Since before Covid hospitals have been complaining about low profit margins and low cash reserves. This is especially true of rural hospitals that face multiple threats from: 1) more uninsured 2) more publicly insured patients and 3) smaller markets, with less economies of scale.
Various publications lament the poor financial health of hospitals, from Rev Cycle Intelligence saying “Hospital finances seem to be stabilizing after years of historic losses and uncertainty,” to Healthcare Finance News, saying “Hospital finances beginning to stabilize, though margins still down,” to Medical Economics, saying “Hospital finances break even in April.” Nearly three years after Covid lockdowns finally eased hospitals are just barely claiming their finances are finally improving after several years of low margins due to Covid. Yet, even during Covid hospitals were doing pretty well and most hospitals made money off Covid.
A Health Affairs article from a few months ago found, “Nonprofit Hospitals: Profits And Cash Reserves Grow, Charity Care Does Not.” The American Hospital Association fired back claiming the methodology was flawed, and profits and cash reserves were overstated by the Health Affairs study. Millions of businesses suffered from Covid. Trillions of subsidies were paid to help businesses (including hospitals) survive the pandemic. That begs the question: How much do taxpayers owe hospitals in terms of profitability? Considering taxpayers finance more than half of health care expenditures, hospital profitability is a fair question.
Some hospitals will fail due to poor market conditions unique to their area. Some hospitals will fail due to poor management. Some hospitals will fail due to more competitive hospitals outperforming them in the area. Some will fail due to high debt from being overleveraged. Consumers did not seem to care when Sears, JC Penny, K-Mart and Bed, Bath & Beyond went out of business (or soon will). Why should consumers care when Memorial Hospital falters? They shouldn’t.
I recall a health economist on Twitter once posted a comment, “How will we know health reform is working? When all the construction cranes at hospitals begin to come down.” By the way, construction cranes are an economic indicator of sorts. If hospital are forced to compete some will fail and that’s ok.
Hospital associations spend millions on lobbyists trying to convince Congress that taxpayers need to dig deeper and reimburse hospitals at higher rates. Now even Congress is skeptical and beginning to scrutinize hospital spending:
The arguments that hospitals’ trade groups have used for years — mainly, that they need more money from the government — are beginning to fall flat, indicating one of Washington’s most powerful lobbying juggernauts may be losing some goodwill.
While groups like the American Hospital Association, which represents about 5,000 hospitals and which spent $27 million on lobbying in 2022, remain incredibly powerful, inflation, rising health care costs and headlines about questionable business practices have put an unwelcome spotlight on the industry, especially as the Medicare trust fund nears its insolvency date.
States are also scrutinizing whether nonprofit hospitals’ charity care is equal to the tax breaks they receive.
The public school system here had to scramble in 2018 when the local hospital, newly purchased, was converted to a tax-exempt nonprofit entity.
The takeover by Tower Health meant the 219-bed Pottstown Hospital no longer had to pay federal and state taxes. It also no longer had to pay local property taxes, taking away more than $900,000 a year from the already underfunded Pottstown School District, school officials said.
Here is the deal: Medical spending is not a jobs program. The fact that nearly 20% of GDP is spent on health care is not a good thing. The hospital industry is not competitive, and hospitals do not want to compete for consumers’ business. There are numerous ways to slow the growth in health care spending. These include competitive bidding, bundled pricing and reference pricing. Better policing of fraud and refusing to pay fraudulent transactions would be a good start rather than pay-and-chase as is now Medicare’s policy. I would even allow Medicare to exclude hospitals whose bids were higher than competitors. Currently hospitals compete against other hospitals by consolidating, providing amenities such as 5-story glass atriums at their entrances and locating in areas with a lot of privately insured residents. Those billboards on the freeway of smiling children advertising Memorial Hospital do not represent real competition. Price transparency is a good start but hospitals need an incentive to compete on price, quality and other amenities.