Department of Medical Assistance pays a flat case rate for any Medicaid patient. That means a hospital could receive more than $6,000 per Medicaid patient, regardless of whether the individual is hospitalized a night or two for a $1,500 vaginal delivery or in intensive care for weeks with a massive coronary.

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