Should We Be Nicer To Hospitals?

American healthcare provides a compelling case study of the intersection between capitalism and welfare. On the surface, many view the system as broken and exploitative. However, a closer examination unbiased by misinterpretation reveals a more mundane reality: numerous interconnected entities operating under the same profit-driven framework that underpins much of American society. This presents an uncomfortable truth — hospitals, by prioritizing their profits over patients, are merely following the economic incentives embedded in our capitalist system. Therefore, I argue that American hospitals are not inherently malevolent but are rational actors reacting to the economic incentives set forth by the American profit-oriented society.

It should come as no surprise to anyone that the American healthcare system is broken in many respects. Americans spend on average $12,900 per capita on healthcare putting us in first place and beating out second place, Switzerland, by nearly 75%. Despite the spending, we rank 53rd in life expectancy, 33rd in infant mortality, and dead last in preventable deaths amongst other high-income countries. The cost of insulin could set back Americans $300 to $600, while Canadians and Europeans only spend $20 to $30. A 2022 report from the Kaiser Family Foundation found that 41% of adults in America had medical debt, and around 6 in 10 adults with medical debt were insured when they faced their medical issues. So even the most responsible and conscientious cannot expect to be fully protected from the high out-of-pocket costs, such as deductibles, co-pays, and services not fully covered by their plans. Such metrics underscore the financial hardship faced, leading to medical debt even amongst the insured.

Insurance companies often become the scapegoats for inefficiencies in the healthcare system, whether justified or not. In the past, hospitals would apply a modest markup to the care provided. However, with the involvement of insurance companies, healthcare costs surged as insurers inflated prices to demonstrate their role in the system. The fee-for-service model further incentivizes hospitals to provide more services or opt for more expensive treatments, as insurers typically pay based on the quantity of services, not on outcomes or efficiency.

Adding to the complexity, the rise of High-Deductible Health Plans (HDHPs) has shifted more of the financial burden onto patients, forcing them to shoulder a greater share of the healthcare costs. Given these dynamics, it’s no surprise that insurance providers are often blamed for corrupting a system originally intended to prioritize patient care.

While I acknowledge all of these existing concerns, these issues are simply a byproduct of our existing doctrine of capitalism. For better or worse, America is a capitalist nation that encourages ingenuity to increase revenue and cut costs through its survival of the fittest structure. The pursuit of advantage in a capitalist society is encouraged, but it’s unfortunate that we allowed it to permeate to a field that, realistically, should be above reproach from such normal human inclinations.

Capitalism, the basis of our economic society, encourages prioritizing profits and value for its shareholders. This is a tenant that we hold for our society and all the other private companies in America. In Dodge v Ford Motor Co., the Supreme Court ruled that a company’s primary responsibility is to act in the interests of its shareholders. This ideology was further endorsed in the 1970s by economist Milton Friedman. He argued that the main responsibility of a business is to maximize shareholder value within the bounds of the law and ethical customs. He reasoned that corporate executives work as agents for shareholders, and their primary duty is to deliver returns on the investment that shareholders make in the company. My question is, if this is where society rests our values, then what exactly are the hospitals doing that is counter-intuitive to this?

Internally, the hospitals are criticized for their labor treatment with their usage of contract nurses and nurses being stretched thin. However, can it not be said that hospitals just prefer to hire contract nurses to lower costs and fill staffing gaps? They may get paid a higher salary, but the lack of benefits helps hospitals reduce their budgets. They optimize the work schedules for nurses to ensure that patients receive the appropriate care while balancing the usage of the nurses. On the other side of the equation, hospitals are utilizing the incentives provided to them by insurance companies to generate additional revenue by performing additional tests. It might seem “slimy”, but it does not break the Hippocratic Oath to do no harm or any other code of ethics. An argument could be made that hospitals are taking additional precautions to make sure the root cause is correct. All of these seem wrong because it’s the healthcare sector, but in truth, they are not doing anything wrong given the economic environment they are in.

Another criticism of hospitals is the consolidation and monopolization of hospitals. A survey by Altarum, a non-profit research organization, found that 64% of healthcare consumers believed that hospital mergers would reduce the quality of care and lead to higher out-of-pocket expenses. The Federal Trade Commission (FTC) monitors anti-competitive behavior in industries and has expressed concern about hospital consolidation. A report from the FTC in 2021 indicated that hospital mergers frequently result in higher prices without corresponding improvements in care. As a result, the FTC has sought to block several hospital mergers in recent years. Both groups have the right to be considered since a report by the National Bureau of Economic Research (NBER) in 2019 found that prices at hospitals in monopoly markets were 15–20% higher than those in competitive markets. However, I ask once again, from the hospital perspective, how are consolidations wrong when they are fighting for their survival?

Since 2010, more than 140 hospitals have closed and moreover according to the National Rural Health Association, nearly a third of rural hospitals are at risk of being shut down. Many hospitals, particularly in rural areas, operate on thin margins, instead relying on greater patient volumes. However, declining patient numbers and rising operational costs have reduced their financial stability and made it difficult for them to stay solvent. So it should only seem logical that hospitals seek consolidation as their path forward for survival purposes. Consolidating into a single network of hospitals increases the patient volume due to monopolization. The mergers also act to find and remove redundant administrative tasks that can be shared between the hospitals. It also gives them access to greater capital to invest in advanced care options for their patients. From an insurance standpoint, consolidations give the hospitals greater bargaining power with the medical and insurance companies. These greater savings can then be passed down to the patients. For the continuance of the hospitals, arguably even patients’ health, consolidation has to be done by the hospitals.

To this end, although our society holds much contempt for the healthcare industry, specifically hospitals, I contend that this anger is misguided. While I agree that the system has many flaws and shortcomings such as the effect insurance has on prices, these shortcomings result from the pathos of our larger society. Based on precedent, our society favors capitalism and the notion that companies are designed to provide for their shareholders first and foremost. So, the idea that hospitals fight for additional revenue streams through insurance contracts and lowered labor costs through contract nurses is normal. I also argue that the disdain for consolidated hospitals is misguided since they are simply trying to survive in the current harsh economic environment. Our healthcare system is broken and there is a lot of work to be done to fix it, but we must focus our attention on the root causes and not the symptoms. Society is based on incentives, and we, the people of the United States of America, have not created the correct incentives. The failures of the American healthcare system and its hospitals are our fault.