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It Is Time to Liberate Hospitals From Profit-Centered Health Care

May 1, 2018

It Is Time to Liberate Hospitals From Profit-Centered Health Care

U.S. Patient Care Suffers From an Unhealthy Focus on Business Practices

WASHINGTON, D.C. – U.S. hospitals, most of which are nonprofit, are mired in a toxic cycle that rewards bad behavior from their leaders, neglects patient needs and promotes an obsession with increasing profits, according to an editorial by Public Citizen Health Research Group founder and senior adviser, Dr. Sidney Wolfe, and colleagues Drs. Steffie Woolhandler and David Himmelstein, published today in the Journal of General Internal Medicine (JGIM).

The editorial is in response to an article by researchers Dan Ly and David Cutler, who examined how successful hospitals improved operating margins and patient care. To obtain a copy of the article and editorial, visit here.

“Although nonprofit hospitals lack investors with whom profits are shared, the profit motivation, explicit in too many of their de facto business plans, drives unhealthy behaviors,” Wolfe said. “The essential, public health-unfriendly ingredient encouraging this behavior is the failure to reimburse nonprofit hospitals just for the costs of delivering care, as is the case in Canada, or in the U.S. in schools, firehouses and the VA hospital system.”

Astonishingly, a lack of focus on patients of all backgrounds and means has created two harmful and ironic situations nationwide, the editorial states. High-need but unprofitable patients are all but neglected in hospitals while the system created to generate hospital expansion increasingly is too expensive to sustain.

“A hospital’s profit-seeking doesn’t just foster corruption, it undermines equity and efficiency.  Hospitals waste billions gaming insurers’ complex payment rules and maneuvering to avoid the unprofitably ill. We need a single-payer reform that would treat hospital care as a public service, not a business,” Steffie Woolhandler, an internist in the South Bronx and distinguished professor of public health at the City University of New York at Hunter College, wrote in the JGIM editorial.

David U. Himmelstein, a distinguished professor of public health at the City University of New York at Hunter College, lecturer in medicine at Harvard Medical School and co-founder of Physicians for a National Health Program, said: “Making hospitals’ success, and even survival, depend on turning a profit rewards hospital leaders for bad behavior and punishes them for doing what’s right for their patients and communities. Even nonprofit hospitals face this same toxic incentive. Hospitals that embrace money-losing patients, like those who are poorly insured or mentally ill, face a downhill slide, while those that over-provide lucrative high-tech care thrive.”

“No law of nature requires that U.S. hospitals make profits to thrive and survive,” the authors wrote.

“What is needed is a single-payer reform that: Pays hospital lump-sum operating budgets, like those for schools, fire houses, or veterans hospitals; claws back any money they do not spend on care; and allocates truly needed capital funding through a region-wide accountable government grant program that directs investments to the highest priority, community responsive projects.”

“Canadian provinces (and Scotland) pay hospitals’ global operating budgets, with separate government grants for capital costs. Even countries like France, Switzerland and Germany, which have more complex universal social insurance schemes, fund much of new hospital investments through government grants rather than hospitals’ profits. This dampens U.S.-style entrepreneurial incentives, leading to lower bureaucratic costs, less price-inflating gaming and greater health care equity.”