Yes, it's the insurance and drug companies, but it's the health systems also!

Much of the focus in discussions about the high (extremely high!) cost of the US healthcare system is on administrative costs (over 34%, per Annals of Internal Medicine article by Himmelstein, Campbell and Woolhandler)[i] and the profits taken by insurance companies and drug companies. This is totally right on, and are major reasons why a single-payer #Medicare4All system would save enough money to not only cover the tens of millions of Americans who currently do not have health insurance, but to provide decent, comprehensive coverage to the majority of Americans who have inadequate health insurance. This, of course, includes those who have marginal health insurance (like Blake Collie, an 8 year old boy with a cerebral aneurysm, whose parent bought a Christian insurance plan that was all they could afford, but would not pay for the treatment; the advice was “trust in God”), and those who have Medicaid, now aggressively being cut back, especially with new Trump Administration policies that allow states to slash it. And all the rest of us who pay large premiums but only find out what our insurance doesn’t cover and what our co-pays will be when we get sick. And then we get sicker.

In addition, we have Medicare Advantage (MA, also known as Medicare Part C) a deal which essentially can make a Medicare patient (for a little extra premium) an HMO patient.  For the patient this comes with the typical HMO advantages (such as vision and hearing and other coverages, and usually drug coverage so you don’t need a separate Part D insurance plan, and often little or no co-pay) and disadvantages (limited networks of doctors and hospitals, often poor out-of-area coverage), but it has real negative impact on the health system. MA programs get special treatment from the Center for Medicare and Medicaid Services (CMS), including a big increase in payments if they can demonstrate, with all the wizardry, bells-and-whistles, and large staff combing and padding the Electronic Health Record (EHR) that their patients are sicker. In fact, they are demonstrably less sick than traditional Medicare patients; indeed, the older and sicker MA patients are encouraged, subtly or not, to transfer to traditional Medicare. A recent article by Richard Kronick on the Health Affairs blog demonstrates that MA programs are being overpaid by $200 Billion. This is real money, and it is not by accident, as discussed by Don McCanne in his Quote of the Day.

But the less-discussed contributor to our high health costs are the hospitals and health systems that make big money. This is true even when those health systems are ostensibly not-for-profit. The for-profit hospitals and health systems are at least open about it, and they pay taxes. Non-profits do not pay shareholders, and also do not pay taxes. The presumed reason for this is because of the public service that they provide to their communities. But while this may be true of many small-town and rural hospitals, which are also in the most danger of closing and leaving their communities bereft of hospital care, it is often not at all the case for large urban health systems. They make money. For example, an interview on the NPR program “1A”, otherwise focused on the Peak Health System in Summit County, CO that has had some success in reducing costs in that rural tourist county, the Colorado insurance commissioner Michael Conway discusses the proposal for a “public option” in his state and notes that asking hospitals to give back a little is not too much for the urban hospitals making $2 billion a year (about 28 min in).

And, since they do not have shareholders to pay, the health systems reinvest most of the money they make into expanding hospital services or building new buildings. This could seem like a good thing, except that the choice of what services to expand is often (usually) based not on what services the community needs most, but what services will – make them more money! And, also, hopefully make them more desirable destinations for high-margin services than the other urban hospital systems with which they compete. So if, as is usually the case, cancer care and heart disease care and orthopedic care are big money-makers, they build fancy new cancer hospitals and heart hospitals and orthopedic hospitals to try to draw well-insured patients away from their competitors. Thus, we get redundancy and overcapacity in these high-end services in competitive cities, with each shiny new cancer center seeking to lure patients from the one that’s a few years older across town.

Meanwhile, these urban communities do have other, less lucrative, needs that are scarcely ever the target of major investment. In a rational system, the money made on those “profitable” services could be used to invest in and subsidize lower-profit (or in some cases money-losing) services that are in great demand in the community. These certainly include primary care, mental health/behavioral care, drug addiction treatment, and virtually any care delivered to poor or uninsured people. A reasonable health system would just subsidize this care, and not bill and dun people repeatedly for money that they do not have, and cannot and will not pay, ruining their credit, attaching their wages, and challenging their ability to pay for other things, like shelter, food, and clothing.

But privately-run health systems almost never work this way (even if “non-profit”) because their boards like them to make money. And reward them for making money. An article in GQ in April, 2019, reports that CEO salaries at our big health system are doing very well indeed; at the 62 largest, the 2018 salary averaged $18 million! The other “C-suite” executives (COO, CFO, CMO, etc.) are also very well paid; it would not be rare for a major hospital system to have 10 executives making over $1M a year. These CEOs are sometimes doctors, but often accountants or MBAs – basically they run their hospitals as a business, and often have no other context to relate to. When thinking about community benefit, they think of “community” as the “community of well-insured”, the “community of suburbanites”, and of course, especially the “community of potential donors” (cool that they can even get people to give them money and take a tax write-off!). They almost never think of the “community of need”. They are sometimes briefly interested as long as government will give them money for helping the needy, but return-on-investment (ROI) is always measured in dollars, not population health.

This is what happens when the private sector is given control of an industry; they pursue their own benefit. It is unconscionable that we do this in areas like health care which are needed by everyone. Virtually all decisions are made with their eyes on the bottom line. Is CMS going to pay for more residents? Let’s get more cardiology fellows to do procedures and make us money, not more family medicine residents who will go out and meet the needs of people, even if not in our hospital.

There are people who are concerned about government-run health care, and this spills over to their concern about government-financed health care, such as Medicare for All. The problem is that there is a status quo, and that status quo is destructive to the health of our people.

It needs to change.

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[i] Himmelstein DU, Campbell T, Woolhandler S, “Health Care Administrative Costs in the United States and Canada,

2017”, Ann Int Med, doi:10.7326/M19-2818, published online Jan 7, 2020.