President Biden last Friday issued a tough talking executive order to promote competition in the U.S. economy. Included in the order was a declaration that “hospital mergers can be harmful to patients” and a call to the FTC and the Justice Department to “review and revise their merger guidelines to ensure patients are not harmed by mergers.” Sounds like the president means business.
I’m skeptical. While I applaud Biden’s rhetoric writer, talk is cheap. Biden’s order contains no concrete measures. Wall Street appears to share my doubts: HCA Healthcare’s stock price has risen slightly since the edict, so investors aren’t worried that CEO Sam Hazen will be forced to curb the deal making and cost cutting that allowed him to earn $30 million last year.
Given how inefficient and corrupt U.S. healthcare has become, Biden’s edict is only a nibble at some very rough edges regardless. The industry has been overtaken by private equity and CEOs more concerned with their personal enrichment than providing quality patient care.
Left unchecked, only the one percent will eventually be treated by board certified MDs and DOs; the peasantry will see unsupervised physician assistants and nurse practitioners with considerably less knowledge and training. Entire specialties could disappear or will be substantially diminished, starting with anesthesiologists. Leading this effort are outsourcing firms like NorthStar Anesthesia, owned by a holding company called The Cranemere Group, which relies more heavily on nurse anesthetists. Wouldn’t you know it, Cranemere’s CEO until last December was Jeffrey Zients, Biden’s closest advisor.
Now you know why I’m so cynical.
If Biden was serious about reforming U.S. healthcare, his initiatives would include meaningful measures like these:
Eliminating Tax Exemptions for Hospitals
So-called “nonprofit” hospitals enjoy tax exemptions that date back to 1913 when hospitals were run by volunteers and funded by charities and philanthropists. Those days are long gone. Most nonprofit hospitals today are run by MBAs and accountants, and the evidence is overwhelming they aren’t imbued with the charitable spirit.
A study published in Health Affairs a few months ago revealed that for every $100 in total spending, nonprofit hospitals provided $2.30 in charity care, while for-profit hospitals provided $3.80. Thirty six percent of nonprofit hospitals provided less than $1 of charity care for every $100 in total expenses. The study also found that for-profit hospitals in aggregate provided 65% more charity care than nonprofits per $100 in total expenses without receiving any subsidies. (The for-profit charity care wasn’t pure altruism; it was tax deductible.)
For-profit hospitals pay federal, state, and local property taxes, while nonprofit hospitals do not. The lost tax revenues amount to well over $25 billion a year.
“Perhaps it is time we start viewing for-profit hospitals as the virtuous baseline and nonprofit hospitals as the unsavory freeloaders,” Ge Bai and David Hyman, two of the leading experts on U.S. healthcare policy, wrote in this easy-to-understand commentary I highly recommend.
Eliminate Hospital CEO Change-of-Control Clauses
Here’s a simple way to put the kibosh on hospital mergers: Outlaw change-of-control clauses in hospital CEO contracts that allows the top executives to reap millions selling their institutions. The benefit is an inherent conflict of interest.
Criminalize Kickbacks
A major reason U.S. healthcare is the most inefficient in the western world is because it’s plagued with fraud, abuse, and waste. A simple and effective solution to cleaning up the pervasive filth is to eliminate exemptions that allow so-called group purchasing organizations to legally accept kickbacks.
GPOs are companies that buy hospital products in bulk for their clients, supposedly negotiating discounts because of their volume purchases. The “discounts” often come in the form of kickbacks, and industry experts tell me it’s murky where all this money goes. U.S. taxpayers bear the brunt of the pricing inefficiencies, as the government reimburses hospital expenses through the Medicare program.
Studies show that hospitals can get better pricing negotiating their own deals. CEOs at major hospitals like the GPOs because many of them receive lucrative fees to sit on their boards. The cozy relationships should also be outlawed.
Mandatory Jail Time for Medicare Fraud
The DOJ is garnering big settlements prosecuting Medicare and other healthcare fraud but too often the cases don’t involve incarceration for the persons responsible. The average jail time for tax evasion is three to five years. Medicare fraud should have stiffer penalties because it impairs healthcare quality and safety.
CEOs and CFOs of hospitals and other institutions convicted or settled allegations of Medicare fraud should be held criminally liable and permanently banned from the healthcare industry. Risk of jail time is a powerful motivator to ensure strict compliance with the law.
Executives in the gaming industry are held to much higher ethical and legal standards than their healthcare counterparts.
Safety and Training Transparency
The quality and safety of hospitals varies widely, even within a region. Much like the practice in many cities which require restaurants to prominently display their health department inspection scores, hospitals should be required to post at all entrances and on their home pages their quality ratings assigned by the Centers for Medicare and Medicaid Services. Poorly ranked hospitals will have a very powerful and visible incentive to boost their scores.
The level of training of healthcare providers should also be prominently displayed. Only physicians with MD or DO degrees should be allowed to wear white coats; nurse practitioners and physician assistants should have distinct color-coded scrubs. Under no circumstances, should PAs be allowed to rebrand themselves Physician Associates. Any proposed title change shouldn’t include “physician.”
Physicians and other healthcare providers treating patients at a hospital but are employed by an outsourcing firm should have their company’s logo prominently emblazoned on their uniforms. Let’s give KKR, Blackstone, and other PE firms an opportunity to brand themselves and educate the public about how they are disrupting healthcare.
Improved NLRB Hospital Oversight
Nurses have emerged as the conscience of America healthcare. They see first-hand how cost cutting is harming patient care and many aren’t prepared to turn a blind eye. That’s why nurses increasingly are seeking to organize, so they can speak out and have a modicum of protection from management retaliation. Studies show that when nurses unionize, the quality of their patient care increases, as do their wages. It’s a win-win for everyone except, of course, hospital CEOs.
Hospitals are spending tens of millions on union busting consultants specializing in the intimidation of nurses. Biden should uphold his campaign declaration affirming the rights of workers to organize and call on the NLRB to dramatically strengthen its monitoring and enforcement and to impose more severe fines. Hospitals employing union busting consultants should have to pay 15 percent of the fees to the NLRB to cover the cost of the agency’s increased oversight and enforcement.
Empathy Training for Hospital CEOs
CEOs of major hospitals could use some schooling in compassion and empathy so they have a better understanding of the excessiveness of their pay and the impact their decisions have on the less fortunate.
Sam Hazen, HCA’s $30 million CEO, might benefit meeting with Jamelle Brown, a technician at an HCA hospital in Kansas City who sanitizes and sterilizes emergency rooms. Brown last year was named “Employee of the Month” after contracting Covid. His reward? A $6 cafateria gift card.
Beaumont Health COO Carolyn Wilson might benefit meeting with the fiancé of Richard Curbelo, who died in January from intubation complications undergoing a routine colonoscopy weeks after she outsourced the flagship hospital’s anesthesia services to NorthStar. Beaumont’s co-heads of cardiology warned Beaumont’s chair they had “serious concerns” about NorthStar, known on industry message boards as “Death Star.”
Sarah Krevans, CEO of Sutter Health, might benefit meeting with the 30-year-old patient who spent less than three hours in a Sutter emergency room and was billed $44,914. And Spectrum Health CEO Tina Freese Decker, who declares in her bio that her biggest priority is building a health system that “celebrates and reinforces diversity and inclusion,” might benefit from meeting with Black employees who recently met with an attorney to explore whether they had sufficient grounds for a class action lawsuit alleging system racism.
The measures I’ve outlined will add tens of billions in tax revenues, while curbing healthcare fraud, inefficiencies, and abuse. Seems like a no-brainer to include them in any genuine effort to improve the quality and reduce the cost of U.S. healthcare.
As for the sincerity of Biden’s resolve, we will know soon enough. Michigan’s two biggest hospital systems – Spectrum in the western part of the state and Beaumont in the Metro Detroit area – have announced plans to merge and have fast tracked efforts to complete their union by the fall. Studies show that hospital mergers result in higher costs and a lower quality of patient care. Spectrum’s former CFO has warned the merger could result in “a massive financial loss.”
If the FTC approves the deal, particularly within the space of a few months, it will be painfully obvious that President Biden’s edict fell on deaf ears.