Narrator: The United States has many of the world's great hospitals, internationally renowned for medical excellence and innovation. These hospitals are great research centers and lead the way in offering state-of-the-art, cutting-edge medicine. But the question is, can Americans afford hospital care when the cost is twice the amount paid by other advanced countries? Is high cost preventing access to the care that they need?
Michael Gusmano: The U.S. prices are dramatically higher than any other country in the world.
Donald M. Berwick: And that prices are going up and up and up, without any evidence of increasing value.
Joshua M. Sharfstein: How is it possible that we're spending so much money for healthcare and we're getting so little health in return?
Deborah Richter: We don't consider healthcare a public good. We consider it a for-profit commodity.
Susan Rogers: The business model is not based on providing care. It's based on making money.
Harold Miller: Hospitals have actually been the largest consistent growth in healthcare spending in the past decades.
Shannon Brownlee: We've basically allowed hospitals to become massive businesses.
Elisabeth Rosenthal: People are so scared right now of these costs that they're going to incur.
Suzanne Thomas: We're a rich country, and the fact that people go to sleep at night worried that they're going to ruin themselves and maybe, more importantly, their families because of a medical condition, I think it's one of the cruelest things we can do to the American people.
Michael Gusmano: Medicine, in some ways, has lost sight of its goal. It's about providing people with decent care, so that they can live healthy lives in dignity.
Shannon Brownlee: There are all kinds of ways that hospitals can truly contribute to the health of their communities.
Narrator: How can we change the economic incentives that drive hospitals to become commercialized, money-driven institutions? How can we motivate them to lower cost and to return to their traditional mission of providing equitable and affordable healthcare to the community?
Suzanne Thomas: I was diagnosed with breast cancer. I had several surgeries and a year of chemo. When you get diagnosed with cancer, the last thing you want to think about is money. The last thing your family wants to think about is, "Can we afford this?" I tried to get on disability, just to sort of help me out, and I was told "You make too much money." And I said, "Well, what do I do?" And he said, "Well, quit." And I said, "And how long is it going to take for me to start seeing money?" And he said, "Six months." I was like, "What am I supposed to use between now and then?" And he said, "Use your savings." Oh, my savings was emptied. Whatever I had went straight to the bills that I had.
Stephen Klasko: What we have is a broken, fragmented, expensive, and inequitable system that, in essence, is set up to have everybody in their little fragments do as well as they can. So we've had an exploding $4 trillion system. Insurers have done well. By and large, until recently, hospitals have done well. Pharma has done well. Everybody's done well, except the underserved patients.
Elisabeth Rosenthal: In our very messed up hospital system, everyone wants a bad guy. They talk about insures. They talk about pharma, but hospitals get off relatively scot-free.
Speaker 12: This morning, a young Kentucky man says his life is on hold, because a heart condition left him with massive debt, despite having health insurance. We're looking at his...
Elisabeth Rosenthal: We do this series with NPR and CBS called Bill of the Month. The last one we had was a young guy who did the right thing. He bought insurance. He was 25 when he got a weird complication of a viral infection.
Matthew Fentress: So you're in a hospital bed and you are concerned about your situation. I don't have credit card debt. I wasn't living beyond my means. The only thing I wasn't thinking of was, how was I going to survive if some life-altering medical incident happened?
Elisabeth Rosenthal: He had to pay $20,000 out of pocket. He was a cook at a nursing home.
Matthew Fentress: I was making cannolis. It was an easy menu, and all of a sudden, I blacked out. Next thing I know, I come through, and my wife is holding my head, crying. They took me to the hospital. They found brain swelling, so they froze me, put me in medically induced coma. I expected to be able to survive without constant fear of lawsuits. I'm struggling, because I had to figure out, "Okay, am I going to be able to eat tomorrow? Or am I going to be able to pay this medical bill, so I don't get sued?" So I filed for bankruptcy. Me and my wife are trying to have kids now. One of the major things I took into consideration was, what would happen if I passed away, of just not being there for her and leaving her with all my medical debt?
Elisabeth Rosenthal: What's wrong with this system?
Narrator: The high cost of hospital care drives up the cost of insurance premiums and adds thousands of dollars in patient deductibles and out-of-pocket expenses.
Speaker 14: Treating COPD, a respiratory disease will cost you $7,000 in the Bronx, New York, but just 30 miles away, in New Jersey, it's almost a hundred thousand dollars.
David W. Johnson: Why in the world do we tolerate that type of 10x price discrepancy for something that's a commodity?
Michael Gusmano: Those of us who study healthcare have known about this for a long time is you have wild variation, not only in terms of how much care people receive, depending on where they're hospitalized, but how much those hospitals are charging for the same services.
Elisabeth Rosenthal: Hospitals have these master price lists, that are called the chargemasters, where the prices are anything and everything. There's no actual value connected to the price. It's whatever you can get away with charging.
Narrator: Patients have no way of knowing the actual cost of services or how much their insurance company will pay. Medicare prices are standardized for hospitals. They know how much Medicare will pay for a specific service, but commercial insurance payment rates are secretly negotiated between hospitals and insurance companies.
Elisabeth Rosenthal: The insurers bargain to what sounds reasonable. "Oh, we only paid 40%." Okay, great, but if the price was inflated by 10 times and we paid 40% of an inflated price, they're still paying a really, really inflated price.
Donald M. Berwick: If the prices are varying that much, we know the quality's not varying. You might expect that, when you pay a lot for a car, you get a better car than when you pay a little for a car. In healthcare, that's not the case. We don't have strong evidence about a price quality relationship in healthcare. The biggest category of waste, according to a number of the people that have researched it, is administrative paperwork. It's processing claims and codes.
Richard Master: In some hospitals, one administrative person is required for every bed just to bill, and that doesn't include the reporting that's being done on the wards, by nurses and doctors, who are diverted in their attention to document what that treatment is, so it can be billed.
Wendell Potter: Administrative costs are so high in this country, because we have hundreds of insurance companies. And each one of them sells dozens, if not hundreds, of health insurance plans, and all those plans have their own set of price variation, coverage limitations, out-of-pocket expenses, network restrictions, and other complexities. That mind-boggling number of health plans adds enormously to overall healthcare spending, because hospitals need to maintain large staffs of people just to keep track of all that plan information.
Alan H. Channing: And it takes somebody sitting in a room, looking at those policies, to translate that into a bill. So you can imagine the spreadsheet, what it might look like for all those different policies.
Wendell Potter: This adds hundreds of billions of dollars to what we spend on healthcare. It's money that does nothing to get us well.
Richard Master: So you're seeing this dramatic waste of resources to bill and to collect those bills.
Elisabeth Rosenthal: And you're paying for all that, and your company is paying for that. And you, with your copays, co-insurance are ultimately paying for that. And your premiums the next year will go up.
Wendell Potter: Private insurers have done a lousy job of controlling healthcare cost, especially when it comes to a stay in the hospital. As prices go up, insurers pass the cost along to their customers. This has a hugely negative impact on employers. A recent survey by the Kaiser Family Foundation found that 87% of the CEOs say that the cost to providing insurance to their employees will become unsustainable. Hospitals force private insurance companies to pay more than Medicare does. It's why premiums and deductibles are so high and rising so fast, constantly sucking money out of employers' bank accounts, money that otherwise could be used to increase wages and hire new workers.
John Kimmich: Healthcare is on our minds every day as business owners. It is insanely expensive. It is mind bogglingly complex, and it is probably the biggest waste of time, as business owners, that we experience on a day-to-day basis.
Jen Kimmich: We spend close to a half a million dollars a year. We're a small business, and at the end of the day, it's not good health insurance coverage.
Wendell Potter: The Affordable Care Act set a cap on health insurance deductibles, but that ceiling is absurdly high. And it's getting higher every year. Many families have to pay more than $17,000 out of their own pockets before their coverage kicks in. It's no wonder that people with cancer and other chronic illnesses are going broke, even if they have insurance.
Suzanne Thomas: I just couldn't afford to keep my insurance and keep my house. It was either stay alive or get rid of the house. I had to pay my bills, and I didn't want to leave my kids things that they had to pay. I kept the finances, the financial worry, to myself, because you don't want to worry your family, when they're already worried about you. I gave up my house, two car garage, big yard, and I went to a 600 square foot apartment. When I sold my house, most of the money went to paying off my medical bills. It was terrible. I have to say, I lost my dream house. Every once in a while, I drive by it and look at it. You raise your kids in a house. You have all of your friends in that neighborhood, and then, you move to this teeny tiny apartment. I sat in the apartment, and I just cried. Because there we go onto a new journey that maybe we're not necessarily ready to go on, but that's what you do when you have bills and you don't want your family getting stuck with them.
Richard Master: Nobel Prize winning economist, Kenneth Arrow had a major insight into healthcare markets decades ago. He argued that the particular nature of healthcare makes it impossible for regular marketplace dynamics to effectively self-regulate price.
Michael Gusmano: There are no examples of a system that is relying primarily on market competition to bring down prices or to improve hospital performance that work. Not only doesn't it work theoretically, for reasons that economists have been talking about for decades, there's no empirical evidence that it works.
Peter S. Arno: In order to have a free market, you have to have knowledge on the buyer side, the seller side, what are the prices? And that is completely absent in healthcare. If you have a heart attack or in a car accident, the idea of price transparency or choosing a provider is a fantasy. There's no relationship. Even in less serious medical circumstances, you often go to where your doctor tells you to go or where your friends recommended.
Joe White: People assume that a higher priced doctor or hospital is better, that the safe thing to do is to accept a higher price. People are scared to shop by price, because they're worried about getting lower quality.
Peter S. Arno: Our health outcomes aren't great, and our costs are double. It's the lack of constraint on pricing that's driving expenditures in the United States.
Joe White: If you don't control the prices, you are in deep trouble. More and more research has said prices are fundamental and the prices are the main source, not just of high costs, but of variation in costs.
Wendell Potter: Medicare has successfully limited the growth of payment rates to hospitals to generally the same rate as normal inflation. Commercial payments to hospitals, on the other hand, have gone largely unchecked and have been the major driver of high healthcare inflation.
Narrator: Employer-based health insurance pays hospitals significantly more than Medicare does for the exact same procedure. If Medicare pays $10,000, a worker's insurance plan pays, on average, 20 to $35,000 for the same service. These bloated hospital prices are a tremendous financial burden on employers and their workforce. It makes no sense that American workers are forced to grossly overpay for hospital care.
Wendell Potter: Medicare pays one rate and commercial insurers pay a much higher rate, based on their individual negotiations with hospitals. One hospital might have far more Medicare or Medicaid patients, while another hospital has far more commercial insurance patients. A hospital with a high number of commercially insured patients will make much more money, compared to hospitals that have far fewer patients with commercial insurance. That's why hospitals want their beds filled with patients that have commercial insurance. The payer mix has a huge impact on a hospital's bottom line and its ability to stay in business.
Harold Miller: Maryland has done one thing that is incredibly desirable. There is no situation in which one health plan pays more or less than another health plan.
Joshua M. Sharfstein: If an appendectomy cost $10,000 at Johns Hopkins, that was the rate Medicaid paid, that was the rate Blue Cross paid. Everybody paid that, and that was the rate that was billed to the uninsured too.
Elisabeth Rosenthal: It's hospitals, doctors, patients, economists come together and figure out their priorities and what are the reasonable prices to pay to make those happen.
Kevin J. Sexton: I did have the opportunity, during my time in Maryland, to sit on the Rate Setting Commission for eight years and six as the vice chair. They're looking to try to find something that is at least viewed by all sides as having been done fairly and openly. It ultimately, most times, comes out with people saying, "Okay, we can live with that outcome." And that's the negotiation.
Victor Rodwin: Even in a very private system, like the Swiss health system, there, you have private insurers, nonprofit insurers, and you have private hospitals and public hospitals, but they all get paid exactly the same for whatever they do by all the insurers. Most countries of the world, advanced, industrial nations have systems of price control. All of these systems negotiate prices.
Narrator: Although there are system differences between those other countries, they all have one thing in common, and that's rational regulation of payment rates.
Victor Rodwin: We do need to have some form of price regulation. We do it already with Medicare, and we ought to be able to do it for the entire healthcare system.
Narrator: Most states have safety net hospitals, that primarily treat low paying Medicaid patients and non-paying uninsured patients. Those safety net hospitals are substantially funded by the taxpayers. Maryland has eliminated the need for safety net hospitals, because hospitals are paid the same rate for a procedure, regardless of who the payer is. This includes uninsured patients that cannot afford to pay. Maryland has a special financing system that fairly compensates hospitals for treating the uninsured. Maryland hospitals do not lose money when treating Medicaid or uninsured patients.
Vikas Saini: Safety net hospitals that take anyone who walks in the door tend to have lower revenue and lower margins, so they have less to work with.
Elisabeth Rosenthal: Public safety net hospitals are in trouble, because they mostly deal with patients who are uninsured or have Medicaid, which pretty much everyone agrees, pays below what it actually costs to care for these patients.
Michael Gusmano: So it is not at all a surprise that they are going to have fewer staff working longer hours. They're going to have less equipment. That equipment isn't going to be replaced as quickly.
Carla LeCoin: I am working in a safety net hospital, in a humble community, mostly Black and brown community. I love it. I could have worked at a different hospital that had more resources. I wanted to stay with patients that looked like me and I looked like them, and that's where I've been. Looking at how many patients a nurse has versus how many patients a nurse should have, the delivery room can have three moms that are laboring to one nurse. We didn't have enough nurses, and it was just running and running and running. I just felt so bad and exhausted. I gave patients the floor of what they need, the minimum, but they deserve more than just the minimum. And when you can only give the minimum, that doesn't feel good. It doesn't feel good at all. My heart hurts. Yeah, my heart hurts sometimes.
Vikas Saini: Meanwhile, there are other hospitals that really tend to cater to people who have a lot more commercial insurance coverage and they perform higher margin procedures, so they have a lot more resources.
Donald Moore: They're going to have more monies allocated per bed per illness. They're getting reimbursed, but a much higher rate than the public hospitals.
Elisabeth Rosenthal: And what we're seeing now, in Chicago, in DC, in Philadelphia, are the last urban safety net hospitals are closing, and that's going to be a huge problem.
Carla LeCoin: I get that I'm in a safety net hospital. I'm in an area that doesn't make a lot of money. We still deserve more than we get.
Susan Rogers: What happens in a poor neighborhood is, when there's no hospital, the hospital leaves, the doctors leave. So then, you have no building, no physicians, no providers for healthcare. You have a total medical desert.
Donald Moore: This fractionated healthcare delivery system that we have, where we separate people with different insurances, that is what leads to the disparities.
Susan Rogers: We're people or the patients no one wants to treat. Why should I do the same amount of work and do the same thing, but get a 10th of the money? And I can understand that. It's the reason why there is no hospital here and a multimillion dollar MRI center over there.
Michael Gusmano: Disproportionately, Medicaid clients are Black and brown, and disproportionately, there has been a longstanding history of racism shaping the Medicaid program. Lower payment rates, fewer physicians providing services to those clients.
Carla LeCoin: To be dismissed as we don't make money. To be dismissed, as in, "Ugh, we're going to close, because they're just not…" I feel like they're saying we're not worthy. And I know we are, and I wish others would realize that we are. We are very needed, and we deserve to have more invested into us.
Phillip Longman: It's the socioeconomic conditions that seems to determine who lives and who dies when they get COVID. "How poor are you? What's your skin color?" That's the big determinant.
Donald Moore: You're 8%, 10% of the population, but you've got 30% of the disease. That's health disparities, in terms of your susceptibility to the disease, and of course, if you get the disease, who is going to die?
Susan Rogers: What COVID did was it sort of laid bare all the intricacies that are involved in why poor people are so disadvantaged.
Alex Ortega: This is happening all over the country. Latinos in the United States have historically had poor access to the US healthcare system and have worse health outcomes as a result. Blacks and Latinos are at the highest risk of not only having COVID-19, but having serious consequences of COVID-19, because of lack of access to care and because of discrimination that happens in the healthcare system.
Susan Rogers: So the whole approach to this pandemic is an example of how we approach healthcare. The haves get it, and the have nots don't.
Narrator: The type of insurance patients have is not only a problem in urban safety net hospitals, but is also a chronic problem in small and rural hospitals across the country.
Deborah Richter: What is driving the rural hospitals especially to close is the fact that they have a, in general, a poorer population, higher rates of Medicaid, or uninsured patients.
Wendell Potter: The problem is made worse, because small hospitals are typically in a weaker position when negotiating with commercial insurance companies. They don't have the same leverage that big hospitals have. In some cases, commercial insurance companies pay the hospital even less than Medicare does.
Deborah Richter: They can't meet their fixed costs, and they end up closing.
Mayor Jill Holland: When I was told that morning that we no longer were going to have a hospital, I felt like I had just been hit in the stomach. It's devastating. Losing the hospital was one of the most traumatic things I think our community has ever gone through. In a matter of about four years, it had lost $12 million. The hospital just could not sustain those kinds of losses. We had doctors that left town. We had nurses. They left town. We lost a lot.
Speaker 31: EMS patients are now being diverted away from Big South Fork Medical Center. Mayor Jeff Tibbles tells us that he was notified yesterday that the hospital stopped accepting ambulances. For now, we're told patients are being diverted to nearby hospitals.
James Lovett: When the hospital has been closed, it's created a lot of fear in our community. Imagine what it's like to wake up in the middle of the night and your chest is hurting or you can't breathe. You're having a heart attack, and you're an hour away from care. It makes you wonder if you're going to be able to reach an emergency room in time. I'll be honest, I don't know if I'm going to be here in my retirement if we do not have a hospital. And I was born and raised in Scott County.
Tracey Stansberry: Economically, it can be devastating for a community to lose their hospital, not just because of the jobs lost within that facility, but it makes attracting other industries and other businesses much more difficult for a community. I feel like so many small towns are getting the short end of the stick, and something needs to change. We have to have those services if we want these rural communities to flourish and to be a part of the American landscape long-term.
Narrator: The United States has a long tradition of great nonprofit hospitals that were founded with a mission to serve the community. Charity care was a core part of that mission.
Elisabeth Rosenthal: Healthcare started as something that was largely done by religious orders or local good guys. They opened hospitals. They opened clinics. We're talking the 19th century origin of most American hospitals. It was not at all about money. It was about doing good. It was mostly a charitable thing.
Narrator: With the end of World War II, more than 16 million servicemen and women returned to their hometowns.
Alan H. Channing: So all the soldiers coming home were looking for the same kind of healthcare experience they had as soldiers.
Richard Master: Most people in this country still lived in communities that didn't have a hospital, so to improve the health of all Americans, the US made a really bold bipartisan commitment.
Alan H. Channing: Two members of Congress, Misters Hill and Burton wrote a law that got passed called the Hill Burton Law, and it funded the development of hospitals, with a target of one in every county in the country.
Michael Gusmano: The construction of hospitals, particularly in underserved communities, was financed through the federal government through the Hill Burton Act.
Wendell Potter: The Hill Burton Act required that hospitals receiving government money offer at least a reasonable amount of charity care and to offer affordable care to low income people in the hospital's area.
Michael Gusmano: They were created with mostly not-for-profit status, and they were asked to provide certain community benefits.
Speaker 34: This is one of the most important buildings in any community, its hospital. Within these walls, a variety of medical services are performed, ever expanding, ever changing in application and scope, responsible for care during so many phases of life.
Gerald Friedman: The idea was you're not in it for the money, but you are in it to provide a public service. In the late 1980s, price regulations were repealed in virtually every state. Maryland's the only one that kept it. When we removed the regulations and when we allowed the hospitals to merge and form these networks, that's when they started driving up prices and we started paying for it. That is a result of the deregulation in the hospital sector.
Narrator: In city after city across the country, hospitals have increased their power by buying or merging with other hospitals to increase both their revenue and their market dominance.
Wendell Potter: The rapid consolidation in the health insurance business has been a catalyst for hospital mergers and acquisitions. To maintain clout at the negotiating table with insurance companies, hospitals began to consolidate, to the point that they've reached monopoly status in many markets.
Michael Gusmano: Corporate America, just over the past few decades, recognized how much money you could make in the healthcare system.
Elisabeth Rosenthal: Business consultants start healthcare consultancies, and they come in to many hospitals and say, "You're not maximizing your return on investment," which is not a healthcare value. I always like to remind people. That is a pure business value.
Richard Master: Most of the hospitals in the United States are still nonprofit, but these hospitals no longer operate like charitable institutions.
Speaker 36: Nice and strong. Sounds great.
Deborah Richter: Not-for-profit hospitals are supposed to assess the needs of their community and have certain community services available for that community, in exchange for not paying taxes. That is more or less gone at this point.
Peter S. Arno: And today, it is completely dominated by the medical industrial complex that generates money and generates profits or in the case of nonprofits, surplus which is equivalent to profits.
Vikas Saini: The scramble for revenue also manifests itself by disproportionately wanting to expand the highly profitable or lucrative procedures.
Michael Gusmano: They're going to deemphasize where they make less money, so they're going to be smart, from a market point of view about where they're investing their resources. And that may not align with the public's health.
Carla LeCoin: There were multiple closures across the city of delivery rooms, postpartum units. A lot of hospitals, they weren't delivering babies. We know we should be here. We know that we're needed, but we're not making the money.
Deborah Richter: Every other industrialized country regards healthcare as a public good. They have public stewardship, someone overseeing, that is accountable to the public. We do not have that in this country. What we have basically is independent profit making entities. Each individual hospital looks at what will bring in the most revenue, and so, those are the services that they end up investing in, the orthopedic services, the ophthalmology services, the cardiology services, and not necessarily in the services that are more needed in the community. There's perverse incentives in this non-system that we have in this country. We spend way more money on the high tech care, the expensive care, and way less money and a percentage on primary care, which is where the savings are, where the quality is, where the improvement in population health is.
David W. Johnson: Most of the rest of the world does a better job than we do. We are an outlier, both in terms of how much we spend on acute care and how little we spend, relatively speaking, on social care. We have a system that pays for activity, pays for volume, doesn't pay for outcomes. Anywhere you look in healthcare, either whether it's through overpayment or overtreatment, we get too much acute care. And the things we don't pay for, behavioral health, chronic disease management, primary care, we get too little of, so our system is completely out of balance.
Deborah Richter: And in hospitals where there are lots of resources, the culture becomes "Use the resources, because we have them." In the hospital where there are five CT scanners, there's going to be an open scanner, and so, if you're kind of on the fence, which is a lot of medicine, "Oh, it's open? Go to the CT."
Gerald Friedman: There's an incentive within the hospital to overdo things. And hospital networks will have metrics for their doctors that you should be doing a certain number of these tests, doing a certain number of that test, making more money, doing things that don't need to be done.
Elisabeth Rosenthal: We're used to a system that does a whole lot of tests when sometimes the answer is "Let's wait." And so, we do get a lot of over scanning, which leads to overtreatment, which leads sometimes to pain and hurt for patients from overtreatment and most of all, a ton of cost.
Donald M. Berwick: We need to be asking questions when we do things to people, things that could hurt them, things that cost their money. Sometimes, we'll find out that the science would say it won't help and we should stop it. Sometimes the science will say, "We don't really know," and then, we really ought to dig in and study it, especially if introduces hazards.
Michael Gusmano: One of the reasons it's so important to invest in clinical and health services research, that would allow us to identify areas of overtreatment, is because it would allow you to rationally reallocate resources toward people who are being undertreated. There's lots of evidence that people without insurance, people who are underinsured, and frankly, even people who have decent insurance, but because of racism are undertreated in the United States.
Speaker 37: Healthcare spending is on the rise here in Massachusetts.
Speaker 38: In hospital profits per patient are going up.
Speaker 37: As a nation, our healthcare spending is 10 times what it was back in 1980.
Tsung Mei Cheng: So you have healthcare growth projected at 5.5% on the one hand. On the other hand, you have GDP growth projected to be at 1.7%. There's a very big gap between these two. Our current system is, in the long run, unsustainable.
Narrator: Unless we change course and control hospital costs, spending is projected to continue growing at twice the rate of normal inflation. We're now spending $1.3 trillion a year and are projected to reach $2 trillion by 2028.
David W. Johnson: In 1960, military spending was 9% of our economy and healthcare was 5%. Today, healthcare is 18% and military spending is 3%. What we're really confronting in healthcare today is a form of the military industrial complex on steroids, a healthcare industrial complex.
Michael Gusmano: When people look at hospitals putting up new buildings and buying new technology and expanding, they may look at the big shiny new building and presume that it's going to generate a lot of new jobs and tax revenue for the community, but it's not clear that that's always the case.
Richard Master: This excessive growth presents a real threat to the overall economy of a community. Hospital expansion costs a community hundreds of millions of dollars.
Phillip Longman: The progression is community loses its large manufacturing base. The steel mills are closing. The textile mills are closing. Our way of life is closing. What could be better than to put our resources into building up a gigantic academic medical center? It'll be prestige to our community. It'll create a larger payroll that we can tax. The story is a good story up to a point.
Michael Gusmano: If you are expanding in ways that make your specialized services available in areas that were previously underserved, that is more justified. When you are expanding simply to gobble up more market share and to make sure that you have that kind of monopoly in the market and therefore greater leverage with payers, that's probably not in the public interest.
Gerald Friedman: You have the primary physician owned by the hospital network, the specialists owned by the hospital network, the labs owned by the hospital network, and they're all sending you in that one place. Hospital networks are trying to establish themselves as the one place where you go for care.
Phillip Longman: The promise of it is that you have economies of scale, that you have better integration of care. Sadly, what's actually happened is whatever efficiencies have resulted from this consolidation have largely gone back to the profits of the providers.
Gerald Friedman: When they've bought other hospitals, they've promised, "Oh, we'll bring lower costs. Oh, we'll bring better care." There's no evidence that either of those has happened.
Tsung Mei Cheng: Typically, prices go up after mergers. Between 2007 and 2014, mergers led to hospital price increases of 41%.
Donald M. Berwick: There isn't any strong systematic trend at all that says that consolidation improves quality. For many, many routine procedures, say, knee replacement or hip replacement, the evidence is that, for many community hospitals, the care is just as good, sometimes better than in the academic centers.
Richard Master: Hospitals are on a quest to get larger, to accumulate massive financial reserves.
Speaker 40: With technology like intraoperative CT and MRI—
Richard Master: They have marketing campaigns and acquisition strategies to increase their market share and dominance. These are business strategies, not community health strategies.
Stephen Klasko: If your only goal is to maximize revenue, then my feeling is that that's a real problem if you're a nonprofit. The definition of a not-for-profit health system really has to include the mission. My definition of success was hitting my mission and doing it in a way that we could reinvest in that mission. To me, that is the essence of running a nonprofit health system.
Phillip Longman: There's an inflection point though, when this institution now is no longer a publicly spirited, mission-driven healthcare provider, but is rather a monopolistic profit maximizer that is charging monopolistic prices and causing every business in the community to have to pay an ever higher percentage of their resources to its hungry mouth. The local healthcare system doesn't pay any property taxes, because they're nonprofit. They don't have to. And it turns out that the city is desperate for money to fund the schools and to fund the aging infrastructure, so they have to raise property taxes. And now, all of a sudden, I not only have to pay more and more for health insurance for my employees, but I've got all this pressure coming from the local government to get more of my resources too.
Gerald Friedman: What do you do when you're pocketing tons of money and profits, but you are a nonprofit company?
Richard Master: Nonprofit hospitals earn money, but they don't call it profit, they call it earned excess. Earned excesses can be six, seven, or even 8% of gross revenue. Over time, they accumulate these profits in liquid financial reserve accounts. They cannot, as nonprofit organizations, distribute funds to shareholders. They must utilize those funds. And so, what do they do? They build, they acquire, they get larger and more powerful.
Phillip Longman: Most of these nonprofit corporations do have large reserves. It's just a sign of how over-resourced these institutions are.
Richard Master: I live in the Lehigh Valley region of Pennsylvania, where two nonprofit hospital networks dominate. Looking at the most recent financial statements of one of them, we see that, in 2020, they had $699 million in cash, 417 million in corporate bonds, 668 million in US and foreign stock, 152 million in real estate investments, and 59 million in government securities. That's over $2 billion in liquid reserves. This is not unusual for a hospital network of even moderate size. The question is whether this accumulation of wealth is in the public's interest. Their money is principally derived from our community. Shouldn't the accumulation of hospital funds and their utilization be a matter of community oversight?
Narrator: Typically, the community oversight comes from hospital boards, but board members are usually handpicked to be agreeable to the hospital plans and objectives. Boards don't reflect a wide cross section of the community and don't usually provide strong critical input.
Stephen Klasko: What gets under talked about, both positively and negatively, is the importance of nonprofit healthcare boards. And in both cases, in Florida and in Philadelphia, I had unbelievable boards. They were willing to have our incentives match our visions. You could have a good balanced nonprofit entity in the health system that's doing the right thing, that's A-rated, and that has people say, "Boy, I can go to bed at night and say, "God, I really feel good that I decided to be at this part of the health system and not just to have gone and made a lot of money."
Jeffrey Romoff: We will announce a dramatic advance in the way UPMC delivers the highest quality care in the region across the commonwealth and globally. UPMC desires to be the Amazon of healthcare.
Narrator: The University of Pittsburgh Medical Center has a long history of market consolidation, with more than 40 hospitals and 700 clinical locations. UPMC has an expensive network in Pennsylvania, that also extends into neighboring states and even other countries.
Speaker 42: UPMC is buying another hospital in Ireland. It'll take over a 105 year old hospital in Kilkenny. UPMC already owns two other hospitals in Ireland.
Narrator: UPMC is the largest non-government employer in Pennsylvania, with over 50,000 employees. They have massive financial reserves of over $6 billion.
Josh Shapiro: We have concluded that UPMC, one of the largest nonprofit healthcare providers, healthcare insurers, and charitable institutions, within our commonwealth, is not fulfilling its obligation as a public charity.
Narrator: Over the years, they've had significant battles with the Pittsburgh community.
Speaker 44: (Singing)
Chelsea L. Wagner: With UPMC's predatory behavior, they have forced the shuttering of a number of their hospitals, that were in the areas of greater need. I've been involved with community members, trying to stop them from shuttering a hospital and its regular services on the South Side of Pittsburgh. They shuttered the hospitals that people desperately needed. They are then building and trying to build them in our wealthier suburbs. So they're moving out of the city, in favor of moving to higher income, outer ring suburbs of our region. These hospitals have been built on the backs of all of our residents, with massive subsidies, not just to build them grants and so forth, but to continue their operation.
Richard Master: Hospitals save millions of dollars with their nonprofit status. The community has to make up that lost revenue by paying higher taxes. Essentially, the community is subsidizing the nonprofit hospital.
Shannon Brownlee: Hospitals almost never spend as much on their community as they receive in tax benefits and tax breaks, and communities are not holding hospitals' feet to the fire' to make sure that they're giving back. And I think it's because they never conceived that that was part of their job as community members to hold the hospital accountable.
Donald M. Berwick: And we don't have very good patterns established for making sure that the give back implied in the community benefit obligations of nonprofit organizations actually go where the most need is.
Speaker 46: 911, what do you need? Police, fire, or medical?
Speaker 47: I have three people that are apparently they seem to be passed out, not waking up in my parking lot. Two of them are on the ground.
Donald M. Berwick: The opioid epidemic, of course, is a massive American tragedy. Why, with 70,000 people, at one point, dying in this country, did we not say to the American hospitals, "You have an obligation to aggregate resources, give over those resources to the programs and projects, which you need to support, to change the whole pattern of opioid care in our communities and end this. Let's stop it?" We don't have a mechanism for that kind of aggregated, coordinated management and dealing with problems of that magnitude. And the opioid epidemic's only one such case.
Michael Gusmano: They ought to have an obligation to work with organizations that are addressing those broader social and economic determinants of health to work with public health departments.
Chelsea L. Wagner: If they do want to be innovators, then they could really be innovating in a way that looks to say, "Here's how we get a community healthy," rather than "Here's how we make money off of them when they're sick."
Stephen Klasko: My team was getting a lot of kudos, because we had done a lot of really good things. And I said, "Look, if I'm here for another four or five years," which I was, "and all I've done is make my organization great and stable, and Philadelphia still has a 22 year difference in life expectancy, then I've failed." How can I be a healthcare leader in a city that has a 22 year difference in life expectancy and say, "That's great?"
Alex Ortega: There are large healthcare systems, as well as small local healthcare systems, that are doing a really good job at doing population health and outreaching to communities, and the idea with population health is not only to improve the health of communities, but when you improve the health of communities, then you reduce the need for secondary healthcare.
Shannon Brownlee: There was a real need for an organization that had a vision of healthcare and could put out bold ideas about how we might get there, and that was the origin of the Lown Hospitals Index.
Wendell Potter: The Lown Institute has created a very useful rating system that evaluates a hospital's community benefit and equity. It's a great starting point for a dialogue with your local hospital and to begin to ask important questions like, "Is your hospital working closely with your community to develop programs that truly do meet population health needs?"
Shannon Brownlee: What we want to do is reframe what Americans expect out of hospitals. And certainly delivering high quality care and safe care is one of the things that they should expect, but they should also expect that hospitals are equitable in who they serve, that they don't exclude people of color. We should also expect that they don't charge outrageous prices, which they do. We should also expect that they give back to their communities, they make efforts to make sure their community is healthy, making sure they have access to mental health. There are all kinds of ways that hospitals can truly substantively contribute to the health of their communities.
Joshua M. Sharfstein: We want the healthcare system, not just to take care of sick patients, but to be involved in prevention, to be helping with some of the major challenges of our time, including racial inequity and disparities.
Susan Rogers: I think there has to be some sort of system that equity is the basis. That's the core.
Joshua M. Sharfstein: Improving equity is not just a feel good goal. It is, in fact, central to the success of the project.
David W. Johnson: There's a secret room in every hospital in the country that's got a gigantic sign that says optimize revenues, and that's where all the big important decisions get made. Hospitals make their money by doing a high volume of procedures and for charging as much as they possibly can for each procedure, and what Maryland does is it fundamentally breaks that.
Richard Master: Maryland is the only state that caps hospital spending. Each hospital in Maryland has a maximum amount of revenue they're allowed to take in for the year, based on the population they serve. Hospitals must stay within their set budget amount. The hospital does not financially benefit by increasing its volume of services, but there is a way that hospitals can increase their allowed budget. It's by achieving strategic quality objectives. This has resulted in Maryland reducing patient complications, reducing readmissions, and lowering hospital infection rates. Maryland is a work in progress. They're in the early stages of changing the financial incentives that motivate hospitals. Maryland is moving in a positive direction.
Michael Gusmano: Global budgeting of hospitals means setting a fixed budget for the year, based on estimates about what kinds of resources the hospital will need to provide the healthcare that is required by the community.
David W. Johnson: And because of the global budget, it also means that, if you do less, you get to participate in those savings, so you're not entirely dependent on churning more volume through the hospital in order to drive a profit. It no longer is a benefit to do more procedures, and since you're getting paid the same amount for each procedure, there's no benefit to treating a Medicare person versus a Medicaid or a commercial person.
Joshua M. Sharfstein: The hospital has the funds that it needs to pursue its mission, the funds that it needs to provide the clinical care, to be a real partner in prevention, to do high tech research, if that's the kind of hospital that it is. And then, the hospital can go about doing a good job with that and doesn't have to worry about making sure that beds are filled.
Kevin J. Sexton: So what you're trying to do is set direction and set policy, and if the incentives are right, what's in their best interest is also in the community's interest.
Joshua M. Sharfstein: You want broad incentives that really provide support for patients to be thriving at home and to recover at home and to not need the hospital.
Vikas Saini: You could have town meetings for health care, which is what we've been calling health assemblies. You would then have global budgets with a range of quality metrics and certain guidelines, but mostly scrutiny and feedback loops.
Narrator: In Maryland, global budgeting guarantees a stable annual operating budget that relieves hospitals of their struggle to fill beds in low population areas. Guaranteeing them an annual budget enables them to shift their focus to community health.
Joshua M. Sharfstein: Let's stabilize their revenue. Let's ask the hospital to come up with a plan for reconfiguring its clinical services to improve the health of its community. What are the services our community needs? Not, what are the services we need to offer to stay afloat?
Kevin J. Sexton: You have consistency. You have all patients treated similarly, and you have a predictability to the system. It is easier to do what I would call the right thing in Maryland.
David W. Johnson: What convinced me on Maryland was the five-year report on the results. Their costs have been going down greater than any other state over the last five to seven years, while others are going up. We are not going to change that revenue optimizing behavior without fundamentally changing the formula for how these organizations operate, and that's what Maryland does. It cuts right to the heart of that. If you don't get the payment model right, you're going to continue to get what we've already gotten, which is spending ever more money for ever poorer outcomes.
Joshua M. Sharfstein: We've got a long way to go in Maryland. There's a lot to be done, but it is a very promising story in American healthcare.
Narrator: Our government, our hospitals, together with economists, physicians, and representatives from the community need to come together in a rational process that determines fair pricing sets, hospital budgets, and redirects the incentives to maximize community health. The simple regulation of hospital spending growth to overall economic growth could save over $2 trillion over the next 10 years. We need to repurpose our hospital resources to ensure that we're getting the maximum healthcare for every dollar that we spend.
Richard Master: Payment reform and changing financial incentives need to be at the heart of any serious plan to control hospital costs, but we can't ignore the need for universal access. Access to all, regardless of ability to pay, is fundamental. Every American should get the care they need with no financial barriers. That is the ultimate promise of true healthcare reform.