In the course of working on a medical book for the patient population, I just discovered this 2017 Forbes article that explains why the largest medical centers are losing money despite increasing revenues. The article is based on a Harvard Business School review. This is something that I have been telling hospital executives for years, based on my own observations. It is remarkable how similar their conclusions are to mine.
The articles conclude, essentially, that hospitals are losing money due to bureaucratic incompetence. Hospitals are pseudo-government agencies that cannot reform themselves any better than the U.S. Post Office can.
Over decades, the wrong mission of hospitals has been rewarded by money. They are reimbursed for care on a fee-for-service model regardless of patient outcome or financial efficiency. In fact, the bigger and more complex the care has been, the more the system has rewarded it.
The real prime objective of a medical center is to grow expenses by increasing numbers of employees. That has been the source of their power. Medical centers are the largest employers in many regions giving them tremendous political clout.
Unlike true private-sector businesses, the real motivating force with medical centers is not efficiency and growth of the bottom-line (i.e. net-income). Instead, the goal is to grow the top-line (i.e. revenue) in order to pay for the bloated expenses. Medical centers, like government entities, are expanding tumors growing at the expense of the host with no sustainable end game.
The Forbes article states, “Most hospital leaders acknowledge the need to course correct, but very few have been able to deliver care that’s significantly more efficient or cost-effective than before. Instead, hospitals in most communities have focused on reducing and eliminating competition. As a result, a recent study found that 90% of large U.S. cities were “highly concentrated for hospitals,” allowing those that remain to increase their market power and prices.”
I thought I had been the only source to point out that large hospitals are laying off employees, from the MD rank to the operations staff, despite the booming economy and record-low unemployment, until I came across the articles. I have personally seen it with several major medical centers all over the country, such as New York University (NYU), the Ohio State University (OSU), UCLA, Miami Health, and MedStar. Hospitals listed in the articles as losing money are the best of the best: MD Anderson, Brigham and other “Partners” hospitals, The Cleveland Clinic, etc.
The article states, “Brigham & Women’s Hospital (BWH) is the second-largest research hospital in the nation, with over $640 million in funding. Its storied history dates back more than a century. But after a difficult FY 2016, BWH offered retirement buyouts to 1,600 employees, nearly 10% of its workforce.
Three factors contributed to the need for layoffs: (1) reduced reimbursements from payers, including the Massachusetts government, which limits annual growth in healthcare spending to 3.6%, a number that will drop to 3.1% next year, (2) high capital costs, both for new buildings and for the hospital’s electronic health record (EHR) system, and (3) high labor expenses among its largely unionized workforce.”
This is another trend I have pointed out. All of these medical centers listed above are building multi-billion-dollar new hospitals and getting into huge debt. Every place I know has done this. All of them are also secretly reducing head count.
I told people years ago that Stephen Gabbe, MD at OSU was a fool to build more new heart and cancer hospitals. He got ousted, but his replacements are doing the same, with another huge hospital under construction.
Electronic Health Records (EHR) is another problem. Obamacare required them to be phased in, but they have been a disaster. Inputting the text into a computer next to the patient is cumbersome. It slows down the caretaking process tremendously. Also, patients are upset that the doctor stares at a computer rather than them. Some smart doctors now hire transcriptionists to follow them into rooms and type for them.
The article states, “Digital records are proven to improve patient outcomes, but they also slow down doctors and nurses. According to the annual Deloitte “Survey of US Physicians,” 7 out of 10 physicians report that EHRs reduce productivity, thereby raising costs.”
Also, “Although nearly every hospital talks about becoming leaner and more efficient, few are fulfilling that vision. Given the opportunity to start over, our nation would build fewer hospitals, eliminate the redundancy of high-priced machines, and consolidate operating volume to achieve superior quality and lower costs.”
I am repeating now what I have been telling hospital CEO’s: They are in for a serious shock soon, within a year or so. The game is over.
Not only have CMS and private insurers stopped increasing rates to match healthcare inflation, but totally new forms of healthcare are arising. Efficient cash-pay urgent care centers are replacing the long-waits at hospital ERs. Soon, those lucrative surgeries that keep hospitals afloat will be performed in doctor-owned facilities.
To survive, hospitals will start scamming the system. For example, they are now labeling routine admissions as “ICU” care to get better payments. New hospitals under construction have rooms that can be converted into ICUs when needed. “Out-of-network” surprise bills have been another scam recently addressed by President Trump.
Meanwhile, every hospital CEO still makes at least $1 Million, and up to $10 Million, in salary running “non-profit-hospitals. The number of bloated “Deans” at academic medical centers grows.
To compare inefficient hospitals to the U.S. Post Office leaves out something important. Medical centers are funded by third-party-payers with no capped budget. At least the Post Office has to meet a budget. Hospitals get paid no matter what. This is why the total healthcare expenditures exceed $3.6 Trillion, is growing at 6%, and comprises 18% of the U.S. economy.
I predict that the next big financial collapse will be triggered by the demise of medical centers and a surge in unemployment. That, in turn, could trigger a student-debt bubble, and another housing bubble, all to burst.
The $3.6 Trillion healthcare economy is fueled by printed money from the Federal Reserve. It is a false economy, just as the housing debt (i.e. in the form of repackaged mortgages called CDOs) was not backed by real assets. When false American economies implode, they have a domino effect on the rest of the world.
Of course, this scary scenario is the precise reasoning that the hospital lobbyists use anytime federal cuts or reforms are proposed. The downside to changing the status quo is a powerful deterrent to reform. The bigger they are, the harder the rest of us fall, and they know it. It emboldens them with hubris. Every hospital CEO reading this essay now will shrug it off.
But the day of reckoning has come. The truth cannot be quashed forever. American healthcare had a good 100-year run. But all good things must die.