Outrageous behavior by hospitals harms Americans' health to make money

The article in the NY Times (June 1, 2023) titled “This Nonprofit Health System Cuts Off Patients With Medical Debt” carries the subhead “Doctors at the Allina Health System, a wealthy nonprofit in the Midwest, aren’t allowed to see poor patients or children with too many unpaid medical bills”. That sounds bad. It is bad. It is disgusting. It is reprehensible. But it is only one example of the extreme lengths many “non-profit” hospitals go to in order to maximize their income (their “non” profit!) at the cost of limiting care to people.

I don’t know how many hospitals, hospital chains, or “health systems” have gone as far as Allina in explicitly refusing to see patients, but most of them go as far as they think they can – and maybe tiptoe over the line. The article states that “Many hospitals in the United States use aggressive tactics to collect medical debt. They flood local courts with collections lawsuits. They garnish patients’ wages. They seize their tax refunds.” This is, unsurprisingly, most prevalent among those that can do it, those that are wealthy, those that are in urban or suburban areas where they can make money taking care of insured people. (A different calculus informs the often-marginal rural hospital.)

It is, in theory, possible to have two different worldviews regarding this situation. One (mine) is that the main purpose of health care, hospitals, doctors, etc., is to improve the health of the population, not to make money. To the extent that the pursuit of money gets in the way of (or explicitly blocks) caring for the health of people, it is wrong, unethical, and should be condemned. Another possible view, however, is that the business of any business (making widgets, providing income tax services, flogging corporate interests on the internet) is to make money, and that healthcare is just another business, and if some people can’t afford it this is no different from someone not being able to afford a car. I do not believe this, and think it is a morally vacuous position (and, more important, one that actually hurts people), but it is popular in some circles. Folks cite the maxim attributed to economist Milton Friedman that the only responsibility a corporation has is to make profit for its shareholders.

But wait – these are NON-profits! They do not HAVE shareholders! They do have Boards of Directors and (very) highly paid management teams, but they don’t pay taxes. Because they are non-profits! The reason that they don’t is because, under the law, they are expected to provide “community benefit”. While such systems often try to claim that they are doing so by occasionally sponsoring low-cost events such as health fairs where you can get your blood pressure or blood sugar checked, that is not what the requirement actually intended. The Times article correctly states “Nonprofit hospitals like Allina get enormous tax breaks in exchange for providing care for the poorest people in their communities.” That means taking care of people who have need, and not pursuing ANY of the gross collection tactics, not to mention refusing care. “But a New York Times investigation last year found that over the past several decades, nonprofits have fallen short of their charitable missions, with few consequences.” Put simply, these non-profit hospitals are given very large benefits (no taxes) because they are supposed to care for those with need, for the poor, but then they do not. But they keep the money.

These non-profit hospitals (and systems), run by finance people and accountants, operate as if they were for-profits, seeking to maximize income just as much as the for-profits do. Not having to pay shareholders, they can pay huge salaries to management, and accumulate enormous bank balances. In fact, this is an incredible competitive advantage – if you are a for-profit, you have to pay taxes! As a result, most for-profit hospitals in large urban markets cannot, and do not seek to,  compete with non-profits, and are found primarily in niche markets, for example in subspecialty hospitals providing particular kinds of procedural care to well-insured people.

Not that I am endorsing overtly for-profit health care. It is also slimy and disgusting, meeting some needs of some people and openly refusing care to others. The pursuit of profit and money is the root of the failure of our health system to do what most of us think it is there for: to improve health. However, non-profits operating in this sector get huge government (meaning taxpayer!) subsidy for doing – things that they do not do, do not want to do, and will take every legal (and often extra-legal) avenue to avoid doing. Indeed, in addition to not paying taxes they get great financial payments from other government programs, such as the 340B drug program, often worth tens of millions (see "Non-profit" hospital systems behaving worse than for-profits: No end to the scams, October 1, 2022).

If there is anyone left who is still taking evidence-free issue with the idea that the US health non-system is a failure at providing health, take a look at this recent piece from the Washington Post by Steven Woolf and Laudan Aron. Yes, it is an “Opinion” piece, but it is full of facts (see graphic) and backed up by the work of the National Academy of Medicine in its report “Shorter Lives, Poorer Health”. Since 1980, when the life expectancy of Americans was in the lower half of wealthy countries, it has slowly dropped so that by the early 2000s it was the lowest, and well before COVID arrived, had plateaued while that of other countries continued to rise. Almost all countries took a “life-expectancy” hit with COVID, but for most it was short-lived and has since rebounded. Except the US, where it has just started to drop a little more slowly.

 

Life expectancy is not the only measure of health system function or success. However, there is no accepted measure (deaths of middle-aged people, infant mortality, maternal mortality, years of productive life lost, etc. etc.) in which the US does not lag its peers, and often poorer countries. Unless you think the provision of boutique specialty care to wealthy people (including foreigners) is somehow a measure of health system success.

Woolf and Aron cite the National Academy report which lists a number of reasons why the US does poorly:

(1) unhealthy behaviors, such as our diets and use of firearms;

(2) inadequate health care and public health systems;

(3) poor socioeconomic conditions;

(4) unhealthy and unsafe environments; and

(5) deficient public policies.

They note the last is most important, including failure to address basic human needs for food, housing, education, and jobs. The continuing effects of racism. The failure to have an adequately funded public health infrastructure.

The National Academy did not look at the fact that our gangster-capitalist system has taken over health care as a cash cow to have money extracted and only incidentally (when convenient and profitable) provide health care, but this too is a clear failure of public policy.

If hospitals, non-profit or for-profit, are not providing all the health needs of our people, rich and poor, they must be forced to do so, by public policy. They should be provided with a negotiated, global, annual budget for operations (and a separate one for capital, so they don’t milk patients to make money to expand) by a national health system. And be held to it.

Addressing the problem of greedy hospitals, the pursuit of money rather than health, will not solve our health problems. Not only does it leave the other parasites, insurance and pharmaceutic companies, it leaves all the other societal inequities cited above, that also must be aggressively acted on.

But it is a necessary step, and a good start.

"Non-profit" hospital systems behaving worse than for-profits: No end to the scams

I have often written about the greed of hospitals and “health systems”. In a competitive environment (especially in big metropolitan areas) they have combined and consolidated and become enormously powerful. This has been good for them, as they have made a lot of money. Now these large health systems and the insurance companies stand almost as warriors in the gladiatorial arena, each believing that the other is the problem; the hospitals complain that the insurers don’t pay enough and the insurance companies complain that the hospitals charge too much. Nowhere in this equation is the “consumer”, the “patient”, the “person” who is supposed to be the focus of this whole system. If the hospitals and insurers are the gladiators, people are the ants crushed under foot.

“For-profit” healthcare organizations -- incorporated tax-paying, investor-owned -- that run hospitals, nursing homes, and virtually any other kind of healthcare related operation (obviously including all pharmaceutical companies) have long been callously evil in their pursuit of profit, although they have never claimed they were not. Many university teaching hospitals, and even publicly-owned hospitals, were taken over by such companies when their former owners could not afford them (didn’t want to support with tax money, in the case of public hospitals, and were losing money from a combination of caring for people without insurance and overspending on administrators in the case of university hospitals). Predictably, this led to no improvement in the quantity or quality of care being delivered – the quantity, especially for the poor was always less. But it did bail out the former owners.

What has become more and more apparent over the years and decades is that “non-profit” hospitals (called “voluntary” in  New York) have become just as callous and evil, including those associated with religious orders that founded them on the basis of serving the ill and those in need. These hospital systems do not have owners or shareholders and are free from paying taxes, in acknowledgement of the community service that they – ostensibly -- provide. The problem is that they continue to receive the tax break, while cutting back and back on the community service, until in many cases it is not only negligible but even negative – actively hurting the community.

In recent days, the New York Times has featured an exposé on this situation, focusing on two systems, Providence (based in Washington state) and Bon Secours (in Virginia). Both have ravaged and ripped off the people who should be receiving their care, acting in at least as predatory a manner as any for-profit, while legally (so far, maybe) gaming the systems put in place by state and federal governments to regulate them and ensure that they deliver community service.

The article on the Providence system, one of the largest in the nation with 51 hospitals, originally founded by a caring order of nuns, is called 'They Were Entitled to Free Care. Hospitals Hounded Them to Pay.’ It is enough to make you throw up if you are at all a caring person, or one who might ever need healthcare. The gist of the piece is that their prior level of “community service”, the justification for paying no tax, was providing 1.29% “charity care” (well below the already-pitiful national average of 2%), and that this was slashed to below 1% by a new campaign by management to wring every nickel out of every patient, especially those with no or terrible insurance and no money. The article details the methods utilized (such as never offering people, regardless of poverty, the option of not paying, but only how they would pay). These details are sufficient to ensure that, if the perpetrators are religious, they know where they are headed after this life. Even the people who ended up not paying (essentially because they had no money) were subjected to terrible oppression and dunning not only by the hospital itself but by the collection agencies they hired, including garnishing wages from those who were lucky enough to even have jobs. The federal government does not prescribe a specific percent of charitable care that must be done to stay tax-free, but squeezing the poorest is clearly not the intention.

Providence avoids more than $1 billion a year in taxes. In exchange, the Internal Revenue Service requires them to provide services, such as free care for the poor, that benefit the communities in which they operate.

They’re not doing much of that! Meanwhile,

Providence is one of the largest nonprofit health systems in the country, with 51 hospitals and more than 900 clinics. Its revenue last year exceeded $27 billion.

Providence is sitting on $10 billion that it invests, Wall Street-style, alongside top private equity firms. It even runs its own venture capital fund.

What they are doing contravenes any conception of why a hospital (or system) should be tax-free; indeed, it makes the for-profits look good, because while they act no better, at least they pay taxes!

The next day’s article, about Bon Secours Mercy Health, ‘How a Hospital Chain Used a Poor Neighborhood to Turn Huge Profits’, describes

‘Richmond Community Hospital … consists of little more than a strapped emergency room and a psychiatric ward. It does not have kidney or lung specialists, or a maternity ward,’

and how it is the most profitable hospital in Virginia, making over $100M a year profit.  The scam here is just as reprehensible as Providence’s, but is a little more difficult to understand. It involves gaming  a federal program called 340B. This program was developed to allow people who were poor but not on Medicaid to get reduced costs for their drugs. This is a good thing, but this example also shows how evil corporations can misuse even well-intended programs.

Here’s basically how it works: an eligible entity buys outpatient drugs from pharmaceutical companies and then gets a rebate from them, which can be tens of millions of dollars. The federal government likes this because, unlike money for Medicaid drugs, it doesn’t come out of their coffers but from the drug companies (and thus, of course, the drug companies hate it). What is an eligible entity? Some are categorical, like Federally-Qualified Health Centers (FQHCs). Hospitals become eligible if more than a designated percent of their inpatients are on Medicaid. This is ironic on two counts, since Medicaid patients are not eligible for 340B drugs (because their drugs are already purchased at a discounted rate, and must be separated from 340B drugs) and the drugs are not for use on inpatients. The qualification is an on/off threshold;  you either qualify with a certain % of Medicaid inpatient days or you don’t. Once you do qualify, any outpatient medications you dispense are eligible for rebates; there is no income restriction on who you can sell these drugs to.

 

Maybe you see where this is going. Bon Secours Mercy qualifies for 340B at Richmond Community Hospital since it is an inner-city hospital serving almost entirely poor people. And the outpatient pharmacy there would surely be entitled to use 340B drugs, and that would be the intent of the program. But…here’s the genius: Bon Secours set up a network of clinics in high-income communities that were legally tied to the “mother” hospital of Richmond, and thus received its 340B designation. So now they could sell drugs on which they got huge rebates to people with money and insurance! Cool! Great idea if you are an MBA student! You might get a good mark for coming up with such a project, provided you can demonstrate that it was not illegal and the management won’t go to jail or pay a huge fine. In this case, I hope that they do. What is wrong with it? Well, for starters they’re not investing any of that money back into Richmond Community, the source of their 340B designation, the hospital that is miserably inadequate to care for its patients…

Of course, not all hospitals and hospital systems are Bon Secours or Providence. Some, especially in small towns and rural areas, and inner cities, are barely surviving. Of course: the rich get richer, even on the backs of the poor, as in the Richmond case. But the ones that are successful (i.e., making money) are almost all doing similar things, gaming the system, and providing as little charitable care as possible, while paying no tax and, if they can, maximizing income from programs such as 340B.

There is a solution. A national health insurance system, Improved and Enhanced Medicare for All, in which everyone’s medical bills are paid by the federal government and hospital budgets are negotiated annually, and there is little or no opportunity for such scams.