Hospitals Have Lost Their Way

In this weekend’s Wall Street Journal Al Hubbard and Brian Blasé have written an article about the high prices charged by major hospitals in the State of Indiana. The article starts out by stating “When most people hear the word non-profit, they think of a benevolent organization driven by the desire to serve their communities”. This is certainly true of the non-profit hospital tradition in Idaho. Hospitals founded on the shoulders of giants, Catholic Sister’s at St. Al’s for example and Episcopalian clergy at St. Luke’s, and administered by unselfish servants of the people like Sister Patricia Mulvaney and Gil Gilbertson, have evolved into profit centers that are today taking advantage of their “Non-profit” status. They don’t pay most Federal, State, and local taxes yet they charge high prices that have led to skyrocketing costs to patients, and outlandish executive salaries and wasteful capital projects. St. Luke’s reported on IRS Form 990 that it’s most recently retired CEO made $8million and $10million his last two years of employment. I believe that is more money than many of his predecessors made in their entire careers.

Pre-Covid data is all that is currently available, but here are some issues for Idahoans to ponder. In 2018 in Indiana per capital health care spending was $7651, in Idaho $8300 (more than in Utah where it was $7556). Measuring the cost of living in all States Idaho was in the bottom half, yet in medical spending we are in the top half. Despite the promise of the Affordable Care Act (Obama CARE) the cost care spending on a per capita bases have increased not decreased. Looking further back to 1960 health care spending has gone from 6% of GDP to 18% in 2018 ($3.6trillion). There are two main reasons for this—an aging population, but most of all increasing costs of services. In 1960 Sister Patricia received a subsistence salary from her order THE HOLY CROSS SISTERS. In 2019 Dr. Pate received $10 million. Traditionally executives in capitalistic systems have been paid for cutting costs and then increasing margins. Today they are paid for increasing prices and increasing margins. Let’s look at how this happens.

Hospital prices increase the cost of health insurance. When employers or individuals pay these with increasing premiums, and individual co-pays and deductibles, dollar wages go down, employer margins go down and fewer people are hired. If the cost of insurance to individuals and employers in Idaho were to drop, wages would go up—estimated to be over $2000 per employee—more than any tax cuts proposed by the legislature. The largest hospital systems in our State have the highest margins. Rural hospitals many times run in the red. The national average for hospital margins is 3%. The top twenty-five hospital systems in our country all with over 200 beds, run margins of 25%. Profitability in these systems—many were founded by religious orders and are now large nonprofit conglomerates, is directly proportional to the number of beds (over 200) can be as simple as being in a protected insurance marketplace with over 60% of patients being privately insured. Does that sound familiar? It should. These systems also have the highest executive salaries. Prices go up, executive salaries go up, margins go up, and costs paid by patients and citizens go up. Sounds like we in Idaho are approaching monopolistic economic conditions. Are our major health care systems in the State with billions of dollars of revenue, serving themselves or the people they originally pledged to serve?

It is not just hospitals that are posting record breaking margins. Health insurers are also posting increased margins. How can this be when they are paying the hospital bills and the hospitals are charging more? Because of an Obama Care provision designed to limit carrier profits, insurers are no longer incentivized to decrease spending in markets where there is little competition for what they sell—insurance. The law that caps profits and overhead thus encourages more spending.

The agency position assumed by insurers and government as a third party between patient and provider, disincentivizes shopping for value based on price/quality. Traditionally most patients have sought the advice of their primary care physician when shopping for price and value, but when 60% of physicians are employed by large hospital systems and employed doctors are incentivized to refer “within system and network” shopping for quality and value is almost nonexistent.

What can our legislators do to protect Idaho patients—their constituents, from paying for a system that has been increasingly more inefficient, with less quality and that costs more?

1. They can pass legislation that requires any private and non-profit organization that receives more than $100million of government transfers be required as a condition for receiving such transfers to submit to the people of Idaho via their legislature a private signed partner’s audit on an annual basis. Private individuals receiving more than $500,000 should be required to submit a Statement of Financial Position.
2. Idaho Hospitals and Insurers should be required to present a plan to the legislature within three months showing how they are going to reduce prices within three years. Absent such a viable plan they will not have access to transfer payments the following year.

The best community benefit the large non-profit systems could give to Idahoans would be to decrease prices and increase quality of care.

For legislators and our Governor, this would put more money into the pockets of citizens than any tax cut that has so far been proposed.

 The predicate and codes that health care professionals practiced under such as “service before self” have been replaced with a philosophy of “no margin no mission”. Profits in a competitive marketplace lead to efficiencies in pricing and quality of product. When there is no competition and when government incentives and symbiotic relationships between large private and non-profit organizations and government agencies create “favorites” in the way regulations are deployed, inefficiencies result in increasing costs and more bad outcomes. WE THE PEOPLE pay first the price with our insurance premiums and then the cost with our taxes.

$10million in one year is obscene! Is the CEO of a hospital worth four times more than the BSU football coach? I don’t think so. Let’s ask Gil Gilbertson or Sister Patricia.

And then let us all review the campaign contributions that are accepted by our legislators and Governor. Do the large hospital organizations and insurance carriers make large contributions? What about Big Pharma. What about the CEO’s, executives, and lobbyists in those organizations and those that represent them? Who pays for their Governor’s Cup Fees? Do they represent us or the special interests?

Time for a “reckoning”. In more ways than one.