Hospitals are becoming part of the problem

By Jack E. Lohman

There are three major problems with our current hospital structures:

1) For-profit status:

    They are converting taxpayer-owned non-profit hospitals to shareholder-owned for-profits. This converts taxpayer assets to shareholder assets without their paying the full price for those assets. Some shareholders pay 50% of value, sometimes only 10%, and the taxpayers lose the balance. This is “a transfer of taxpayer wealth from the many to the few.”*

    (Some hospitals start out as for-profit, or they are non-profit subsidiaries of for-profit corporations so they can get better tax breaks. Then they convert later. Blue Cross Wisconsin also converted to for-profit.)

    Once hospitals become for-profits, providing patient care is a “cost” coming off the bottom line. Where before they’d charge $100 and provide $90 in care, now they can cut their costs so $20 goes to the shareholders instead of $10 going to surplus for future spending. They do this by reducing nurse-to-patient ratios, using older technology while charging for new technology, etc.. In the process the CEO salaries and wealth escalate out of sight.

    Some cost reduction is good, some is unconscionable. Spending money on hospital advertising is absolutely stupid, as these costs filter down to the patient. And they aren’t even needed under a properly designed system.

2) Employment conflicts:

    Hospitals are now buying up physician practices so the doctors become employees of the hospital. Where the doctors once provided the oversight on hospital quality, they now get their paychecks from them. As well, the doctors are often paid a productivity bonus. That’s effectively a sales commission the hospital rewards the doctors on how well they keep profits coming in.

    The CEO casually says to Docs, “Hey, our bed utilization is low” or “our extra MRI machine isn’t getting much use” so (some) doctors admit more patients or order more MRIs, whether needed or not. The public then pays! Money that should be going to patient care now goes to shareholder profit.

    As well, physicians who previously would have admitted to another hospital down the street with better technology or lower infection rates, are now obligated to their own employer. Or they may be reluctant to refer outside of their own “physician system” to a better specialist. The public cannot be better off with this sort of conflict.

3) Overbuilding:

    Hospital B decides that they want more cash coming in. That’s profits, remember. So they build a new hospital in a suburb where Hospital A is the only one in town. Think Summit. Think Grafton.

    No, that’s not “competition.” In 100% of the cases where an additional hospital has moved in, PATIENT CHARGES HAVE INCREASED! Then they buy up some of the physicians who were sending patients to the old hospital, now making it underutilized and costs and charges go up at both hospitals! Yes, economies of scale work here too.

Gee, this doesn’t sound good, why do we allow this?

Simple. Hospitals and their trade associations, via their campaign contributions, bought the politicians that make or repeal the rules. That’s our democracy. Political campaigns are funded by special interests that want favors… instead of by the public the politicians work for. Campaign reform is just one solution.

What should politicians do now?

  1. Prohibit for-profit hospitals
  2. Reinstate the certificate of need
  3. Prohibit physician employment by hospitals
  4. Get rid of the wasteful insurance bureaucracy
  5. Prohibit hospital advertising
  6. Require the educating of employees on what medical fraud is, and the rewards and protections for whistleblowing.

Don’t get me wrong. Doctors, hospital CEOs and nurses should be paid well. Very well! But we don’t need the wasteful insurance bureaucracy and we don’t need profits driving patient care (or denial of care, as the case may be). Nor do we need the conflicts of interest now permitted.

I have great respect for physicians, but the worst thing they ever did was to turn their practices over to the MBAs. It is downhill from here, both for them and the public, unless the politicos get in there and fix the system. Even the hospitals themselves will suffer as medical tourism takes a bigger chunk of the elective business.

Profit almost always trumps values. Health care should not be a for-profit business.

* As David Cay Johnston would say in “Free Linch” …

Other Resources:

Ten needed fixes for the health care system

Is Canadian health care right for Wisconsin?

Health care and the free market

Big Pharma, the other elephant in the room

Paying for health care is not rocket science

Price competition in health care is a pipe dream

Competition in a publicly funded healthcare system

Many Doctors, Many Tests, No Rhyme or Reason

HSAs? Delaying the inevitable

Consumer-Directed Health Plans

Medical tourism

11 Responses to Hospitals are becoming part of the problem

  1. I like your points, but I don’t think you have thought through #3 enough.

    If hospitals were non-profit then working for them on a salary would not be a conflict of interest.

    Even if they remain for-profit, a strong code of professional ethics could make sure that the business side didn’t influence treatment decisions.

    Like much of what is wrong these days, it is that the oversight agencies and the regulations that were established in response to failures in the past have been subverted. So we see tainted meat, lead coated toys and harmful drugs being sold.

    All of this gets back to the fundamental problem, a non-functional democratic system. Electoral processes are biased against average people getting elected by the need for big money. As a results the interests of the majority are ignored: “he who pays the piper gets to pick the tune”.

    If you want to contribute something original to the discussion then focus on how we get from here to there. We understand the goals, it’s the implementation that is the problem.

  2. Thanks for the post, Robert. Working on straight salary where that does not fluctuate with volumes of admissions or MRIs, or there is not a “productivity incentive” paid, would avoid some conflicts of interest. A conflict could arise if a doctor sees faulty facilities or care and does not report it because he’ll look bad to his employer, or refers patients to an internal doc instead of one down the street who is better suited for the patient or whose hospital is better equipped. I’ve seen the “professional ethics” side of it fail, both with and without money being involved, so I would not count on that alleviating the conflicts.

    You are right. IT IS a non-functional democratic system. It is corrupt politicians that are being paid off to turn their heads and not fix the problem because their campaign contributors like the status quo. Thus the “implementation” is to first get the money out of the political system (through public funding of campaigns) and then sit back and watch! Our health care system will be fixed overnight, useless government spending will be reduced or redirected to public services, regulations will be imposed on the financial and mortgage industry, and, and, need I say more?

    And let me add that when a hospital CEO is paying your salary, and giving your performance reviews, it is pretty hard to be adamant about hospital deficiencies or pull your patients and admit them down the street if you aren’t happy. The temptation is to be compliant, or find another job.

  3. ezag says:

    More regulation? When I walk into a hospital or doctors office, I see an army of people not doing health care. They are managing forms and organizing to collect payments. Getting paid is harder each year. Reimbursements continue to decline.

    How long before those on government care can’t find a doctor?

    Medical tourism is a part of the solution as well as less regulation.

  4. I’m for a “regulated free market.” I’m not happy with the extreme “strong eat the weak” philosophy. It works okay when big fish eat the small fish and we have a few whales in the end, but humans should be a bit more compassionate. A quick look at what deregulation has gotten us to date should teach us that extremes don’t work well.

    The paperwork you note is the massive billing administration forced on hospitals by the insurance bureaucracy. A Medicare-for-all system would eliminate that, and with only one provider the reimbursements would have to be reasonable, especially if the politicians are also under it.

    Medical tourism will lose support as difficulties with follow-up care and medical errors come to light. Why would doctors who work for a US hospital want to involve themselves in error corrections for foreign hospitals?

  5. John says:

    The clearest way to the goal of getting money out of politics, and it’s corrupting influence, is to challenge the personhood of corporations. The fastest path is a lawsuit challenging the age old decision that mistakenly resulted in this ridiculous conclusion. I will leave it up to the legal minds to determine a harmed party.

    The other way would be to clearly present to the public the absurdity of the idea, and push for a clarifying Amendment. Corporate influence would stop any such movement though.

    Politicians should also write into any single payer legislation that health care is a “right” of all citizens. People identify rights. “Entitlement” is a conservative word to frame the issue as if it were an undeserved waste of taxpayer money to those who don’t want to work for their care. Another words, welfare.

  6. Yeah, I know John. I saw one blogger write that conservatives are all against welfare, unless it comes as an inheritance they don’t have to work for. Sounds about right to me.

    But the “speech” issue is well addressed in the public funding systems of both Arizona and Maine. Because the public grants are optional, and a candidate can opt to continue taking special interest money if they want, the clean money systems already pass constitutional muster. A lengthy amendment process is not necessary. We can have a clean money system tomorrow if the politicians wanted it.

  7. Derrick says:

    What’s wrong with sending patients to other countries for health care? If it reduces costs, isn’t that what we want?

  8. Thanks for the comment Derrick. Medical tourism is equivalent to outsourcing medical jobs to other countries. Many of us thought that at least our health care was sacred territory, but that is obviously not the case when it comes to insurance company and employer profits.

    CEOs — like John Torinus of Serigraph in West Bend — are excited about the prospects of sending employees for cheap health care in other countries, but the peripheral costs could offset those savings.

    Torinus has 700 employees, is a board member of WMC, and business journalist at the Milwaukee Journal. He has very legitimate concerns about health care costs, but my hope is that supporters of medical tourism first expose themselves to the practice before they send employees into the pit.

    Since suing a doctor or hospital for medical malpractice may be impossible in other countries, that helps reduce their costs. But the added costs of corrective measures in the U.S. must be considered. Or not, if the patient dies. And the costs of diseases picked up by a weakened patient on the return flight could complicate the legal case, if not the patient’s safety.

    But hospitals must consider their contribution in this issue. Do they really want this fallout? I think not, and believe they should correct the above items and embrace a single-payer healthcare system that will ensure their place at the top.

    David Newby, President of Wisconsin State AFL-CIO, wrote an excellent piece on Medical tourism and it is well worth the read. See it HERE.

  9. John says:

    If health care is ever going to change, then one Nobel Prize winning economists should be avoided. Check this from the Wall Street Journal and my commentary.

  10. John, I agree with you and your analysis. There are 45 million uninsured and an equal number of underinsured that will disagree with Fogel as well.

  11. […] Hospitals are becoming part of the problem […]

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