Office Hours with Dr. Saini – Why are some hospitals raking in profits and others failing?
In a new video series, “Office Hours with Dr. Saini,” Lown Institute president Vikas Saini gives his take on healthcare affordability topics, one question at a time. This week’s question: Why are some hospitals raking in profits and others failing?
“If there was a trade-off between a big screen TV and an extra nurse that might answer your call on time, I think most people would pick the nurse.”
Dr. Vikas Saini
Welcome to office hours with Dr. Saini. I’m Dr. Vikas Saini, president of the Lown Institute. This is a series where I give you my honest take on the US health care system. Today’s question is, how is it that certain hospitals are raking in profits while others are struggling to get by or even failing.
Before I start with that, you should know that the Lown Institute is doing a conference this May on that very topic. You can check website and look forward to seeing you there.
Regular pricing for LOWN26: Confronting Healthcare Affordability ends in May—register now before rates go up!
On May 21st we’re convening policymakers, clinicians, hospital leaders, business executives, and union organizers, united by one conviction: care shouldn’t crush the finances of American families. If you want to shape the future rather than wait for it, this is the conference for you.
Q1: Why are some hospitals succeeding and others failing?
Some hospitals are making money because they’re catering to certain populations or they’re focusing certain high margin profitable procedures. Usually, it’s both. Other hospitals are struggling because they have to take care of people in their community who don’t necessarily have the right insurance. They don’t get paid as much even if they’re doing the same thing. It’s well known that some hospitals have higher margins. Other hospitals that are called safety net hospitals generally have lower margins.
This is not a new phenomenon. This has been baked into the structure of American health care for decades. Really underlying this are certain fundamental structural inequalities. If you just think about it, if a hospital gets paid differently for doing the same thing to two different kinds of people, it’s going to gravitate to the kinds of people. That means certain neighborhoods, certain towns, certain parts of the country where they expect to make more. They’re also going to gravitate to higher margin procedures and the technology that supports that then allows them to advertise that they’ve got all these cool things and that’s why you should come to this facility.
It’s an arms race and in that sense the people that have the money make more. So the rich get richer and the poor get poorer. That tension has been there in the hospital sector throughout my entire practice career which is now 30 40 years.
Q2: How do “have and have not” hospitals differ?
When you go into hospitals in the United States, you generally see really bright, shiny, new equipment, clean halls, all the rest of it. I think we all want that. But there’s a sense in which increasingly our hospitals and our communities are like cathedrals in medieval Europe. You build these huge towers. There’s all this glass. There’s fancy architecture. There’s fancy paintings inside. They’re gleaming floors. There’s private rooms. There’s big screen TVs. This is all it’s almost like the hospitals being turned into the hotel industry and vice versa. There’s a certain element of that seeping in. And it’s again because of this sort of this view that somehow patients are consumers and you have to cater to them as consumers.
And that might be true at the margin, but really most people want to be cared for and feel like they know they’re being cared for. So if there was a trade-off between a big screen TV and an extra nurse that might answer your call on time, I think most people would pick the nurse.
Q3: What is the payer mix?
The other thing about have and have not hospitals is what’s called in the in the industry the payer mix. That’s how much how many of their patients are Medicare, how many of their patients are Medicaid, how many of their patients have no insurance, and how many have high-paying commercial insurance. And the holy grail is to have really a lot of people with high paying commercial insurance.
The real problem with that model is it is obsolete. The number of people who have high-paying commercial insurance is cratering. And it’s cratering because the job composition, the structural composition of the labor market is changing. And that’s before AI. So get ready.
Q4: How is the consolidation of hospitals and insurers affecting healthcare?
Consolidation has really been an arms race between the insurance industry and the hospital industry. It’s hard for me to keep track of who’s ahead and who’s behind because it’s been happening so fast and so consistently. But the net result is you have really King Kong versus Godzilla. You have these big players duking it out looking for even slight advantage because slight advantage when you’re big can mean millions of dollars.
The other thing to understand about consolidation is that increasingly physicians are employees of hospital systems. There are large changes underway. The old kind of TV doctor Marcus Wellby when I was a kid that really doesn’t exist anymore. It exists in some places and there are efforts to revive it. But quite often you have even greater market power when all the doctors in an area and all the hospital facilities are under one roof.
If we really think about this, all these things affect our affordability and our experience of health care. If you care about these issues, if you’ve listened to this long enough, you should register and come join us at Loun 26. It’s a conference on May 21st where you’ll hear a lot more from a lot of experts. Most of them much more expert than I am.