Healthy Hospitals: Reforming the System in the Middle of the Financial Crisis


5-01-09, 10:00 am

“Stop throwing good money after bad.” “Throwing money at the problem won’t solve it.”

How many times have you heard those phrases coming from the mouths of so-called fiscal conservatives, Republicans seeking to defund and/or limit the funding of important socio-economic programs? In terms of the health care system, there is more truth to those phrases than those right-wingers will ever imagine, but they would never agree to following progressive interpretation of those comments. We need to stop objecting to those comments and turn them around in our favor. The financial crisis makes this quite easy to accomplish.

By boldly targeting the 'special interests' opposition to many of his proposed programs, the Obama administration makes these changes possible. The special corporate interests in the health care industry, for example, must also be confronted. And moving toward a progressive tax strategy is crucial to any effort for a universal national health care system. The passage of key elements of the administration’s budget just this week moves in that direction.

Two summits, two clear statements

The February 23rd White House “Summit on Fiscal Responsibility” sent a strong message to the Obama administration, to safeguard Social Security and Medicare, especially during the financial crisis. At that meeting any attempt to privatize Social Security and Medicare was strongly opposed. The attendance at that Summit was similar to that of the March 5th event, as was the theme, i.e, putting government responsibility and programs ahead of markets.

The March 5th White House Summit on Health Care, attended by scores of elected representatives, labor union and community representatives, sounded the alarm against these special corporate interests and highlighted the importance of putting universal access and patient care at the front any policy decisions. The primacy of government over the markets was supported by the majority of the attendees.

Targeting the main culprits

In the US there are so many market driven, corporate special interests profiting from the health care system that it is sometimes difficult to focus on the main culprits. After all, since the beginning of the Reagan period when “markets” became the dominant forces in health care policy, the country has been saddled with this failed direction. But, the next step is to propose the best immediate and long-tern strategy to limit and eliminate the power of these culprits.

It is no secret that the main market moneymakers in the US are the insurance carriers, the drug monopolies, the medical supply and equipment companies and the banks. They constitute the Medical/Health-Care Industrial Complex. What is not understood is that their corporate financial lives are dependent upon two major federal programs: Medicare and Medicaid. It is said that 70 cents of every dollar used in our health system is public money, primarily in the Medicare and Medicaid programs. That percent will significantly increase, not decrease, with the economic crisis.

This mirrors the arrogance and greed of defense contractors who live off the Military-Industrial Complex and the Pentagon Budget, as well as the ties at the top between military, the Federal government and the corporate world in that Complex. But, in the health care system, these profiteers’ publicity hides behind the big lie of the US health care system – that the market system yields the best medical and public health care. That “health caring” fig leaf is no longer a viable shield to cover their actual avarice and greed.

There is no question that limiting or eliminating insurance carriers is crucial. And, constraining the market pricing of drugs is well understood as central to controlling costs. For example, the federal government must stop paying the market price for prescription drugs for Medicare recipients, just as it doesn’t pay market prices in VA hospitals or the Medicaid system. That simple, popular step would save billions of dollars; negotiating the best price is even a standard business practice. And the health status of people will not be affected; it might even improve health status as medications become more affordable.

Limiting the price of medical equipment and supplies should also be tackled. Finally, forcing banks, which lend money to hospitals, to charge the least possible interest rates when hospitals are in need of bridge financing makes perfect sense. If they continue to charge usury rates, then the federal bank regulators would step in and establish a credit method that works for the health care system.

But, just focusing on these profiteers and not how the health care system itself, particularly hospitals, can be used to correct the system is a strategic mistake. The health care industry’s use of physicians and hospitals to gain their profits and power has been a corporate/Wall Street strategy. In some places that power goes through profit-making hospitals, and, in others, through the so-call not-for-profit hospitals. In major urban areas academic medical centers, the supreme level of the non-profits, have become easy prey for the industry. For example, the CEO of Mt. Sinai Medical Center in NYC “transferred” to become the multi-million dollar head of Aetna Insurance carrier, based in Hartford Connecticut, and, now has transferred back to another non-profit/public care health system attached to the University of Connecticut. This is an example of the parallel to defense contractor CEOs and lobbyists moving back and forth between the Defense Department and the defense contractors.

In too many cases, these non-profit hospitals behave more like profit-making hospitals than like public hospitals.

Physicians and Hospitals

Over recent decades, since the demise of the once all-powerful American Medical Association, the willingness of the federal government to regulate the price that physicians can charge for their services has significantly increased. At the national and state levels, AMAs will complain, but they are paper tigers as compared to past policy wars.

It is a little known fact that over the past few decades, there are more physicians working for a salary than working on a fee-for-service method of payment. This remarkable fact makes us look more like the European systems where most physicians accept a reasonable level of income, a level far less than the exorbitant incomes of too many specialists and corporate doctors in the US. It must be said that doctors are a lot like electricians and plumbers; they can charge anything they want for their services, but the difference is if they are accepting any form of federal support such as Medicare and Medicaid fees, they must accept constraints over their incomes. These days insurance carriers have aggressively limited physician fees. Physicians who accept no insurance charge what they can get. Even in France, there are private doctors, some of whom actually have their own hospitals. They charge want the market will bear. But this does not harm France’s powerful social solidarity.

In the US the control of specialists’ fees is crucial. Specialists’ physician fees have grow far beyond the services they provide. Primary care doctors (including geriatric care) charge the least for their services and receive the lowest salaries. They are being driven from the system. That can and must be reversed, for the sake of quality of care even more than for financial reasons. Controlling specialist salaries and increasing primary care doctors are both necessary and doable

First of all, by radically increasing the Federal National Health Service Corps medical students can be recruited into primary care by paying for their medical school education. This is generally called the “tuition forgiveness program.”

Federal dollars can also be used in another way. Academic medical centers, which train most of our country’s physicians, can train more primary care doctors by the Federal government paying for the tuition of new and continuing medical students. This is very important since the cost of medical school is through the roof. Medical students are graduating from private schools with debt of over $200,000 in and just a little less from public schools. Students are forced to seek specialist salaries to repay their debt. The tuition forgiveness program can change this over night. This might require a little arm-twisting, but so be it.

In short, physicians are no longer the major impediment to national health care legislation; and, once it is enacted, they will no longer be a drag on a national health care program. Will it be perfect? No, it won’t, but the era of physician control is over.

Hospitals, on the other hand, have evolved into health care’s industrial center and have become the cash cows for the country’s profit-making health industry.

There is one fact that is often overlooked and/or not taken seriously when looking at other countries’ health care systems. This is that by and large hospitals in European universal national health systems are in the public sector and/or operate in a highly regulated system, which controls the behavior of non-profit hospitals. A non-profit hospital, for example in France, looks and acts, in terms of administrative salaries and relationships, very similar to the French public hospitals.

But, the struggle to maintain the French system is in high gear. Nicolas Sarkozy, the very right wing head of France, is disregarding all national strikes and demonstrations as he seeks to privatize as much of the vaunted French system as humanly possible.

In other European countries corporate interests are hard at work to make even the most public of health cares system, e.g., the British National Health Service, as private as possible.

Here, where Prime Minister Margaret Thatcher’s attempt to curtail the BNHS mission by under funding it did not succeed, the BNHS still has mostly public hospitals. But, to add to his list of ever-lasting crimes, former Prime Minister Tony Blair took the under-funding attack on the BNHS to a level far greater than Thatcherism ever imagined.

The Blair leadership started the Private Finance Initiative (PFI) in the early 1990s. The PFI market system is quite simple. Blair’s New Labour government cut back on funding of their public hospitals and forced them to accept private financing for their capital projects. This PFI corporate strategy was not only for hospitals, but that is where its devastating affects are taking place. The PFI is now being used to privatize other public institutions.

Blair started the PFI through a back door, to undermine the BNHS’ public mission. PFI has the appearance of being benign to the general public, but its goal is quite strategic. PFI brings profit making into a fully public system.

Before being forced out as PM, when Blair was facing one of his last election crises and still wanted to proceed as PM, he injected hundreds of millions of English pounds into BNHS to correct the under funding. He responded only after the whole country was mobilized into street demonstrations and placed demands in Parliament. The money is there, but there is an ideology of the New Labour government under Blair and continuing under Gordon Brown, that the PFI is crucial to ending the UK health system as a truly socialist health system. Of course, their public rationale was to make a better BNHS, but it was the exact opposite. Blair used US corporate health financing experts for this anti-BNHS strategy.

Economic Crisis

But, the privatization strategy of New Labour is coming to an end for Blair, and now Gordon Brown. Over the past year, the number of PFI deals in hospitals has taken a nosedive from 20 to less than seven. This get-rich method of corporate interests seeking to privatize the BNHS hospitals is a failure. Clearly, this is an unintended consequence of the economic crisis that can actually help put the BNHS back on course to its original mission.

While certainly not stated as an aim of the PFI, the more the hospitals rely on private, for-profit corporations, the more the drug companies and insurance carriers as well as the medical equipment and supply companies seem to also make sense. And, in fact, Blair/Brown brought in the discredited US insurance company giant, United Health, to join in on the conspiracy of privatizing. This is just another chapter in the story of the right wing ideologues of the New Labour Party, bringing the Party closer to corporate interests and their corporate coffers.

In the UK, public health advocates have been fighting against the PFI and the wrong-headed market driven policies of the Labor Party. Hopefully, with the demise of Blair and the economic crisis, the BNHS can be returned to a fully public, government-run system.

Hospitals in the US

In the US there are three kinds of hospitals: for profit, non-for-profit and public hospitals (often within public benefit corporations as in New York City). On the face of it; the US system looks similar to the French health system. The French system also has these three levels of hospitals.

However, the French public hospitals are fully public. Their private, non-profit hospitals are mostly run by Societe Mutuelles, which are lead by employers and labor unions. And, as stated earlier, there are some for-profit hospitals which are almost entirely run by a doctor or a couple of doctors. These are a minor feature of the system.

In the US, the for-profit hospitals are not a minor player. They have been monopolized, mostly into the Hospital Corporation of America and a couple of other corporations. These exist mostly in the South and Southwestern states where unions are relatively weak. They generally service the healthiest parts of the population so that they can turn the most profit. When they try to cover Medicare recipients they often run in to fiscal fraud and many of their administrative personnel end up in jail. They are a sordid bunch. The Frist family founded and still owns that HCA. Bill Frist, before being discredited, was the lead Republican Senator who wrote health policy for the Bush administration. This is one more example of the incestuous relationships in the Medical/Healthcare Industrial Complex.

Not for profit hospitals

Public hospitals in the US generally run quite well, especially given the fiscal constraints they are forced to suffer. Major cities in the US have at least one public hospital; in New York City there are over 10. VA hospitals are a prime example of public hospitals that with strong oversight can become models for service delivery. By every objective criterion, VA hospitals are performing as well as any other hospitals. The reason is simple; there is strong oversight and accountability.

But, it is the private, not-for-profit hospitals that need the most attention by health policy advocates. These hospitals originated over 100 years ago as mostly religious institutions. Since then they have morphed into corporations skilled at using their no-tax status and health care mission to the “profit” advantage of the health market-based industry.

It is these hospitals, which are the home of the academic medical centers where physician and nurse training takes place, that have become the cash cows for the profiteers in health care. They exist mostly in the major cities in the country.

The fiscal construct of almost all non-profit hospitals is completely out of control. Cost over-runs are certainly not the hourly wages, health care benefits and pensions of the tens of millions workers in the industry. The problem starts at the top. Carefully written incorporation laws and regulations allow the most egregious conflicts of interest to occur. Corporate officers, managers and administrators have indirect and direct financial interests in the medical and public health industry, i.e., insurance carriers, drug companies, medical supply and equipment companies and banks.

The CEOs of these non-profits earn salaries and bonuses that are three to four times greater than those of top administrators in public hospitals, sometimes being over $3 million a year. This is a signal to pay the second and third and lower echelon administrators salaries clearly out of keeping with what is necessary or what is commensurate with their training and level of expertise.

Yet, the hourly wages, benefits and pension of workers in these three kinds of hospitals are quite similar. The exception, of course, is the for-profit hospitals, where an almost entirely non-union workforce’s wages are far lower and health benefits and pensions are very poor.

Correcting the imbalance

The economic crisis and the adjustments being proposed by the Obama administration offer a way to correct the not-for-profit executive salary and financial abuses of the past decades. Under the proposals from the new administration, any corporation receiving financial support from the federal government will have to accept for its executive officer a compensation program with a ceiling of $400,000, a year, with commensurate ceilings for administrative support personnel. Bonuses and vacation/holiday perks are a thing of the past.

This would begin to send a clear message to administrators seeking to make a financial and not a health career from our not-for-profit hospitals. It would also, down the line, send a clear message that a commitment to health care is the number one requirement to attaining a position in all health care facilities. Will this simple measure, by itself, correct the bloated administrative structures that have grown out of control over the past decades? Of course not. But, a new direction will be set.

Will constraining executive salaries only increase their personal deals with insurance carriers, drug companies and other profiteers in the system? For many the answer is yes. That is why tough conflict of interest, federal strings will be needed to forbid such double and triple dipping. Sitting on health industry corporate Boards of Directors seats with hospital CEOs and the for profit industry companies is where the deals take place. That must be ended. Health care corporate wheeling and dealing for greater corporate profits at the expense of patient care must end. The era of deals on golf courses and in corporate clubs must also be terminated.

The boards of hospitals must be made up of health care professionals interested in one thing – better health care services for patients and their families – not a possible future career with a vendor who you are doing business with (e.g. the Aetna example, above).

The example of the Federally Qualified Community Health Centers, where public money is used for not-for-profit community health centers and the scourge of greed and avarice are not present, is a good place to start. These FQCHCs provide many examples of how our health system, which is riddled with the profit mentality and personal gain over taking care of peoples health needs, can be reformed.

It is clear that the Medical/Healthcare Industrial Complex must be dismantled.

How will reform affect union representation and labor unity?

The simple answer is not much. The for-profit hospitals will continue to be extremely anti-union. The Employee Free Choice Act can make it possible for workers to join unions there.

For public sector unions, the situation remains the same.

For the non-profit hospitals where there are unions, nothing changes. In fact, the imposition of a corporate salary ceiling might actually free up money to help pay for health benefits and pensions as well as decent wages and, of course, pave the way for more useful patient services and protections.

Following the two presidential Summits, the two main unions which represent almost all hospital and community center workers took a major step toward independence. Andy Stern of the Service Employees International Union, the union which represents workers in the private hospitals (not for profits), and Gerald McEntee of the American Federation of State, County, Municipal Employees, which represents hospital workers in public hospitals, broke with a corporate policy group, a “strange bed fellows” group, that they had been working with since the mid-1990s. This is a milestone for labor policy setting in the field of universal access to health care.

The next step would be for these two unions to agree on a jurisdictional détente and, along with the American Federation of Government Employees (AFGE), launch a coordinated organizing drive to bring representation to every hospital and community center worker in the US. Since these two unions come from the two major labor federations, Change to Win and the AFL-CIO, respectively, such an organizing drive is entirely possible.

An Affordable National Health Program: Shorn of Profiteering

Our emerging new health system must be run entirely by public health minded hospitals administrators and staffed by like-minded physicians and nurses. This can only benefit those who use the hospitals. Labor must be integral to governance of the system. This is the only way a universal health system can be enacted and maintained. Bringing all the hospitals under control so that corporate interests cannot use them for their own selfish, corporate interests will free up billions of dollars, mostly taxpayers dollars, for our new system.

New money will be needed, but not nearly as much if these corporate interests are not stopped.

The new administration is making some small, but very significant steps in this direction. Let’s keep up the pressure in that direction.

--Phil E. Benjamin is senior editor of Political Affairs.