The For Profit era of health care gained impetus with 1964s federal legislation involved in "the Great Society". The birth of Medicare and Medicaid gave impetus and justification of for-profit business in health care as an emergent ideology. Jahiel explains that this lead various "types of businesses (pharmaceutical and medical device industries, laboratories, for-profit insurance, and hospital- associated business) toward higher priority in the health care system [and ] provided boosts to many of these industries and supported the growth of relatively new industries in nursing homes and home health care which flourished in the 1970s. As the cost of medical care continued rising in the 1970s and 1980s, these various industries showed increased profits, and they were joined by others, including the electronic information industry (for computerized billings and other information needs), pharmacological companies specialized in biotechnology, for-profit hospital chains, and various companies formed to exploit new technical devices....In the late 1970s, a type of industry that was to become a major player in the 1990s entered the health field. It was hospital management corporations who were initially called in as consultants to help financially distressed hospitals. These corporations came in with business methods to decrease costs, including hospital mergers of services. Others bought hospitals, rehabilitated them, and some of them grew into large hospital chains. A large managed care industry combining management of physicians and hospitals developed in the 1980s. It grew further in the 1990s, possibly in response to the alternative that the Clinton national health proposal might provide, to the point where it now dominates the health care market in most areas. This industry interacts with insurance companies which provide underwriting and existing patients and physician panels; with large employers as payers; and with physicians, hospitals and other entities as providers of services and goods. These four groups the MCOs [managed care organizations] , the insurance companies, the payers, and the providers , constitute the main current structure of personal health care in the USA...
"Since the 1980s, the for-profit sector has gained dominance of the private sector. Many MCOs and the associated insurance industries have made enormous profits which have gone to their stockholders through the rise in the value of their shares in the stock market, and to their chief executive officers (CEOs) and other high executives through their stock options and high salaries. Many CEOs have incomes over $1 million a year and, in at least one instance, over $1 billion (inclusive of stock options)." 1
The tier of Management Elite existing in the form of exorbitantly expensive Hospital Consultants with root in the 1970s as shown
above continues to thrive within its niche- serving to operate, and be viewed as, pundits to the industry, thus exerting an influence
beyond that provided to the particular hospital or hospital system to which they are summoned. See The New Hospital Elite: the Consulting Firms- a dedicated page to this impossibly over valued and ridiculously over paid slice of the health care coffer pie.
The American Conversion from Nonprofit to Corporate [for profit] Hospital Systems
"A number of factors have fueled the trend toward conversion, including the continued growth of large, for-profit hospital chains such as Columbia/HCA (which now operates 61% of private hospital beds) and Tenet [link to Tenet's dedicated page herein] mergers of health care facilities and systems on a local level; a determination by some nonprofit hospitals and health plans that for-profit status will allow a more competitive stance in the health care market; a desire for better access to capital; and, in some instances, personal financial benefit to directors and administrators. For-profit conversions take place through a variety of arrangements, including sales, mergers, use of for-profit subsidiaries, and joint ventures (which generally do not involve a transfer of assets.)
"In 1995 alone 60 non-profit hospitals
changed to for-profit status -- twice as many as in the previous year.
(Needleman, Challet and Lamphere, 1997). In 1993 there were a total of
18 conversions of non-profit hospitals and health plans to for-profit status,
representing 2.1 percent of nonprofit hospitals. While for-profit conversions
occurred in 17 states during 1990-93, they were concentrated in a small
number of states (including California, Florida, Missouri and Texas.) (Needleman,
Challet and Lamphere, 1997)... The primary difference between nonprofit
and for-profit health care entities -- both facilities and health plans
-- is where excess revenues are placed. Investor-owned entities generally
distribute their excess revenues to shareholders. Nonprofits have no shareholders.
They can utilize their excess revenues in a
"The responsibility for the transformation of American nonprofit hospitals into competing corporate systems with the ensuing massive losses of public monies lies squarely with their governing boards. The governing boards of the nonprofit hospital systems are controlled by CEOs of large corporations, the same CEOs who ardently support HMOs and managed care as a means of lowering health care costs. These CEOs run the hospitals like they run their corporations with absolute top-down power. They shun input from medical staff, nurses, and the general public. They have never been held accountable for their actions. It is ironic that their transformation of American hospitals has not produced the anticipated monetary savings for their companies......Over the past decade health care reformers from Americaís business schools preached the virtues of 'seamless' integrated hospital systems. Several years ago at an AMA meeting I heard one young MBA sermonize with evangelical fervor about the dawn of a new utopian health care millennium. The reformersí sweet siren song convinced hospital trustees, desperate for a quick fix for rising health care costs, to implement their unsubstantiated theories. This costly mistake is largely responsible for the current sorry state of affairs in the hospital industry. Harvard Business School Professor Regina Herzlinger in her book 'Market Driven Health Care' convincingly refutes the reformersí theories by marshalling studies that conclusively demonstrate that vertical integration does not improve efficiency and drives up hospital costs......Eighty-five percent of the hospitals in the United States are nonprofit, and 45 percent of hospitals are in integrated systems. These are the hospitals that have engaged in the most egregious practices that waste precious resources. Hospital systems have spent enormous sums of money on marketing, information systems and administrative salaries. They continue to lose staggering sums on vertical integration (the purchasing of doctorsí practices and owning HMOs) and horizontal integration (hospital mergers) in a quixotic quest to improve efficiency by achieving economy of scale. Finally they have spent literally billions of dollars on unnecessary building projects and capital improvements supposedly to attract patients......The theory that a free market system as exists in the private sector would work in health care where the vast majority of hospitals are still "nonprofit" is fundamentally flawed. First of all the term nonprofit in a profit-driven free market is an oxymoron. More importantly, when hospital systems go into debt what do they do?They ask their rich Uncle Sam (the taxpayer) to bail them out....I am not the only one who thinks this way. The November-December 2000 issue of Health Affairs, a respected health economics journal, published four articles that called for more accountability and more public service from nonprofit hospitals. The authors conclude that the public is not getting its moneyís worth from nonprofits. The specter of hospital systems losing their tax-exempt status if the public becomes sufficiently disenchanted is a distinct possibility. The corporate takeover of nonprofit hospitals has undermined the social compact with the public that formerly existed and which was the original basis for their being granted tax-exempt status" 2
Facts Regarding Care and Cost of For-Profit Hospitals
|Sources for this Page
1. Health Care System of the United States and Its Priorities: History and Countries. By Rene I. Jahiel
Department of Community Medicine, University of Connecticut Health Center, Farmington, Conn printed in Croatian Medical Journal September 1998 (Volume 39, Number 3)
2. The Transformation of Americaís Hospitals Part Seven: So Called "Free Market" Fails, A New Strategy with More Accountability is Needed By Arthur H. Gale, M.D. Dr. Gale is a past president of SLMMS. St. Louis Metropolitan Medicine/October 2001
3. FOR-PROFIT CONVERSIONS OF NONPROFIT HOSPITALS AND HEALTH PLANS -- 1997 Part of State Legislative Trends and Analysis Special Report to the 1997 House of Delegates/ Submitted by the Department of State Government Relations and the Department of Political and Grassroots Programs