In the most recent release of Health Affairs Scholar, my co-author Salpy Kanimian and one of her mentors, Vivian Ho, examine the increase of costs of healthcare in the US by looking at where there are unusually high profit levels:
Figure S2 reveals that across all years except for 2022, profits for insurance companies were consistently lower than those for nonprofit and for-profit hospitals. Profit margins were particularly low for insurers between 2014 and 2016 after the insurance provisions of the Affordable Care Act took effect in 2014. The Affordable Care Act (ACA) imposed medical loss ratio requirements on insurers, requiring insurers to issue rebates to customers if their medical spending did not exceed 80% of premiums. This Medical Loss Ratio (MLR) requirement limited profit margins for insurers, while no such limit was placed on hospitals. The −0.31% net profit margin for nonprofit hospitals in 2022 follows an extraordinarily high net profit margin of 10.67% in 2021. The steep drop is partly attributable to rising labor costs from inflation and the drop in federal funding tied to the end of the COVID-19 public health emergency.
However, a recent analysis found that 85% of financial losses in 2022 for 10 large nonprofit hospital systems were attributable to investment losses,17 likely from the fall in the stock market which occurred that year. The Centers for Medicare and Medicaid Services (CMS) requires that hospitals include unrealized investment losses in net income, which is used to calculate net profit margins. For-profit hospitals enjoyed a net profit margin of 7.02% in 2022, which was substantially higher than for nonprofit hospitals and insurers. In the event that a for-profit hospital experiences a shortfall, it can sell more stock to raise cash, an option unavailable to nonprofit hospitals. Therefore, a for-profit system has less need to hold investment assets. While Medicare Cost Reports for all of 2023 are not yet available, hospital financial data from Kaufman Hall for a subset of US hospitals suggest that profits for nonprofit hospitals have rebounded in 2023 with the stock market recovery.
Unusually high profit margins either indicates a sector is doing something utterly amazing or that there is an anti-competitive moat that allows for a sector to collect higher rents. The evidence over the past decade has been that the hospital sector is often a series of localized duopolies and monopolies that can routinely increase their prices against fairly inelastic demand.
Baud
Yeah, people hate insurance companies, but the real obstacle to reform is provider profits and the fact that people like providers.
TBone
This is definitely the case in my rural County. I moved from an urban County to a rural one, and the difference is really striking.
TBone
@Baud: I don’t want a not-medically-educated someone standing between me and my doctor (someone who is interested only in profit making). Algorithms for medical decisions are also a pet peeve.
Baud
@TBone:
I don’t know how other countries do it, but someone is going to decide which items are covered and which are not. If someone knows how it’s done elsewhere, I’d be interested in learning about it.
Starfish
@Baud: The doctors are pretty miserable too. The monopolies and duopolies in hospital systems harm them too.
TBone
@Starfish: 👍 1,000% correct. I had a wonderful female physician here in the hinterlands but as the parent company increased pushing its tendrils into her practice, she moved away and her replacement is a corporate hack of a doctor. 😡 She puts more time into typing on her laptop than making eye contact with her patient. It bytes.
Baud
@Starfish:
Doctors and hospitals are both providers. To my knowledge, the insurance industry isn’t creating the monopoly. Someone can correct me if I’m wrong.
Another Scott
… or one is charging, say, Medicare, for premium care while having underlings do the actual work.
Grr…,
Scott.
TBone
@Another Scott: I can’t read the link but I hear you loud and clear! Hubby hasn’t seen our corporate hack doctor in office for a long time, only Physician Assistants nowadays.
TBone
@Baud: medical malpractice insurance rates are a BFD for physicians here in PA.
Another Scott
@TBone: Sorry.
It points to an FBI Medicare fraud settlement in Texas:
Grr…,
Scott.
TBone
@Another Scott: JFC
I am unsurprised but it’s still shocking to see (the extent to which profit plays a role)!
pluky
@Another Scott: Not just Baylor! In my neck of the sea coast:
masslive.com/news/2024/05/cape-cod-hospital-to-pay-243m-for-breach-of-medicare-rules.html
Manyakitty
@TBone: I blame VC for our hollowed-out healthcare system. Hippocratic Oath be damned, it’s all about the money.
TBone
@Manyakitty: you KNOW IT
TBone
We have fighters in our corner but the headwinds are stiff!
warren.senate.gov/newsroom/press-releases/senators-warren-markey-introduce-the-corporate-crimes-agai…
Manyakitty
@TBone: 🤮🤬
TBone
Our wealthy hospital system here actually sends money beg emails soliciting DONATIONS. As if!
Manyakitty
@TBone: grotesque
TBone
@Manyakitty: It is to laugh! (Instead of cry😭)
Ruckus
@TBone:
I had a doc like this once. She stared at her laptop typing away as we talked, very rarely if ever looking at the patient. And I could see the screen, she wasn’t looking at or filling in my chart. It was very disconcerting. OTOH she seemed to ask all the correct questions, but it was very impersonal. At the VA one gets the doctor one is assigned, not the one that one likes. On the whole though the care is first rate and I have seen very few that I felt any need to walk out on or to tell what not so nice thing they could do to themselves……
Butch
Well….I developed problems with my gall bladder. The first surgeon wanted to wait until it “calmed down” (that’s a quote) before any operation; I told my primary care physician we were switching surgeons. The second one (who was great) operated and discovered that my gall bladder was developing gangrene. The consequences could have been serious if I had gone along with the advice to wait until it “calmed down.”
TBone
@Ruckus: glad to hear that your experience at the VA is a good one, overall. It’s the least we can do for our vets! Care when they come home, I mean
TBone
@Butch: Jiminy Cricket! 😳
Ruckus
Also one of the very best medical care personal that I’ve dealt with was a medic in Navy boot camp. An E5, he had one of the best doc/patient attitudes, 100% knew his job and understood things from the patient direction. I’ve had docs over the last half a century that were as good but level of care and obvious knowledge and patient relationship is actually somewhat rare.
whatsmynym
Our local rural nonprofit county hospital ended up forming a physician group, because it was the only way to keep them in the county. Too many Medicare and Medicaid patients to make it worth running a separate practice.
TF79
Interesting stuff, thanks for sharing the snippet (link to the full report doesn’t seem to work for me thought). Surprised to learn that a) nonprofit hospitals were more exposed to stock market swings than for-profit hospitals and that b) insurance margins aren’t as large as I might have expected.
Ruckus
@TBone:
OTOH, I have also had a doc I wanted to punch out at the VA. Rude, pompous, arrogant, asshole. The entire array of what not to do on the doctor side. The best part is that docs like that do not last long there at all.
@Butch:
I have formed, over decades of interactions, that some doctors actually have just about zero concept that they are humans, educated sure, but have all the subtlety and empathy of a 100mph car crash. Doctors are not the only humans with this trait.
Butch
@Ruckus: The contrast between the two is hard to describe. The surgeon who actually operated was the first funny doctor I’ve ever met. He made sure I understood exactly what was going to happen but did it in a really digestible, humorous way.
Eyeroller
@Another Scott: While I in no way want to justify what those attending surgeons did, if we assume they were working with senior residents, the only reason the residents would be “unqualified” would mean “haven’t passed their boards yet.” The surgeries described may be complex but are also the bread and butter of thoracic surgeons. In many circumstances I’d feel safer in the hands of an advanced, youngish resident than an old surgeon (cough 77 years old cough) who probably should have retired at least 7 years ago. Of course one of the reasons they are called “attending” is because they are always supposed to supervise the residents and attend to the patient. And no, I’m not a physician, I’ve just spent a lot of time around them and know a lot of their jargon.
Eyeroller
@TBone: I hate to break it to you, but doctors use decision trees (an algorithm) all the time, have for decades, and nowadays they access them directly on their laptops. The big difference is that they are supposed to use those as a supplement to their own medical judgment. As we all know, some of them are better at that than are others.
“What do you call the person who graduated last in class in medical school [and got a residency]? Doctor.”
Another Scott
@TF79:
Health Affairs Scholar article. It has a link to the PDF as well (open access).
HTH!
Cheers,
Scott.
Yutsano
Break up the Catholic hospital systems*. I’m in one that spreads from Washington to Montana. Little crucifixes in every room required. I think every hospital in the state is run by a Catholic system now, which even if they’re different monasteries it’s still the Catholic church profiting off our fucked up American health system. At the very least get a county hospital that can offer services to the uninsured and poor so they can have care.
And even with their narrow profit margins insurance companies still make a killing.
*I know it’s not just the Catholic organisations doing this, but they could at least pretend to be Christian here.
Sister Machine Gun of Quiet Harmony
Urban and suburban hospitals tend to be profitable. Rural hospitals tend to run in the red. This is why hundreds of them have closed in the last decade. Our Catholic healthcare system used the two suburban hospitals to subsize all of the rural ones.
TBone
@Sister Machine Gun of Quiet Harmony: here in rural PA, the hospital is building whole new wings for private patient rooms, while hospitals in my former urban locale are closing their doors. Hahnemann, Crozer-Chester, Springfield Community hospitals all went under in DelCo and Philly recently, while Geisinger and Evangelical here in the hills are thriving. Weird!
Sister Machine Gun of Quiet Harmony
PA implemented Obamacare, though, right? MO did not.
TF79
@Another Scott: cheers!