Current Business Practices and Financing the Health Care Industry In the US - Don't Work

 

My last post discussed current and historical business practices to ration medical care and increase profits by reducing reimbursement to hospitals and physicians while decreasing benefits to patients.  The net result of those practices is shifting the cost of care to patients or in the extreme case just not paying the bills at all.  The current situation at Hennepin County Medical Center was the case in point. 

This morning an article came out in the Star Tribune  HCMC is too big to fail, but Hennepin County leaders say it’s now on life support (1).  That well-worn description of being too big to fail misses the point that many large county hospitals have failed.  It did not matter how many services they provided or the fact they were training physicians.  In one famous case all of the physician trainees were informed the hospital was closing and they needed to find a new training program. 

The most famous case was Hahnemann Medical Center in Philadelphia 2019.  In that case 570 trainee across 35 separate programs.  Hahnemann had been a safety net hospital for low-income populations for over 170 years.  The permanent closure of Hahnemann resulted in 20% increase emergency room volumes and an 80% increase in wait times. An additional 12-14 Pennsylvania hospitals are at risk of closing by 2031 largely due to reductions in Medicaid funding.

The Hahnemann closure was one of the first examples of what can happen to healthcare assets under private equity management.  In the case of Hahnemann, there was a debt financed purchase of the hospital. The real estate assets were spun off into private management while the hospital was left to pay off a high interest loan and went bankrupt 18 months after the acquisition.  There was controversy about the 570 residency slots and 6 local healthcare networks bid $55M – but courts eventually ruled that they were not assets.  The properties were eventually broken up and sold to recoup the cost of the bankruptcy.  The state of Pennsylvania passed laws to prevent hedge funds or private equity from interfering with healthcare businesses that are in the public interest and they require a 6 month notice with a closure plan for any hospital in the state.

Almost on cue – the New England Journal of Medicine (NEJM) came out with three commentaries (4-6)  on what can only be described as the predatory financing of healthcare.  For the record – I consider rationed healthcare and cost shifting and all the mechanisms associated with that - predatory financing.  Healthcare is about the only field I know where you can do the work, business managers can decide not to pay you, and they are backed up by some government regulation. It is not like the work is elective or some kind of scam.  In all my years of acute care psychiatry – I was not pulling people in off the street.  I was generally trying to solve severe problems that many other people had decided required hospital care and passed on to me.  Despite that consensus – some business manager could decide against reimbursement or decide the patient should pay the bill even if they thought they were covered.

The first paper looks at the issue of health care equity and the effects of private equity (PE).  In an ideal world, private equity companies are supposed to raise capital to acquire companies, take control of them, improve their efficiency and then sell them in a fairly short period of time.  The general idea is that PE has substantially higher returns on investment than typical stock market investments.  As the PE industry has grown, the premium return for investors has become more debatable.

The first paper in the NEJM Perspective looks at the impact of PE on healthcare financing. The use the CDC definition of health equity:

“Health equity is the state in which everyone has a fair and just opportunity to attain their highest level of health. Achieving this requires focused and ongoing societal efforts to address historical and contemporary injustices; overcome economic, social, and other obstacles to health and healthcare; and eliminate preventable health disparities.” CDC

As noted in the previous post the safety-net hospital concept is there to address income and healthcare insurance inequity.  The Emergency Medical Treatment & Labor Act (EMTALA) law is another.  EMTALA is commonly recognized as a rule that no emergency department can turn a person away who requires that level of care based on ability to pay. 

The authors in this piece describe accumulating evidence that PE has reduced access to care for many vulnerable populations including rural, elderly, low-income, and racial and ethnic groups.  Several policy factors and failures have led to an expansion of PE investment. There is a concern that there is limited oversight of these companies compared with publicly traded companies.  The authors provide several examples of tactics used by PE firms that have led to the failure of the medical entity, reduced or no access for patients, and greater profits for the investors.

The first tactic is a sale-leaseback transaction. The medical facilities acquired are sold to an entity affiliated with the firm and leased back to the hospital or clinic at inflated rates.  During a dividend recapitalization the PE takes on additional debt to pay investors rather than investing in the medical business. They give an example of a system where these measures led to tripled debt while senior managers got large bonuses.

Quality of care has been a marginal issue since managed care took over medicine in the mid-1990s.  In the above example, quality of care declined to the point it was ranked among the worst in the state and it was eventually closed leaving residents no access to acute care. They cite increased deaths in emergency departments and after surgeries. The same company had a venture in another state that failed as well. The formula involved cost savings at the expense of employees (lay-offs, reduced FTEs, reducing physicians in favor of extenders, and cutting low margin services).  On the administrative side upcoding, surprise bills, and higher charges are used as well as selecting younger and healthier patients. 

They suggest several fixes to the various PE problems that involve targeting management and accounting practices that can result in profits for investors, but closed hospitals, produced bad debt, and resulted in no access to emergency care for the patients involved.   Some of those suggestions include personal liability for some of the company officers and clawback provisions for profits made by some of these exploitative techniques.  There were no suggestions about adequate reimbursement for hospitals in the first place.

The second paper (3) discusses a political change at the Centers for Medicare and Medicaid Services (CMS).  Since the Trump administration is focused on denying that a lack of equity exists in the country they have changed the focus to efficiency. Efficiency as in free-market solutions is a long time Republican slogan that lacks any evidence that it is useful in healthcare.  The most significant piece of evidence that free markets do not work is the existence of Medicare and Medicaid and the remarkable number of people and services that they cover. Without those programs – none of that healthcare would be delivered and there would be considerably more morbidity and mortality.

The program titles have changed from States Advancing All-Payer Health Equity Approaches and Development to Achieving Healthcare Efficiency through Accountable Design (AHEAD).  It replaces equity plans with accountability plans including “chronic disease prevention, choice, and competition.”  On the choice side of the equation increased telehealth, and decreasing qualifications for networks and providers.  This seems to be a straightforward approach to decreasing quality to produce a cheaper product. The authors do not state that explicitly but say there is limited evidence it would work. 

The most likely outcome of AHEAD is that it will decrease investment in safety net facilities.  Combined with Medicaid funding reductions the impact on safety net hospitals will likely be significant. 

The final paper was about medical credit cards.  Before reading this paper – I could not think of a worse idea.  The threat of medical bankruptcy drives the for-profit medical industry in the US.  Most medical bankruptcies occur in the US.  That combined with medical charges and the way they are billed is the primary reason Americans are highly motivated to have health care insurance. At the time of this post the Annual percentage Rate (APR) of credit cards in the US is between 20 and 25% depending on credit rating and other factors.  About 8-9% of the population has medical debt. Three million owe over $10,000.  Since credit cards calculate daily interest – it could take 20 years to pay off this debt by paying the minimum amounts.

One in every 4 people with medical debt is using a credit cared to pay it off.  There can be incentives on both sides of the equation.  From the billing side – it is paid of on a timely basis.  From the consumer side – there can be delayed interest arrangements if the debt of paid off in a specified interval.  That has led to most medical credit card sign up occurring in medical offices.  Compared with the APR rates for typical consumer cards medical cards may be as high as 40% - people with the lowest credit ratings incurring the highest rates. 

Medical credit cards are complicated by the fact that insurance companies may not be paying the same rates for the same services that are being charged to cards due to negotiated deals.  The person paying cash pays the higher amount.  In some cases, people may qualify for medical assistance programs but they are not informed about this option.  The medical providers offering the cards may get a rebate in terms of lower transaction fees.

The overall conclusion of this final paper is that medical organizations should not actively market medical credit cards to patients. They suggest that the existing federal laws be expanded to provide transparency about terms of medical credit cards and offer more payment options. In my experience, no patient should be charged more than an insurance company for the same service just because they are paying cash and are not part of a negotiated fee schedule. Most of the health care organizations in Minnesota offer monthly payments with specified minimums – but the interest calculations may not be clear.

In summary what can be learned from the recent financial problems with Hennepin County Medical Center and these perspective in the NEJM.  First, the public and private financing of the US healthcare system is getting progressively more precarious.  There are more safety net and rural hospital failures, less quality care, and more expansion of private equity investment.  Second, despite the emphasis on access and cost both of those measures are diminished significantly by the current financing structures. Despite the current administration’s emphasis on efficiency over equity there is no way efficiency can be maintained when there are large shifts in emergency department utilization and admissions due to the elimination of safety net hospitals.  Third – there are an endless number of ways the system can be gamed to make money or avoid regulation. Much of that gaming is in the form of rationing and cost shifting but there are also accounting maneuvers to make it seem like the required amount of financing dollars is going to medical care.  How is that possible in a system that has seen a 3,000% increase in administrators compared with a 100% increase in physicians over the past 50 years?

The only rational solution at this point is to eliminate the healthcare companies and go to a single payer system.  Single payer Medicare for all is an idea that is more frequently floated these days.  Medicare traditionally has vey low administrative costs but it admittedly is less intensive than managed care organizations. In the previous post I cite the Swiss system as saving a trillion dollars per year if applied to the US system.  I have seen experts debate how healthcare financing in other countries might affect the US.  I think the only way to find out is to bring experts from Switzerland to the US and suggest how to make that transition.

It is apparent that nether political party in the US is capable of the task. 

     

George Dawson, MD, DFAPA

 

References:

1:  Roper E.  HCMC is too big to fail, but Hennepin County leaders say it’s now on life support.  Minneapolis Star Tribune. March 8, 2026.

2: Rosenbaum L. Losing Hahnemann - Real-Life Lessons in "Value-Based" Medicine. N Engl J Med. 2019 Sep 26;381(13):1193-1195. doi: 10.1056/NEJMp1911307. Epub 2019 Aug 28. PMID: 31461591.

3:  Pomorski C.  The Death of Hahnemann Hospital. New Yorker.  June 7, 2021, Vol. 97 Issue 15, p30-37.

Excellent look at the chaos and fragmentation of health care that happens when a large safety net hospital closes and how it happens during a private equity leveraged deal.

4:  Yearby R, Alsan M. Private Equity's Transformation of American Medicine - Implications for Health Equity. N Engl J Med. 2026 Mar 5;394(10):937-940. doi: 10.1056/NEJMp2415615. Epub 2026 Feb 28. PMID: 41770029.

5:  Figueroa JF, Meara E. From Equity to Efficiency - Navigating Changes to the AHEAD Model. N Engl J Med. 2026 Mar 5;394(10):940-943. doi: 10.1056/NEJMp2514355. Epub 2026 Feb 28. PMID: 41770017.

6:  Alvarez A, Sloan CE, Ubel PA. Debt by Design - Navigating the Hazards of Medical Credit Cards. N Engl J Med. 2026 Mar 5;394(10):943-945. doi: 10.1056/NEJMp2514612. Epub 2026 Feb 28. PMID: 41770001.

Collegial Conversations

Responding to Jim Amos' post on what keeps us all going led me to recall some of my most valued conversations with colleagues and what happened to those conversations.  I began working at a major hospital in the Twin Cities sometime in the late 1980s.  These conversations happened sometime in the 1990's.  At our hospital there was a large cafeteria are in the corner of the building so that it it was bordered by windows to the exterior on the north and east sides.  One the far east side was a separate room about 1/8 as large as the entire space that was reserved for medical staff.  It was separated by a door from the main cafeteria, but the door was usually open unless there was more noise than usual in the main room.

At one point the GI specialists were all seated at one table.  I knew all of them from consultations they had done on my patients and one of them from medical school.  We had both been in the very first class (Biochemistry) together.  After a while we all routinely met there.  We were joined from time to time by several Renal Medicine, Endocrinology, and Infectious Disease specialists.  The occasional Cardiologist or Surgeon would drop by.  We talked about movies.  I recall one of the films we were discussing was Sylvester Stallone's Cliffhanger and that would have put that conversation sometime in 1993.  One of the discussants was an expert in hostas and he often talked about that botanical speciality.  We spent time talking about pancreatic cancer, imaging studies, narcissistic personality disorder, dementia, psychosis, and futile care and what could be done about it.  The conversations were lively.  Plenty of self deprecating specialty specific humor.  Most of the people there had a good sense of humor.  We discussed topics that were both serious and not serious in a calm and even manner.

I looked forward to those lunch meetings.  It was a chance to talk with colleagues in an open and relaxed manner.  Nobody was bleeding to death or unconscious.  There was no pressure to do a last minute consultation before everybody left the hospital.  More importantly there was none of the nonsense you might encounter let's say on the Internet.  There was no one upmanship.  No moral hypertrophy.  No discussion focused on the superiority of one speciality over another.  Reading the internet gossip, it might be hard to believe that doctors buy their own meals and don't spend every waking moment plotting about how they can use the newest heavily promoted drug.  In fact many of the conversations were focused on just the opposite.  I can recall reading a critique of heavily promoted acetylcholine esterase inhibitors for Alzheimer's disease (AD) with some primary care internists.  The asked me what I thought of these drugs especially the most recent billion dollar drug.  I have been involved in AD drug trials, the initial clinical application of tacrine and the subsequent approved drugs.  I thought that their effects were undetectable.  The internists agreed and one of them said: "Leave it up to the pharmaceutical companies to invent a rating scale that works for their drug but has no clinical meaning."  None of us wanted credit or acclaim for that commentary.  None of us claimed we were keeping Big Pharma honest.  We we just clinicians comparing notes and agreeing that a certain class of medications was not as effective as it was advertised to be.  In this group we had many of these conversations.

Things suddenly changed when the administrators decided to erect a new building along the east side of the existing hospital.  Suddenly the view and windows were completely gone.  Sitting in the doctors section was like sitting in a cave.  At about the same time, we were all told to report to coding seminars and warned that we could be charged with a violation of the RICO statutes if it was found that we were submitting "fraudulent" billing.  Fraudulent billing was basically either billing that somebody said was fraudulent (there was and is no objective criteria) or countersigning a resident's note and not doing enough documentation to actually prove that you had seen the patient.  Proof for the purpose of that seminar was basically doing identical documentation as the resident.  When I heard that I could end up in a federal penitentiary I took the new billing and coding guidelines seriously.  Over the next few years the documentation burden went through the roof.  That resulted in me no longer working with residents.  They were angry about the degree of documentation they saw me doing and thought it reflected on their work.  No matter how many times I said: "No this is me trying to stay out of federal prison" it did not assuage their anger.  I suppose it sounded incredible - even absurd.  But my billing, documentation and coding was actually reviewed based on those standards for years.  That was such an obstacle at one point I decided that it was easier to work by myself.  There was no time for teaching anyway due to the documentation requirements.

My colleagues were under similar constraints.  People just stopped showing up for lunch.  I would run into one or two in the hallway from time to time.  The administrators were also actively involved in moving my colleagues around.  Many did not like it and some of them left.  I had the feeling that if we were left to our own devices and kept things running the way they had been running for years, that we would still be meeting at noon and having the same discussions we had in 1993.  But there was no such luck.  The last time I saw one of my colleagues was about 5 years ago.  We met in the hallway of the same hospital.  We were both thinking about that Stallone movie.

A curious thing happened about 10 years later.  Some administrator had the brilliant idea that a "doctors' dining area" made sense.  They separated it completely from the cafeteria.  They made it more high end to attract the doctors back in the place.  I even met up with some of my previous colleagues there from GI and Renal Medicine.  The conversations still had the potential to be inspiring.  But something was gone forever.  There was no time for collegial conversation anymore.  Most of us were fairly isolated as a result of how the practice had changed.  It was forever transformed by corporate America.  Doctors no longer seemed like inspired people on a life long mission of patient care and education.  And we all knew this could disappear as easily as it materialized.

I had travelled up to northern Minnesota at one point and went down into an old iron ore mine.  There 2,300 feet below the surface was a lunch room.  It was inside a steel cage to protect the miners from cave ins.  I could imagine people working all day a mile below the surface, covered in iron ore dust, and eating lunch in that room.  For a minute I pictured myself as one of those miners.  Brutal unending work in the worst of all conditions.  At one point the tour guide shut off all the lights to demonstrate what it was like lit by carbide lamps on helmets.   We were in a large room about 100 x 100 feet with a 20 foot ceiling. The floor was visible in a dim arc about 5 feet in the distance and everywhere else it was pitch dark.  Miners actually worked like that before electricity and only a few of them had carbide lamps.  It was depressing.  Then we learned that before carbide lamps, the miners used candles.  Even more depressing.  I felt that medicine had taken a step in the direction of the old iron ore mine.

I enjoyed seeing my colleagues every day.  I enjoyed and learned from what they had to say.  If I needed to go to a hospital or clinic in the future I would want to go to one where there were collegial conversations every day.

But I suspect those places are few and far between.


George Dawson, MD, DFAPA

Supplementary 1:  The billing and coding seminar described here actually happened that way.  At the time the FBI was raiding practices and they made some of these decisions.  In internal reviews I went from the best documentation one year to the worst the next even when I had not changed a thing.  Eventually the FBI decided there were probably better thing to do than enforce a purely subjective standard against doctors who were hardly engaged in criminal or terrorist activities.  The out for most organizations was to have an internal compliance department to do the same reviews,  After about 10 years, documentation with residents returned to nearly what it used to be and I could resume teaching again.