Long before the establishment of Medicaid or the passage of the Affordable Care Act, California counties provided their poorest residents with access to comprehensive medical care. This article analyzes the creation and closure of public hospitals in the state of California. It combines both qualitative historical research and event history analysis to assess what led first to the creation of the nation's most comprehensive public health network and then to its gradual demise. Strong evidence is presented that the implementation of Medicaid in California significantly altered the calculus of local governments with regard to the operation of public hospitals. In particular, Medicaid shifted county hospitals from the realm of allocational politics to that of redistributive politics. Subsequently, reforms at the state and federal levels further encouraged this development. Because of this shift, many counties decided to close their hospitals. Moreover, as expected for redistributive policies, the continued operation of public hospitals was driven not by need but instead merely by fiscal capacity: more affluent counties continue to maintain them while poorer, needier counties close their doors.
All levels of government in the United States produce enormous amounts of policy on a continuous basis that significantly affects and shapes Americans' interactions with their governments and their experiences as citizens. However, people are subject to particular mixes of policies depending on the jurisdictions in which they reside. Yet we know surprisingly little about how policy making at the federal, state, and local levels interacts to alter and reshape policy impacts. Of particular interest, albeit a topic receiving relatively little attention in the scholarly literature, is the effect of policy making by supralevels, that is, state and national governments, on local governments.
Local governments are a particularly interesting focus of study for four major reasons. First, external factors exert a disproportionate effect on local governments (Peterson 1981). With penetrable boundaries, local decision making offers individuals options of both voice and exit (Hirschman 1970; Tiebout 1956). Second, local governments provide a vast array of benefits and services to their constituents. Historically, local governments, closest to the people and confronted with their most immediate problems, have had to find solutions to public policy problems. This holds particularly true for individual and community welfare, policy areas that have generally been addressed only by state and national governments in more recent times (Haeder and Weimer 2015a). Hence, policy making of supralevel governments often does not occur on a blank policy terrain but instead is superimposed on policies previously implemented by local governments. Third, policy changes may reshuffle the distribution of winners and losers. The disparate influence of groups at the various levels tends to produce different winners and losers of local, state, and federal policies. At times, losers at one level may even seek to alter the distribution of costs and benefits by shifting policy making to another level or branch of government (Pralle 2003). Fourth, significant, unintended consequences may be associated with policy change at the national and state level (Hall 2014). At times, these may even negatively affect the groups of individuals intended to be the beneficiaries of state and national policy making.
The provision of public and personal health services is an interesting case because local governments have had to find solutions to these pressing problems long before state and federal governments intervened on a larger scale in the early 1900s (Haeder and Weimer 2015a). A common approach across most states has been the establishment of public hospitals, such as Philadelphia General Hospital, founded in 1731, and New York's Bellevue Hospital, founded in 1736 (Regenstein and Huang 2005). Some states, such as Louisiana and Pennsylvania, at times even opted to run state hospital systems (Roemer and Shonick 1980). However, no states developed a county hospital system as good or as extensive as California's (Blake and Bodenheimer 1975).
Public hospitals have contributed enormously to the well-being of this country. Especially in the period between the 1920s and 1940s, they served as major innovators for health care and public health (Cihlar 1970). They morphed from the almshouses of the 1800s into sophisticated places of healing during the 1930s and 1940s, and concerns about their sustainability appeared in the late 1960s after the initiation of both Medicare and Medicaid. The 1970s saw the “rapid deterioration of public hospitals, especially those in metropolitan areas of the country” (Breslow 1970: 44). Even some of the nation's oldest and most famous public hospitals could not escape the trend and closed, including the aforementioned Philadelphia General Hospital in 1977 (Alexander and Rundall 1985). The crisis worsened over time: between 1985 and 1995 the number of public hospitals in the United States declined by about 500 hospitals, or 14% (Legnini et al. 1999). By 2005, only about 1,100 public hospitals were left, most of which were rural (73%) and smaller than 100 beds (69%); more than 80% were smaller than 200 beds (Regenstein and Huang 2005).
I argue that the major drivers of these developments have been policy decisions made outside of local communities. Specifically, the creation and implementation of various coverage extensions, most prominently Medicare and Medicaid, by federal and state governments triggered a movement to close public hospitals across much of California and the entire United States.
Yet not all local governments have closed their hospitals, and those that did close their hospitals did not do so at the same time. Why, then, when confronted with the same exogenous shock, that is, the implementation of extensive coverage expansions such as Medicare and Medicaid, did some counties choose to close their hospitals over time while others decided to keep theirs open? I argue that, with the expansion of public health insurance programs and federal and state health services offering a plausible alternative in terms of addressing legal and public safety requirements, some cities and counties readjusted their stance toward their public hospitals. The resulting closure patterns can be explained by expectations about redistributive policy making (Peterson 1981).
Naturally, this process was not instantaneous in the face of the power of status quo, loss aversion, and endowment effects (Kahneman, Knetsch, and Thaler 1991) and other cognitive and institutional limitations (Jones 2001; Jones and Baumgartner 2005). The establishment of near-universal coverage under the Affordable Care Act (ACA) may encourage this drift even further. Thus, the ACA may provide further impetus for local communities to shed the few remaining public hospitals.
California serves as good test case for hypotheses about redistributive policy making for a variety of reasons. For one, California's network of county hospitals reached near-universal coverage by the 1920s and 1930s (Blake and Bodenheimer 1975; California State Assembly Committee on Health 1976; Ways and Means Committee 1980). In addition, California has generally proved eager to take advantage of opportunities toward coverage expansion offered by the national government (Greenfield 1970; Ways and Means Committee 1980). Moreover, a significant amount of information reaching back to the early settlement of the state is still available to inform the analysis. Finally, relatively extensive data collection by state and local governments allows quantitative testing going back to the 1960s.
In the next section, I present an overview of the developments surrounding county hospitals in California. I then present a quantitative test of redistributive hypotheses about the closing of county hospitals (Peterson 1981). I conclude by connecting my findings to present-day policy making related to the implementation of the ACA.
I found strong evidence that the creation and implementation of a series of coverage extensions by state and national governments significantly altered the calculus of local governments with regard to the operation of public hospitals. Reforms at the state and federal levels over subsequent decades further encouraged this shift. Because of these shocks, many counties decided to close their hospitals. Moreover, as expected by the redistributive theory, closure decisions were not driven by community need or even the cost of the supplying the service. Instead, they resulted from the fiscal capacity of localities: counties that could afford public hospitals continued to maintain them, while poorer, needier counties closed them.
The Rise and Decline of Public Hospitals
The Emergence and Prospering of Public Hospitals
Coping with indigents was a particular challenge for public policy in the settlement and development of California because the state's early history involved accidental explosive growth. The Gold Rush brought with it not only enormous population growth but also an incredible array of social and health problems (Cahn and Bary 1936; Greenfield 1959; Institute for the Future 1997). It is not surprising that major migration termini like San Francisco and Sacramento, as well as mining areas, were confronted with many challenges. At times, the sick in San Francisco were simply housed in abandoned ships anchored in the bay (Goldmann 1945). Nonetheless, the California constitution and subsequent acts by the legislature specifically rejected the adoption of English poor laws as the foundation of public welfare provision (tenBroek 1957, 1958). Indeed, early state policy makers generally failed to assign the duty to care for the indigent to any specific level of government while over time providing ever more expansive, discretionary, and permissive grants of authority to local governments to fill this role, particularly with regard to medical care (Carey 1973; tenBroek 1957).
Overwhelmed by the more than 500 ships that made port in San Francisco in 1850 alone, both national and state governments established various hospitals whose services were supplemented by contractual arrangement with private doctors (Cahn and Bary 1936; tenBroek 1958). However, the state soon abandoned the direct provision of care except for the mentally ill (Cahn and Bary 1936). At the same time, the Poor Law of 1855 vaguely authorized—but did not require—counties to provide for the indigent (Institute for the Future 1997). The state also authorized a subsidy program to support counties in this endeavor (Cahn and Bary 1936; tenBroek 1957). In response, counties began setting up hospitals, often as a mixture of farm, poor, and old folks' home and hospital (Cahn and Bary 1936; Shonick 1984). Before 1860, hospitals were established in the counties of Trinity, Nevada, Siskiyou, Sacramento, San Francisco, and Santa Clara (Cahn and Bary 1936: 141).
Substantive revisions of state law in 1860 further strengthened county powers and discretion to take measures to alleviate the suffering of the indigent sick “whenever, in their opinion, such a measure will be advantageous” (quoted in tenBroek 1957). By 1870, Alameda, Sierra, Placer, Yuba, Solano, Del Norte, Lassen, Los Angeles, Sutter, and Tulare Counties followed the earlier example of other counties and established public hospitals (Cahn and Bary 1936: 142–43). The County Government Act of 1883 further empowered, but again did not require, county supervisors to care for the indigent sick and, in addition, to relieve the “otherwise dependent poor of the county” (quoted in Cahn and Bary 1936: 171). Going even further, the Pauper Act of 1901 held counties responsible “for the care of the indigent sick, the aged, the blind, and those otherwise physically disabled” (146). However, not until the mid-1930s did the state explicitly assign the role as medical providers of last resort to the counties (Institute for the Future 1997).
In summary, during the first 80 years of statehood, California policy makers established a system that assigned much authority, but little responsibility, to local governments to maintain public health in their communities. Indeed, county leaders were offered significant discretion in addressing their vast public health needs arising during the Gold Rush from a workforce that was largely male, foreign, and single, combined with a dearth of charitable or fraternal infrastructure to substitute for public action (Cahn and Bary 1936: 144). Confronted with significant challenges to public health and free to choose a variety of arrangements to fit local circumstances, by the turn of the century counties settled on the establishment of public hospitals. Indeed, by 1904 counties had established 59 hospitals, and by the start of World War I all but the smallest county had become direct providers of hospital care (table 1).
As medical technology advanced in the early part of the 1900s, county hospitals, like their private cousins, emerged into true places of healing that we associate with hospitals today (Greenfield 1959). Their emergence as advanced providers of care followed just after efforts to provide universal health insurance to all Californians had failed in the 1910s (Greenfield 1961). In the aftermath of the defeat, counties continuously upgraded and expanded: by 1935, 35% of hospital beds in the state were in public hospitals (Institute for the Future 1997). Indeed, in some places, such as Kern County, public hospitals began actively to court private clients, leading to law suits by private doctors. The courts sided with the doctors in 1936, declaring eligible for public care only the indigent sick, the partially indigent, psychiatric and other custodial cases, physically handicapped children, tuberculosis patients, contagious cases, county employees injured during work, and emergency cases (Greenfield 1959: 33). Three years later, the court softened some of the restrictions (Blake and Bodenheimer 1975: 12; Greenfield 1959: 33). Even so, counties continued to expand their hospitals, reaching 66 hospitals operating in 1965 (Abbott et al. 1982; Institute for the Future 1997). Nationwide, encouraged by Hill-Burton funding and the experience of the Great Depression, the number of public hospitals almost doubled from 875 in 1946 to 1,453 in 1965 (Friedman 1987).
While county hospitals were thus largely confined to serving the indigent poor until the advent of Medicaid and Medicare, their public health functions and their benefits to the community were much more extensive, making them truly “housekeeping functions” of local governments (Peterson 1981). In addition, they provided services to the blind, the deaf, the disabled, the aged, and the mentally ill (California State Board of Charities and Corrections 1915; California State Department of Public Health 1945). Yet, their services benefited not just those directly served. Rather, by containing contagious diseases and epidemics, such as smallpox, tuberculosis, typhoid, and leprosy, as well as common venereal diseases, they ensured the well-being of the entire community (California State Board of Charities and Corrections 1915; California State Department of Public Health 1945). At the same time, they trained medical providers and provided care to prostitutes (California State Board of Charities and Corrections 1915; California State Department of Public Health 1945). They provided health education to mothers and vaccinations and screenings to all members of the community while housing the aged and chronically ill in nursing facilities and taking care of prison inmates (Greenfield 1959). With employment needs often relatively large, they also had positive local economic effects (Cihlar 1970; Davis and Plumley 1939; Dowling 1982). Moreover, they offered a significant amount of patronage and employment opportunities (Friedman 1987).
Ultimately, virtually all citizens could fall back on access to well-developed, quality care offered by a network of county hospitals even before state government codified the counties' ultimate responsibility in the 1930s, provisions that remain in effect today (Institute for the Future 1997).1 And with medical advances having dramatically altered the capacity of hospitals to save lives (Rothman 1993), everyone's conscience was clear: everyone had access to the public hospital.
Altering the Calculus of Local Government: From the New Deal to Medicaid
Although the national government had, to a certain degree, long participated in the provision of health and medical care—for example, through the Chamberlain-Kahn Act of 1918 for venereal disease programs and the Sheppard-Towner Maternity and Infancy Protection Act of 1921 for mother and infant health (Haeder and Weimer 2015a)—a significant expansion of its activities did not occur until the implementation of various New Deal programs. Programs under the Public Works Administration and the Works Progress Administration allowed for upgrades to many county facilities (Meriam 1946; J. K. Williams 1939). More important, various programs were implemented through a variety of shared-governance arrangements (Haeder and Weimer 2015a). These extensions “set a precedent for increased participation of state and federal governments in financing medical care for the needy” (Greenfield 1958: 25).
On the one hand, this entailed the temporary establishment of a number of support programs for able-bodied adults. Subsequent programs included the Reconstruction Finance Corporation, the Federal Emergency Relief Administration, the Civil Works Administration, and Works Progress Administration (Greenfield 1958; Haeder and Weimer 2015a; Macmahon, Millett, and Ogden  1971). Particularly Rule and Regulation 7 issued by the Federal Emergency Relief Administration encourage the provision of medical care (Bernard and Feingold 1970; Bierman 1954). A focus was on the health of farmers and farmworkers, as well as their families, who received assistance from the Resettlement Administration, the Farm Security Administration, or the War Food Administration in the form of either government-subsidized prepayment or insurance programs or direct services through facilities staffed by government providers (Grey 1994; Haeder and Weimer 2015a; Mott and Roemer 1945; R. C. Williams 1939).
On the other hand, the national government, mainly through the Social Security Act of 1935 and amendments to it in 1946, 1950, 1956, 1957, and 1958, continuously enlarged eligibility and national spending for the coverage for medical and nursing care of certain groups of individuals, including mothers, children, the disabled, the elderly, and the blind (Children's Bureau 1956; Derthick 1970; Goodwin 1960; Greenfield 1958; Haeder and Weimer 2015a). Shared-governance arrangements require two willing partners, and the national government found that partner in the State of California, which took a leading role in the expansion of medical care for its residents. Particularly after the Social Security Act amendments in the 1950s, state policy makers implemented available programs, at times even exceeding the eligibility limits written into national law (Brown, Brubaker, and Lovell 1966; tenBroek 1958). Most prominent, California established the Public Assistance Medical Care Program in the late 1950s to take full advantage of national matching funds under the Social Security Act, which extended coverage for categorically linked individuals, that is, those receiving benefits under the Social Security Act, such as children, the blind, and the disabled (Greenfield 1959, 1970; Shonick and Roemer 1983; Workman 1977). The new program expanded on previous, more limited programs that had provided medical care coverage for a subset of these individuals (Greenfield 1959). It also provided for nursing home coverage (Greenfield 1961).
This commitment was further expanded with the Kerr-Mills Act of 1960 and subsequent amendments that also substantially broadened eligibility and provided unlimited matching funds (Bernard and Feingold 1970; Fine 1998; Moore and Smith 2005). California was one of the first states to implement Kerr-Mills and provided some of the most generous and extensive benefit packages (Schwartz et al. 1978). It was also during this period that California permitted the creation of prepaid insurance plans, which, combined with policy decisions by the national government during World War II, allowed for the significant expansion of employer-provided health care in the state (Greenfield 1961; Institute for the Future 1997; Kelch 2005). Amendments also expanded medical vocational rehabilitation services (Greenfield 1958), which had previously been established under the Barden-La Follette Act of 1943 (Berkowitz 1981; MacDonald 1944; McCahill 1948). During World War II Congress authorized the Federal Emergency Maternal and Infant Care Program, which provided funding for medical and hospital care for families of servicemen (Velsor-Friedrich 1996) and subsequently transitioned into the Department of Defense Dependents' Medicare and Tricare/Civilian Health and Medical Program of the Uniformed Services programs (Brewster 1958). Again implemented by shared governance, medical care was first supported either by cash payments or by direct payments to medical vendors or insurers (Greenfield 1958). Finally, Congress also sought to leverage nongovernmental support through the Hill-Burton program in 1946, which offered funding support to public and not-for-profit hospitals in exchange for a vague commitment to serve needy individuals (Brown 1981).
The aforementioned slew of programs certainly enlarged the responsibility of state and national government in the provision of medical care for the needy. Yet it was the passage of the amendments to the Social Security Act that established Medicare and Medicaid in 1965 that proved to be the pivotal event in the decline of California's county hospitals. Medicaid shifted responsibility for nonaged categorical welfare recipients from local to federal and state governments (Thompson 1981). At the same time, Medicare transferred some of the responsibility for the aged to the national government. Both programs allowed former county hospital patients, at least theoretically, to move into the private market by providing a funding source for their care (Blake and Bodenheimer 1975). And initially, many private providers were eager to treat these patients, particularly those with Medicare coverage, because the programs came with little oversight or restrictions (Blake and Bodenheimer 1975). The resulting injection of public monies into the system also spurred a construction boom at private facilities by providing revenue for debt service (Kisch and Gartside 1968).
Medicaid and Public Hospitals in California
At the time of its establishment, California's Medicaid program, Medi-Cal, was one of the most generous in the nation for its beneficiaries (Brown 1981). Moreover, it was also beneficial for counties and their hospitals. The initial implementation shielded counties from any further financial contributions to the costs of indigent care; indeed, it was set to reduce them dramatically over time (Schwartz et al. 1978). The understanding that Medicaid was to provide care for only a relatively limited portion of those in need was acknowledged, and counties were expected to continue to provide for indigent care through their hospitals (Brown 1983; California State Assembly Committee on Health 1976; Schwartz et al. 1978). With a shrinking financial burden and permissive Medi-Cal legislation, many county hospitals were eager to rebrand their county hospitals as “community” hospitals and invested heavily in their facilities (Blake and Bodenheimer 1975; Institute for the Future 1997; Ways and Means Committee 1980; Workman 1977). Many counties saw themselves on the road to developing their hospitals into an integrated community facility (Greenfield 1961). Many counties also invested heavily in improving technology and care (California Legislative Analyst's Office 1974; Workman 1977).
While lacking in amenities, the vast majority of hospitals were providing quality care to the patients (California State Assembly Committee on Health 1976; Commission on California State Government Organization and Economy 1976; Shonick and Roemer 1983; Ways and Means Committee 1980). This included accreditation from the Joint Commission or the California Medical Association (Ways and Means Committee 1980). Hospitals also served as centers for responses to public health crises or large-scale emergencies (California State Assembly Committee on Health 1976). Indeed, the most comprehensive study of county hospital facilities paints a picture of almost exclusively modern, sophisticated hospitals with a wide variety of associated specialty clinics by the late 1950s (Greenfield 1959). Often, county hospitals provided services that no other local hospital could provide, including burn, trauma, and neonatal intensive care units (Commission on California State Government Organization and Economy 1976; Schwartz et al. 1978). There is also some evidence that the cost of care may have been lower in county facilities (Brown 1983; Cameron and Hafkenschiel 1980).
Yet, county facilities were not without their share of problems. Most of these had become apparent before the inception of Medicare and Medicaid. Administrative and management issues were common (Kress 1971). At times staffing proved challenging (California State Assembly Committee on Health 1976). The particular clientele served by county hospitals, many of whom were labeled as “undesirable” by private providers, certainly posed a slew of challenges (California State Assembly Committee on Health 1976). Similarly, at times counties could not keep up with developments in the broader hospital world, particularly with respect to amenities patients came to expect (California State Assembly Committee on Health 1976; Commission on California State Government Organization and Economy 1976; Shonick and Roemer 1983; Ways and Means Committee 1980). Keeping up with ever-growing health care costs worsened these issues, as did the massive influx of public money in the construction and expansion of competing private facilities throughout the country (California State Assembly Committee on Health 1976). Nonetheless, by and large, county hospitals were able to provide quality care to all comers.
These generally halcyon days did not last. The first cutbacks to the Medi-Cal program occurred in 1967 under the Reagan state administration. These cuts severely restricted services and benefits before the courts deemed them illegal (Blake and Bodenheimer 1975: 22). At the same time, a report by the state attorney general lambasted unethical behavior by providers who were milking the system through unnecessary procedures (Blake and Bodenheimer 1975: 22). The Reagan administration soon made a second attempt to curtail the program by lowering eligibility, requiring preauthorization for hospitalization, and slicing physician fees; it took another six months for courts to rule the cuts illegal (Blake and Bodenheimer 1975: 25). Eventually, the Reagan state administration was able to obtain the first ever waiver to restrict coverage from the federal Nixon administration (Blake and Bodenheimer 1975: 25). The uncertainty sown by these actions scared many of the already limited number of private providers treating Medicaid patients out of the program and pushed these patients back into the arms of public hospitals (Gartside 1971; Kress 1971).
The true watershed moment occurred with the Medi-Cal Reform Act of 1971 (Blake and Bodenheimer 1975). While extending Medicaid coverage to the medically indigent (Johnson 1986), it simultaneously lowered reimbursement rates, introduced capitation arrangements, and increased the burden of bureaucratic procedures (Schwartz 1977; Workman 1977). Most important, counties and county taxpayers were no longer shielded from the financial implications of Medicaid implementation, as they were now required to participate in matching payments for the state Medicaid program. The cutbacks further reduced the incentive for private providers to treat Medicaid patients (Gartside 1971; Kress 1971). Over the next decades, pressure would continue to mount as reimbursements continued to shrink, taxpayer funding continued to dry up, and the welfare state retrenched (Haeder 2010; Workman 1977).
With costs exploding and rampant taxpayer unrest, counties moved to divest themselves of their redistributive county hospitals (Roemer and Shonick 1980; Shonick 1981; Weiner and Puhy 1978). Even hospitals with increases in admissions exceeding 20% found their doors closed (Blake and Bodenheimer 1975). In some places, hospitals that had just been built were shut down (Blake and Bodenheimer 1975). The Monterey County hospital, which had the only dialysis unit in the county, closed (California State Assembly Committee on Health 1976). Humboldt County closed “the best acute medical faculty in the county” (Jerome Schwartz et al. 1978: 53). Yet while the state had never lifted the county obligation to provide indigent care, few made serious, if any, arrangements to meet their responsibilities in the wake of these closings (Blake and Bodenheimer 1975). Moreover, similar to Hill-Burton, these obligations proved almost impossible to enforce by community advocates and patients (Workman 1977).
Simultaneously, as financial pressure was mounting on counties, health policy leaders in the state still emphasized the important role county hospitals continued to play as an “indispensable part” of the state's health care system (California State Assembly Committee on Health 1976: 64). The calls to strengthen county hospitals were ubiquitous (California State Assembly Committee on Health 1976; Commission on California State Government Organization and Economy 1977; Ways and Means Committee 1980). County hospitals continued to play outsized roles in terms of overall beds (California State Assembly Committee on Health 1976), provider training (Brown 1983; California State Assembly Committee on Health 1976), and Medicaid patients (Bernard and Feingold 1970; Brown 1983; Commission on California State Government Organization and Economy 1976; Ways and Means Committee 1980; Workman 1977).
Political scientists and public policy scholars have produced a slew of policy typologies (see, e.g., Lowi 1964; Wilson 1973). One proposed by Paul Peterson (1981) is particularly useful for understanding changes in local government policy ushered in by changes to state and national policies. Local policy making operates differently from state and national policy making because, to a significant degree, local governments are “creatures of the state” and subject to greater external constraints and influences. Because of the openness of their economic and political systems, local governments are primarily concerned with the economic effects of their policies. As a result, “local policies are treated differentially, depending upon their impact on economic vitality of the community” (Peterson 1981: 41).
According to Peterson, policies and their related politics can be classified into three relatively distinct policy types that align on a continuum ranging from redistributive policies at one end to developmental policies at the other end, with allocational policies somewhere in the middle. Redistributive policies incur net losses for the community: “Redistributive policies benefit low-income residents but at the same time negatively affect the local economy” (1981: 41). Redistributive policies involve a net transfer of wealth from taxpayers to recipients of the service. They are merely provided at a level that the community can afford: redistribution is confined to those communities with significant economic resources in terms of their fiscal capacities. At times, redistributive policies may be pursued on a limited scale if the effect on local taxpayers is modest. Neither supply factors nor need have much of an effect on the provision of these services. At the local level, redistributive policies include welfare expenditures and low-income housing.
Diametrically opposed are developmental policies that enhance the economic position of the community: the community receives positive net benefits from them—they pay for themselves (Peterson 1981: 41). As a result, the fiscal capacity of a community will have only a negligible effect on the provision of these types of policies as even communities with fewer resources seek to pursue them. However, demand factors play an important role and supply factors a moderate role. At the local level developmental policies include such issues as infrastructure, tax credits, or the creation of independent authorities.
Finally, “allocational policies are more or less neutral in their economic effect” (Peterson 1981: 41): they fall near the midpoint of the continuum between redistributive and developmental policies. Peterson described these polices as the “housekeeping services” of government: all members of the community benefit from them in important ways without significant transfers of wealth. Allocational functions do not necessarily pay for themselves, but their beneficial effects spill beyond the community's neediest. Peterson included fire and police protection and garbage and refuse collection in this category.
Fifty years ago, California's public hospitals reached 98% of the population (Shonick 1981). By 2012, only 12 counties in California had public hospitals left. Figures 1 and 2 illustrate the developments in the number of counties with a public hospital from 1850 to 2012. The continuous and cumulatively significant coverage expansions by state and national governments beginning with the New Deal and culminating with the passage of Medicaid and Medicare and their subsequent amendments substantially altered the policy calculus of county governments with respect to the provision of public health to their communities. The state and federal governments offered willing county governments a plausible alternative—and moral and legal argument—to rid themselves of an often unwelcome redistributive function of local government for two major reasons.
First, public hospitals were no longer essential for community safety and well-being because private entities, partially funded by the various levels of government, offered an alternative means of provision. Private hospitals, both for profit and nonprofit, proved willing to treat individuals covered by Medicaid and Medicare. Medicare in particular also allowed community hospitals to make major investments in their campuses and allowed for significant and consistent technology upgrades. At the same time, state and national policies had led to the creation of a rapidly expanding private health insurance market and employers provided coverage to more and more employees. In combination, many public health functions such as vaccinations shifted to private providers. In addition, nursing home care triggered a boom in private nursing home development, which eliminated the need for another previously crucial county hospital function.
Adding populations to Medi-Cal, Medicare, and its predecessors reduced, but arguably did not eliminate, the need for county hospitals because state and federal governments were taking over part of this function. Funding and coverage have remained incomplete (Engel 2006; Starr 1982; Stevens 1989). Importantly, these expansions did not fully replace the role of county hospitals. Indeed, county hospitals were mostly left burdened with those “residual” indigent deemed undeserving of medical coverage, leading to ever-growing taxpayer resentment in the face of rising costs (Weiner and Puhy 1978). Unfortunately, these residual indigent included literally millions of un- and underinsured individuals throughout the state. In California, the initial enthusiasm by private hospitals for providing care for Medicaid patients ebbed, and county hospitals also continued to provide much of the care for patients who had been expected to enter “mainstream” medicine (Ways and Means Committee 1980).2 Indeed, “undesirable” clients with needs beyond medical care found themselves unwelcome in many private hospitals (California State Assembly Committee on Health 1976). Patient dumping by private hospitals onto their public cousins became common (Roemer and Mera 1973). Over time, the transition was further accelerated by successive coverage expansions through existing programs or by addition of new programs like the State Children's Health Insurance Program (Haeder 2010; Haeder and Weimer 2015a).
Second, the coverage expansions offered counties unwilling to maintain their county hospitals with the moral, legal, and political arguments to justify closure. Indeed, the passage of Medicare and Medicaid provided the cover needed by counties to rid themselves of their remaining legal requirement to provide care for the indigent because it allowed them to argue that those requirements were met by state and national government programs, leading to a reduced local role (Stevens 1989). As Stevens (1989: 313) put it, “responsibility was being displaced upward,” at least in theory. Some even argued that the need for indigent care was eliminated by these coverage extensions, thus liberating them from any responsibility (Haeder 2010).3 Litigation to disabuse counties of these notions developed only slowly and continues to be contentious today.4 Perhaps most important, the knowledge that federal programs existed for the “truly needy” gave county officials (and taxpayers) a clear conscience, a notion further nourished by conservative cost cutters (Engel 2006; Starr 1982; Stevens 1989). The perceived availability of charitable organizations to fill any gaps, albeit quite incompletely, further allayed concerns about care for the indigent (Rothman 1993).
The tremendous fiscal pressures on local governments that were to develop starting in the 1960s only facilitated, even encouraged, these arguments. Medical inflation nationwide was tremendous (Engel 2006; Starr 1982). In California, between 1965 and 1970, Medi-Cal expenditures exploded by an incredible 500% (Schwartz 1977: 6). By 1971, California's Medicaid expenditures had reached $1 billion annually (Brown 1981: 12). Health costs for counties almost tripled from fiscal year 1966–67 to fiscal year 1973–74, from $284 million to $649 million (Schwartz et al. 1978: xii). And the situation only deteriorated after the aforementioned 1971 Medi-Cal reforms. The precarious situation of county finances was further complicated by growing taxpayer anger at rising property tax rates even before the infamous Proposition 13 passed in 1978 (Workman 1977). County hospitals felt the pinch, while private hospitals started to benefit from public reimbursements (Shonick 1981).
In summary, the various coverage expansions by state and federal governments reduced to a certain degree, but not even close to completely, the need for county hospitals while providing plausible moral, legal, and political arguments for their elimination. As Starr (1982: 377) put it, as programs “made the indigent eligible for subsidized care in private institutions, they undermined the rationale for . . . government hospital services.” Thus, programs seeking to provide coverage to more Americans ended up financially weakening, even destroying, those institutions that had served these populations the most (Engel 2006; Starr 1982). No longer were public hospitals needed to keep everyone's conscience clear. Medicaid and Medicare had taken over that role.
Several developments in the provision of health care to indigents were unique to the situation in California. These developments should shape closure activities and thus the rate of closures over time. First, the effects of the passage of Medicaid and Medicare should not be immediate. As noted earlier, after the implementation of Medi-Cal, counties, and hence county taxpayers, were able to obtain significant concessions from the state that not only virtually insulated them from the costs of implementation but also actually temporarily reduced these costs. However, as counties were unable to hold on to these concessions beyond a few years, the effects of coverage expansion eventually reached counties and their taxpayers in the 1970s. Further, confronted with a string of county hospital closings, the state legislature reiterated the continuing responsibility of counties for indigent care in the middle to late 1970s through oversight hearings and provisions added to the health and safety code, which temporarily halted closures (Schwartz et al. 1978). However, after passage of Proposition 13 in 1978, which dramatically limited the ability of counties to raise revenue, and after the state shifted further responsibilities for indigent care to the counties in 1982, many counties opted to close their hospitals and enter into contractual arrangements with other local providers to fulfill their legal obligations (Brown and Cousineau 1987). With counties free to shape these arrangements, and with the state unwilling to intervene, access to health care became more arbitrary and subject to county budget considerations (Haeder 2010). Over time, a reduction in state allocations to counties further exacerbated the situation. Interestingly, although all counties were confronted with the same circumstances, they offered tremendously different responses with regard to their hospitals.
As Peterson (1981) pointed out, redistributive policies are driven by fiscal resources and not demand. Indeed, fiscal capacity should overwhelm all other factors. Richer counties have more resources and require a smaller tax effort to support their county hospitals (Peterson 1981; Terenzio 1978). Hence, local taxpayers have to bear a smaller burden is relative to residents in counties with fewer assets. To operationalize these calculations, the variable fiscal capacity thus measures the total amount of property subject to local property taxes.5
With regard to redistributive policies, supply factors should affect the provision of benefits only tangentially. The variable cost of supply thus measures the total amount of health care–related spending by counties, in thousands of dollars per capita. Counties in which the health-related expenditures consume an ever larger share of county expenditures may be more likely to abandon their county hospital. Feeling the pinch from rising deficits at their local public hospital, counties with higher spending should be more likely to close their hospital (Blake and Bodenheimer 1975). Moreover, operating deficits have long been associated with hospital closures (Sloan, Ostermann, and Conover 2003). In view of the soft budget constraints of public hospitals as creatures of their respective government owners (Duggan 2000), these measures should also serve as an indicator of perceived policy failure (Graddy and Ye 2008) when controlling for objective need. However, it could also be argued that higher health spending reflects a community's commitment to the poor (Graddy and Ye 2008).
According to Peterson (1981: 49), redistributive policies are driven by fiscal resources and not demand: “Because the need for redistributive policies is unlikely to be felt by taxpaying residents of the community, there is no way for the need to become translated into effective demand.” In short, the variable need for services or benefits should have a limited, possibly negative affect on local government decisions. A good measure of need is the amount of total public assistance spending per capita by each county, in thousands of dollars. This measure includes spending on welfare, social services, general relief, care of court wards, and veterans' services.6 Whereas in earlier times local public assistance spending was very much subject to local decision making, during the period of study public assistance spending was subject to local control only to a very limited degree. Moreover, most of the revenues dedicated to this function, particularly in California, are transfer payments from state and national governments subject to spending restrictions.7 As no good measure of insurance status exists at the county level going back to the 1960s, the measure should also serve as a proxy for the changing number of uninsured and underinsured (Streeter et al. 2011).
In addition to the variables derived from Peterson (1981), I included a variety of controls prominent in the policy termination and hospital closure literature. Attitudes about welfare may also play a major role in the decline of public hospitals. In view of the differences in party ideology between Democrats and Republicans after 1945 (Gerring 1998) and conservatives' preference for the private provision of goods (Savas 1982, 1987, 2005), I expect Democrats to exhibit more support for public hospitals. Moreover, it has been asserted that ideology is the most important factor affecting policy termination (Cameron 1978; DeLeon 1983; Harris 1997) and that it may have a significant effect on county policies (Choi et al. 2010). This effect should only intensify over time, particularly after 1978. The variable ideology is operationalized as the percentage of voters who registered under the Democratic Party label.
Budget pressure may also lead counties to push hospitals off their balance sheets while maintaining a degree of public character. California offers this opportunity through hospital districts, a form of special district with taxing authority made available in 1945. The variable hospital districts is the number of hospital districts in a county in a given year.
Large counties may also be better able to muster the necessary resources to maintain a county hospital. The variable population is the number of county residents in a given year, in millions of people. In view of the high correlation between hospital size and county population, this should also serve as indicator of vested interests in the form of organizational opposition (Graddy and Ye 2008).
Similarly, larger metropolitan areas, that is, county hospitals located in cities with a population exceeding 100,000, have also been associated with hospital closures (Alexander and Rundall 1985; Enright and Jonas 1981; Levine 1978). The variable urban hospitals thus indicates whether a county hospital is located in such a metropolitan area. While many nonprofit hospitals have followed their preferred clientele to the suburbs, public hospitals remained downtown, where socioeconomic conditions deteriorated (Alexander and Rundall 1985; Enright and Jonas 1981; Levine 1978). The urban environment also poses challenges to the operation of hospitals due to a variety of socioeconomic problems directly related to the provision of health care (Finley 1978; O'Rourke 1978). Hospitals thus find themselves in high-cost areas yet with low-income clients. Moreover, they are funded by a declining tax base because more affluent residents move to the fringes of town and into new enclaves (Terenzio 1978). Public hospitals, particularly in larger cities, have also long been alleged to serve as dumping grounds for indigents who did not fit into the client rosters of private facilities (Cihlar 1970). Private hospitals, particularly nonprofits, it is argued, often do not feel responsible for providing help for conditions they see as societal problems, including alcoholism, drug abuse, attempted suicide, trauma, mental disorders, incomplete abortion, and infectious disease (Goff 1980; Health Services Reports1972).
At the same time, problems may be compounded in rural areas by provider shortages, lack of transportation, lower reimbursements, and high operating costs (Alexander 1978; Alexander and Rundall 1985; Bindman, Keane, and Lurie 1990). A problem specific to rural hospitals has been their relatively small size, which often makes it harder for them to realize economies of scale (Hernandez and Kaluzny 1983). The variable rural county is an indicator coded 1 for counties that are part of the Rural County Representatives of California, an organization that represents the boards of supervisors of California's rural counties at the state and federal level, and 0 otherwise.
Public hospitals have a long tradition as teaching institutions for America's doctors. However, teaching activities create inefficiencies and thus lead to higher costs (Alexander and Rundall 1985; Shonick and Roemer 1983). Unfortunately, it is not practical to include teaching status as a covariate because the information is not available. Instead, I include the variable public medical school, an indicator coded 1 for counties with a public medical school, and 0 otherwise. Public medical schools are often eager to shed the restraints of county politics and tend to prefer full control over hospital operations (Blake and Bodenheimer 1975), and this has proven true for medical schools in California. As a result, the University of California took over public hospitals in Orange, San Diego, and Sacramento Counties. Hence, the presence of a public medical school should lead to swifter closure decisions. Often, this resulted in reduced access and services for indigent populations (for more details, see the discussion section).
Next, public hospitals also struggle to raise capital for improvements because they are often unable to go to the bond market independently or issue stocks (Legnini et al. 1999; Shonick and Roemer 1983). The results have been obvious, particularly with regard to the physical plant and technological advancements (Andrulis et al. 1996; Fraze et al. 2010; Hernandez and Kaluzny 1983; Shonick and Roemer 1983; Stewart 1978; Terenzio 1978; Tetleman 1972). The Hill-Burton hospital construction program offered an opportunity for public and nonprofit hospitals to obtain a 33% match from the federal government (Coleman 2005; Hoge 1946). Indeed, many counties used this opportunity to upgrade their existing facilities or build new ones (Health Care Facilities Service 1971; Lave and Lave 1974). The variable Hill-Burton funding measures expenditures on these construction activities, in thousands of dollars per capita. Following standard procedures, the measure is discounted annually by the Medical Inflation Index (Boardman et al. 2010). Higher rates of spending should make counties more hesitant to shed their hospitals because of the perception of sunk costs (Cameron 1978).
Another major determinant of county hospital closures should be the overall financial situation of the county (Frantz 1997; Graddy and Ye 2008; Kirkpatrick, Lester, and Peterson 1999). As described above, changes to the Medicaid program have placed a significant strain on county budgets. It has been argued that one of the major contributors to the decline of public hospitals has been the worsening fiscal situation of governments since the 1970s, which was brought about by high unemployment and inflation (Blake and Bodenheimer 1975). Fiscal problems also can serve as indicators or focusing events (Birkland 1997; Kingdon 2003). The variable debt service reflects the amount that counties spend annually to service their bonded indebtedness, in thousands of dollars per capita. Counties with larger debt service requirements should be less able to make major improvements to their hospitals.
Related but distinct from county hospital expenditures are monies spent on public health service functions by county governments (Blake and Bodenheimer 1975). The degree of spending may result from either a greater commitment by county officials to public health or to a greater local demand for public health measures. The variable county public health spending then accounts for annual county expenditures on public health services, in thousands of dollars per capita. Counties with larger expenditures should be equally more willing to maintain their hospitals due to either demand or commitment.
Finally, it seems reasonable to expect some regional diffusion effects with regard to the closure of public hospitals. Closure in a neighboring county may add additional stress on the hospital services of the remaining hospitals in adjacent counties. Because of the proximity of counties, welfare migration appears a plausible response. As a result, closure by one county in a particular region may trigger others to follow suit; a race to the bottom may ensue (Bailey and Rom 2004; Cary 1974). Dividing California into distinct regions is relatively straightforward. Based on the recommendations of the California Economic Strategy Panel, I initially created nine distinct regions: Northern California, San Joaquin Valley, Northern Sacramento Valley, Greater Sacramento, Central Coast, Central Sierra, Bay Area, Southern California, and Southern Border. Because of the small number of counties in the Southern California and Southern Border regions, and because they are no major underlying distinguishing characteristics or geographic boundaries, I merged these regions. The variable race to the bottom is the percentage of county hospitals in a given region that have closed.
Data for most of the variables were obtained from three sources. First, the Annual Report of Financial Transactions Concerning Counties of California (California State Controller 1964–2013) provided information on county finances, including debt servicing and health and welfare spending, population data, and tax rates. Information on hospital districts was also accessed through the Annual Report of Financial Transactions Concerning Special Districts of California (California State Controller 1964–2013). Voter registration information was obtained from the Report of Registration (California Secretary of State 1964–2013) issued by the California secretary of state. In addition, information about medical schools comes from the University of California. Information on county hospital openings and closures was obtained from a wide variety of sources, including the hospitals themselves, county governments, county historical societies, the California Office of Statewide Health Planning and Development, the Local Government Records Program at the Wisconsin Historical Society, and reports to the California legislature. Finally, a series of publications of county histories, as well as histories of California published in the late 1800s and early 1900s, filled in many gaps. An overview of the covariates is given in table 2.8
Event history analysis is a suitable technique for studying the closure of public hospitals in California because it allows us not only to assess what factors affect the termination decision but also to analyze their impacts temporally. Political scientists have used event history methods for several decades. Over the years applications have become more sophisticated, and political scientists have moved toward using more advanced approaches (Box-Steffensmeier and Jones 1997; Box-Steffensmeier and Zorn 2001; Zorn 2000). Event history analysis has been used in several of the few quantitative assessments of policy termination (Boin, Kuipers, and Steenbergen 2010; Carpenter and Lewis 2004; Lewis 2002). However, some of the most sophisticated models, Royston-Parmar models (Lambert and Royston 2009; Royston 2001; Royston and Lambert 2011; Royston and Parmar 2002), have yet to find widespread application in political science.9
Utilizing the covariates described above, I estimated a variety of Royston-Parmar models for my data, which covers the period 1965–2012. Following Royston and Lambert (2011), I estimated hazard-, odds-, and probit-scale models with a variety of different knots. Royston and Lambert (2011) advise researchers to utilize the Akaike information criterion and Bayesian information criterion to select the appropriate model. Coefficients are consistent across various specifications. Various models exhibit similar information criteria. However, the hazard scale model with four interior knots provides the best fit. For comparative purposes, I also display the results for the next-best-fitting model: the odds-scale model with five interior knots. Negative coefficients in the odds-scale model indicate decreased risk of failure, whereas positive coefficients indicate an increased risk of failure (table 3). In this application, a failure indicates the closure of a public hospital.
The expectations with regard to the main variables of interest are confirmed. The substantively most important effect is exerted by the fiscal capacity measure: more affluent counties are keeping their hospitals open longer. Similarly, as hypothesized, need for services, that is, public assistance spending, fails to exert a significant effect but is negatively signed. Finally, the cost of supply for the service is positively signed but does not reach statistical significance. A number of control covariates reached significance at standard levels. Risk of closure appears to be lower for counties with larger Hill-Burton funding and counties with higher county public health spending. In addition, a variety of covariates appear to increase the risk of hospital closure, including, most prominently, the existence of a public medical school. Regional effects are also present: the closing of hospitals in the same hospital region increases the risk for additional closures, that is, a race to the bottom. As expected, county hospitals in larger counties (population variable) are at a lower risk for closure, although the variable does not reach statistical significance at conventional levels. Finally, counties with a higher debt service, an urban hospital, with more hospital districts, and more liberal counties (ideology) are more likely to close but do not reach statistical significance at conventional levels. In short, my predictions about the effect of redistributive policies, mitigated by factors specific to hospitals and the California health care system, bear out: fiscal resources, not objective need or supply factors, drive the provision of public goods.
The Royston-Parmar framework offers additional benefits because it provides a variety of convenient ways to illustrate and present empirical findings. Looking at the survival curve and hazard rate (Figure 3) with all variables held at their mean or mode offers a meaningful measure to assess the closure of public hospitals in California and serves as a basic comparison case. As expected, the hazard does not monotonically increase; instead, the risk of closure increases slowly at first until a local maximum is reached just around the mid-1970s and decreases afterward until it begins to rise again in the early 1980s. From then on, the risk does indeed monotonically increase. In short, the expectations based on developments specific to California bore out.
Moreover, differences in hazard rates and survival curves over periods of time open up the true benefits of using event history analysis. Traditionally, this comparison has utilized Kaplan-Meier estimates. Others simply plot Cox model hazard rates at values of interest. Here I utilize the Royston-Parmar estimates to compare differences in survival curves across the entire data set, using 90% confidence intervals. To facilitate interpretation, I plotted the survival curves for relatively large, but realistic, differences in the respective covariate while holding all other values at their mean. Only the graphs related to my main variables of interest are included here.
Figure 4a presents the different survival curves for counties with high, medium, and low fiscal capacity while all other variables are held at their mean. As the graph indicates, a county's fiscal capacity exerts a substantively large influence on hospital closures: the survival curve for counties with large fiscal capacity barely dips, while the survival curve for counties with low fiscal capacity drops dramatically throughout the time period under observation. Figure 4b assesses whether the difference between counties with high and low is statistically significant—this is indeed the case throughout almost the entire period. It is also monotonically declining when significant. Interestingly, the difference becomes statistically significant around the period when California counties feel the major financial implications of the Medicaid expansion in the early 1970s.
At the same time, the survival curves for need show much smaller differences (fig. 5). However, the differences between high- and low-need counties never reach statistical significance and are also substantively much smaller than for fiscal capacity. Finally, the cost of supply does not reach statistical significance until the 1990s: figure 6 shows substantive differences that generally do not reach levels of statistical significance until the 2000s.
The various coverage extensions over time did much to alter the calculus of local governments about the continuation of their hospitals. As Peterson (1981) hypothesized, the decision to maintain a public hospital is driven by fiscal consideration and not objective need or cost. Naturally, the termination process is mitigated by factors specific to hospitals and the California health care system, as well as delay, to a degree, in view of cognitive and institutional limitations (Jones 2001; Jones and Baumgartner 2005; Kahneman, Knetsch, and Thaler 1991). The 1970s, just after the initiation of Medicare and Medicaid and the 1971 Reagan Medi-Cal reforms, were clearly a high point of closure activities. Where possible, as in the cases of San Diego, Orange County, and Sacramento, counties have turned their hospitals over to the University of California. They took advantage of the rapid expansion of the university system, which at the time was developing several medical schools and was in search of hospital space (Blake and Bodenheimer 1975). Even counties that have maintained their hospitals often closed smaller ones in order to focus on major facilities (Schwartz et al. 1978). Over time, as growing fiscal stresses on local government and the various coverage extensions provided a plausible legal and political cover to unwilling local governments, more and more counties closed their hospitals.
Why should we care about public hospital closures? For one, public hospitals play a major role in the US and California health care systems and have done so for a very long time (Brown 1978; Terenzio 1978). The hospitals in the remaining 12 counties, while amounting to only about 7% of capacity of the entire state hospital system, continue to exert a tremendous influence on health care in California. For example, they provide 22% of psychiatric beds, account for 28% of clinic and 9% of emergency visits, and provide training for 27% of all full-time-equivalent medical students (Office of Statewide Health Planning and Development 2013). Including the hospitals that are part of the University of California, public hospitals provide almost 60% of level 1 trauma care, almost 45% of burn centers, more than 60% of emergency psychiatric care, 11% of outpatient visits, and almost 50% of hospital care to the uninsured (California Association of Public Hospitals and Health Systems 2008). Moreover, California's public hospitals train almost 50% of California's doctors (California Association of Public Hospitals and Health Systems 2008) and provide 90% of outpatient indigent care (Bharucha and Oberlin 2009). In addition, California's county hospitals are crucial for special populations like farmworkers and people of color (California Association of Public Hospitals and Health Systems 2003).
Advocates for the privatization of public services have argued that we must differentiate between terminations of the production function versus provision function (Ferris and Graddy 1988; Greene 2002; Kolderie 1986; Niskanen 1971; Vining and Weimer 1990). This split is based on the conception that public action can be divided into public financing (public payment for public goods and services) and public production (public delivery of public goods and services). Proponents of privatization tend to emphasize that, to provide public services, all that is required is a mechanism for collective action to provide funding. In their eyes, government ought to be nothing more than an authoritative enforcer of collective decisions. However, in the case of county hospital closures in California, it can be argued that in many cases the termination of the production function is often functionally equivalent to the termination of the provision function. In particular, most counties without a public hospital have not entered into an agreement with private local hospitals to ensure the provision of care for the indigent (Brown 1981; Haeder 2010). Arguably, the closure of the public hospitals may thus serve as a first step toward the eventual disengagement from health care in general, and health care for the poor in particular, because the county loses a focal point as well as the vested interests advocating for the provision of adequate services (Haeder 2010).
Nonetheless, analyses of the effects of public hospitals closures are rare. Bindman, Keane, and Lurie (1990) conducted a comparative study of San Luis Obispo County, which kept its public hospital open, and Shasta County, which closed its hospital. The focus of their work was the impact of public hospital closures on health access and health status. They found a significant drop in health outcomes and health status, perceptions of access, and access to a regular provider of care, as well as major increases in wait times and denial rates for care. They also point out that patient care was hardly at the center of closure debates and that uncompensated care is significantly higher in areas with public hospitals. Findings with regard to access and uncompensated care have been confirmed by a variety of researchers (Desai, Van Deusen Lukas, and Young 2000; Thorpe and Brecher 1987, 1989). Closures have also led to a reduction in residency training spots and medical student rotations, particularly for students of color (Walker et al. 2008). They often also have major impacts on the local community and economy as public hospitals employ disproportionate numbers of minorities (Hernandez and Kaluzny 1983).
Triggered by a large number of “horror stories,” a number of studies have looked at so-called patient dumping—the transfer of costly patients from private to public hospitals—during the time of high closure activities (Ansell and Schiff 1987; Commission on California State Government Organization and Economy 1976; Roemer and Mera 1973). Two of these studies have focused on county hospitals in Alameda County. Conducted in the 1970s and 1980s (Himmelstein et al. 1984; Roth 1974), both studies show that thousands of these transfers occur annually. At times, the patients are transferred suffering from major ailments; some die during transport or at the county hospital. The studies also show the lack of insurance as the major predictor of transfers. They also indicate that patients often tend to be minorities and were generally sicker than other patients, requiring admission in more than 50% of the cases. Importantly, they also highlight the significant resource burden of these transfers. One study also highlighted how the hospital policies of at least one private hospital specifically call for the transfer of indigent patients to the county hospitals (Roth 1974). In addition, anecdotal evidence, including the deaths of patients, has been presented in various reports on California's health care system (Commission on California State Government Organization and Economy 1976; Workman 1977). Even University of California hospitals have been found to participate in the practice (California State Assembly Committee on Health 1976). Moreover, the university medical centers have significantly impeded access by indigents through a variety of administrative barriers (Blake and Bodenheimer 1975; California State Assembly Committee on Health 1976). The phenomenon is clearly national in scope (Ansell and Schiff 1987; Kellermann and Hackman 1988). The general hesitance of private hospitals to deal with so-called undesirables,10 that is, patients with behavioral disorders, addictions, HIV/AIDS, and so forth, has also been documented extensively (California State Assembly Committee on Health 1976; Commission on California State Government Organization and Economy 1976; Workman 1977).
Early Effects of the ACA
As detailed above, a series of state and national coverage expansions contributed significantly to the demise of California's county hospitals. Two components of the ACA hold significant potential to damage the survival of county hospitals further. First, the phase-out of disproportionate-share hospital (DSH) payments, the largest source of funding for uncompensated care in the United States, may significantly damage county hospitals, which rely extensively on the payments to make up for uncompensated care. Recent data indicate that only one county hospital made a profit without additional DSH payments (Office of Statewide Health Planning and Development 2013). The average DSH payment per county amounted to more than $100 million, while the average loss per county amounted to almost $75 million. Largely responsible for this deficit are bad debts and charity care, which average almost $115 million per county. Given the turmoil at the national level, the future of DSH payments continues to be uncertain.
Second, insurance marketplaces are intended to provide coverage for millions of Americans (Haeder and Weimer 2015b). However, selective contracting by carriers offering plans on the insurance marketplace, Covered California, may exclude county hospitals from their narrow, cost-conscience networks. Selective contracting under Medi-Cal has already proven a significant problem for county hospitals (Friedman 1984). A preliminary look at the provider networks offered at Covered California confirms these concerns (Haeder, Weimer, and Mukamel 2015). Only a single county hospital, Ventura County Medical Center, is part of all plans offered in the region. Only four other hospitals in Kern, Riverside, Contra Costa, and San Francisco Counties, are offered in more than 50% of Covered California plans in the respective region. While many Californians will gain access to medical coverage through Covered California and thus no longer leave hospitals with unpaid medical bills, county hospitals may not profit from this windfall. Even worse, California's more than two million undocumented immigrants are likely to continue to seek care in county facilities, particularly with expanded funding for federally qualified health centers coming to an end (Health Resources and Services Administration 2014; Johnson and Mejia 2013; Terenzio 1978). The creation of two new medical schools by the University of California may also put further strain on county hospitals.
Long before the establishment of Medicare and Medicaid or the passage of the ACA, California counties provided their poorest residents with access to relatively comprehensive, near-universal medical care. I analyzed the creation and closure of public hospitals in the state of California from the 1840s until 2012. I combined qualitative historical research and advanced event history analysis to assess what led to the creation of the nation's most comprehensive public health network and to its gradual demise over time. In particular, I utilized the experiences gained in the state of California to draw out potential effects for public hospitals under the ACA. I found strong evidence that forces outside the counties—the creation and implementation of state and national coverage expansions in California, particularly Medicare and Medicaid—significantly altered the calculus of local governments with regard to the operation of public hospitals. Reforms at the state and federal levels over subsequent decades further propelled this development. Because of this shift, many counties decided to close their hospitals. Moreover, as expected for redistributive policies, the operation of public hospitals is not driven by need or cost considerations but instead merely results from fiscal capacity (Peterson 1981): counties that can most easily afford public hospitals continue to maintain them, while poorer counties close their doors. Developments under the ACA may further exacerbate this situation, as may the creation of new medical schools by the University of California.
The question emerges of whether there is room for the public hospital in the 21st century. The closing of public hospitals has largely eliminated discussion about access to health care services from local politics and shifted it to the often distant state and national capitals. As a result, discussions about access and coverage have become abstract for many Americans. Yet millions remain uninsured, and there seems little chance for a quick or immediate remedy. The need for public hospitals thus persists. Yet, unquestionably, the localization of public assistance in all forms tends to lead to largely different benefit structures and eligibilities, often resulting in large inequities. However, the opportunity to provide different policies is part of the underlying rationale for federalism. What is needed is the setting of appropriate policy floors by supralevel governments in combination with appropriate funding mechanisms to overcome the most important inequities.
In the meantime, the consistent attempts by Republicans in Congress to reduce coverage provisions and turn the Medicaid program into a block grant should be cause for concern (Rocco and Haeder 2018). With many public hospitals a thing of the (distant) past, few local resources remain to mitigate the potentially large number of uninsured. With more and more hospitals struggling to survive, particularly in rural America, the public hospital may even see its reincarnation. Yet, today's health care system is vastly different from that of the early 1960s, arguably the high point of public hospitals. Perhaps, the most likely form is one of cooperation among public hospitals and their clinics, for basic and intermediate care, and state universities and their medical centers, to provide for more advanced care and supervision.
I thank David Weimer, Eric Patashnik, Jennifer Costanza, and the reviewers for providing substantial, constructive, and helpful comments and assistance that were of great help in improving and completing this article.
Indeed, the state legislature decreed that “every county . . . shall aid and relieve all able-bodied indigent persons and those indigents incapacitated by age, disease, or accident, when such indigent persons are residents of the county, and are not supported and relieved by their relatives or friends or by public or private institutions” (California Welfare and Institutions Code Section: 17000).
It seems that county hospitals generally saw a decline in patients only within the first year of establishing Medicaid; numbers bounced back quickly.
For example, when Madera County opted to close its hospital in 1972, the board of supervisors claimed that “the county had no more medical indigents” (Blake and Bodenheimer 1975: 69).
For example, the county of Fresno has been sued as late as the late 2000s over its provision of medical services, or lack thereof, to the indigent (Haeder 2010).
To facilitate estimation, the variable is measured in hundred billions of dollars.
As described in the Annual Report of Financial Transactions Concerning Counties of California (California State Controller 1964–2013).
The Annual Report of Financial Transactions Concerning Counties of California (California State Controller 1964–2013) nicely illustrates both points.
Social scientists frequently have to make trade-offs when using quantitative methods. These challenges only increase when the social phenomenon is studied over long periods of time, as is the case here. Several of the measures are compromises; at times proxies have to be used because no good measures are available consistently or at all. Nonetheless, I believe the long-term approach taken here has much to recommend it and offers an opportunity to study interesting policy questions.
A search for “Royston-Parmar” in 25 major political science journals returned only one citation: Kim 2013. However, the author does not discuss the method in depth and eventually resorts to a traditional Weibull model.
As Roemer and Mera (1973: 36) put it: “These are the alcoholics (acute and chronic), cases of drug abuse and attempted suicide, serious trauma cases (especially due to personal violence or automobile accidents), psychiatric disorder cases (associated with senility or otherwise), gonorrheal salpingitis, incomplete abortion, infectious tuberculosis, or other communicable diseases. The patients sent from the voluntary to the public hospitals are the poor, the aged, the black, the socially deviant young or old—with almost any diagnosis. These are the patients that constitute the heavy load which public hospitals must bear.”