In 1942, Harry Bakwin deduced that hospitalism was caused not by the institutions themselves, but by "emotional deprivation". That is, people--especially children--need things like touch and human contact. Back then, these things were frowned upon by many as unnecessary, overly sentimental, and possibly unsterile.
The results of this were such that when Henry Chapin, studying infant mortality rates in 1915, discovered that in nine out of the ten orphanages he asked for statistics, every child died before the age of two.
I tried searching for more information, but apparently the majority of the stuff's in Japanese, and I can't glean much from their discussion of hosupitarizumu.
Hospitalism is also an ism that refers to doctors who treat hospitalized patients exclusively (and not, say, outpatients).