Irv Lichtenwald

The Haves are Still Winning in American Healthcare

May 7, 2019

Healthcare Industry 6 Minute Read

Ideology is a beguiling mistress. When she winks and showers rewards on the faithful, they’re much more likely to focus on successes over failures moving forward, even if the latter vastly outnumber the former.

My use of the word ‘ideology’ here is intentional. I come from rather humble beginnings and have experienced the benefits that a market-based capitalist system offers to those willing to work hard and color inside the lines. I’ve earned a level of prosperity my parents could only dream of.

And let’s not kid ourselves—nothing succeeds like success. As my personal net worth has increased, the opportunities have multiplied to increase it even more. Often without solicitation, I receive offers that I absolutely would not have had earlier in life—opportunities that are certainly not available to the masses. I understand why our system rewards the rewarded, but I also understand that it often penalizes the most vulnerable.

This is certainly true when it comes to healthcare, both for individuals and for hospitals with the greatest need.

Consider that a 2016 Health Affairs study found that 7 of the 10 most profitable hospitals in America are nonprofit, and that each made at least $163 million annually. That nugget was gleaned from a larger evaluation of profitability among 3,000 American hospitals, which showed that most LOST money from patient care alone.

Digging a bit deeper, Health Affairs identified the type of hospital that tends to be the most profitable. That hospital is big, urban, part of a health system and unencumbered by medical students, interns or residents. Note that non-profit status plays no significant role.

“Hospitals with relative monopolies in a region may be in stronger positions when attracting patients and negotiating with insurers and employees,” writes Bruce Lee in Forbes. “After all, if you are the only game in town, you may be able to charge higher fees and offer lower salaries and not worry about losing patients to competitors.”

According to the New York Times, what Lee frames as a possible downside of market dominance is fully confirmed now following a decade of increased mergers and acquisitions.

“The mergers have essentially banished competition and raised prices for hospital admissions in most cases, according to an examination of 25 metropolitan areas with the highest rate of consolidation from 2010 through 2013, a peak period for mergers.

“The analysis showed that the price of an average hospital stay soared, with prices in most areas going up between 11 percent and 54 percent in the years afterward, according to researchers from the Nicholas C. Petris Center at the University of California, Berkeley.”

It’s not just that these monopolistic pricing bumps are increasingly paid for by patients, though that is a concern. It’s also that large, growing health systems with little competition have the power to demand better terms from vendors, insurance companies, and just about any organization with which they do business. Indeed, these behemoths don’t always have to ask. Just as lenders and investment funds offer generous terms to compete for my business, so healthcare IT companies and insurers do the same with the Kaisers and Sutter Healths of the world. Already flush, the haves of healthcare become the have-mores.

Inured to the vagaries of a capitalist system—or in the case of healthcare, semi-capitalist in ways that benefit the few and nibble away at the many—perhaps you’re unconcerned about how mostly market-oriented approaches benefit select hospitals and health systems.

There are, however, two key products of this approach I think most will find concerning. The first is the previously mentioned increasing costs to patients, which many individuals and families are finding it nearly impossible to bear.

The second is that less fortunate but no less essential hospitals usually get none of the benefits offered their largely urban cousins. They simply do not command the market share of patients. They don’t have large endowment funds. Many are hanging by a financial thread, and if they go under, patients who used to travel 15 minutes in an emergency might have to go 60 minutes or more to find care. Many will die as a result. 

And for what will they die? Corporate earnings. I’ve had discussions with various vendors about how they price their hospital products. Invariably, these vendors give large hospitals and health systems discounts that are not available to the small, primarily rural hospitals with no negotiating power. Many of these vendors concede that the actual cost of doing business with these safety-net or have-not hospitals has little impact on price. Instead, these hospitals pay more because they don’t have the negotiating power that I have, that Partners has, that Mayo has. Should that mean they just go away?  

Which brings us back to that vixen, ideology, especially when defined as a set of ideals about the way things should be, not necessarily the way they are. The problem is that capitalism in relation to healthcare is an ideology poorly defined and inconsistently applied. We embrace the ideology where it succeeds and find scapegoats where it does not.

“Unfortunately, [I believe] the way you get things done [in a capitalist society] is to create greater value at a lower cost, but there is a malalignment between that and the idea that I am always going to take care of the sick,” says blogger Alan Pitt, MD. “That makes it super difficult to figure out how you build a healthcare system aligned with capitalism.”

As ideology, capitalism operates in a world of competing ideals, one of which is a robust citizenry enabled to live a vibrant life. Might capitalism be the best tool for achieving that end? It might be, but too many lives would be upended and potentially ended were we to make a dramatic transition now.

As one of the most influential economists of the twentieth century, Milton Friedman explained that America’s problem with healthcare costs was the product of a hybrid system in which unions (the AMA) and bureaucracy (government payment programs and licensure) made it almost impossible to control costs. He isn’t wrong from a purely economic perspective.

But I lack Friedman’s faith in the virtue of unfettered markets. Far too many players—both individual and corporate—benefit by creating market inequities, which in healthcare destroys lives.

Perhaps the answer is to treat capitalism as less of an ideology and more of an operating system—as something fluid and yielding instead of rigid and harsh. Technology is worming its way into every aspect of healthcare, after all.

For decades healthcare has debated the tension between care and commerce. It’s become a tired distraction from the chasm between the haves and have-nots. Our goals should have care as the preeminent value and commerce as a flexible, manageable, enabling operating system that uses ideas from a variety of perspectives. At this point, I’m afraid that ideological rigidity is going to bury us.

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