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The Intolerable Fragility of American Hospitals

The coronavirus pandemic has exposed the frail and unequal nature of our public health system. It doesn’t have to be this way.

Win McNamee/Getty Images

The coronavirus pandemic is permanently closing beloved businesses across the country, as they struggle to survive this necessary period of social separation without a reliable means of generating income. There’s no telling what our neighborhoods will look like once we’re on the other side of this crisis. The businesses we recognize as part of our local landscape may never recover, from our local coffee shops to our favorite hair salons. And, apparently, our hospitals.

A spate of articles in the last week has highlighted the bizarre-seeming plight of hospitals across the country: Even as a pandemic turns our medical staff into overburdened but beloved Heroes, many hospitals are in deep financial trouble because they have too few patients. The severe drop in surgeries and other profitable procedures brought on by this crisis has dramatically decreased hospitals’ revenue. The University of Virginia hospital system, made famous last year for its aggressive pursuit of patients who could not pay for their care, said it is losing $3 million a day and has seen surgeries decline by 70 percent. It is, therefore, furloughing some “non–patient care staff” and cutting salaries. Other hospitals are doing the same: Stanford Health Care will cut salaries by 20 percent. Primary care facilities are even harder hit. And many rural hospitals face permanent closure as a result of lost business.

What a stupid and unnecessary state of affairs this is. Hospitals should not be subject to the same market pressures as hair salons and coffee shops, falling apart if too few customers come in for their services. It is sad when a coffee shop closes; when a hospital closes, especially in rural or underserved areas, it is deadly.

The New York Times wrote recently about a for-profit hospital company, Alecto, which shut down rural hospitals in West Virginia and Ohio after years of squeezing the facilities through cuts. The region now has 530 fewer hospital beds than it had a year ago, at the worst possible time for such a shortage. Alecto’s general counsel told the paper that “slow reimbursements by health insurers and cuts to Medicare reimbursement rates” contributed to its decision to close the three hospitals.

In general, hospitals charge private insurers about twice what they can get from Medicare, but it can be higher—four times more expensive or even more. Meanwhile, Medicare and Medicaid rates are lower than hospitals’ operating costs. Why does private insurance pay so much more? It’s not out of the kindness of its heart; it’s either unable to negotiate better rates, particularly in areas where one hospital company has a monopoly on local facilities, or it’s just happy to pass on the cost to consumers in ever-rising premiums. Uninsured patients become collateral damage of this little pricing game, being expected to pay the wildly inflated list prices that hospitals set as a negotiating point for insurance companies. If those patients do not pay up, their wages are garnished or they are sued into bankruptcy, even (in fact, especially) by nonprofit hospitals.

This cruel and absurd state of affairs is often defended as hospitals reluctantly making up the deficit of the paltry Medicare reimbursements: We simply must charge $629 for putting a Band-Aid on a patient’s finger, otherwise the hospitals would fold. The health care industry lobbying group set up to defeat Medicare for All, the Partnership for America’s Health Care Future, likes to warn that single-payer would close hospitals “virtually overnight,” if they had to accept Medicare rates for all services. When it does this, it is actually citing an article from The New York Times, which attributed that claim to unnamed experts. It must feel wonderful to write such influential work without any fear of having to hit some sort of factual standard. To think that the president’s suggestion that the coronavirus could be combated through injections of household cleaner was so controversial!

Even accepting this claim at face value—that hospitals must soak private insurance and any uninsured patients who get caught up in the machine, in order to survive—there’s no reason why a single-payer system would have to preserve this apparent underpayment from Medicare. The cool thing about designing a new system is that you get to design the new system. Under Representative Pramila Jayapal’s single-payer bill, for example, hospital budgets would be set at a regional level and would be restricted in certain ways, replacing the fee-for-service model.

Perhaps the most important task for single-payer advocates to pursue, in the absence of a sensible presidential contender who might spend the rest of the year making the case to the nation, is to win over rural hospitals and their patients by demonstrating how they would benefit from better and more consistent funding than they currently receive in their dire status quo arrangements. This reordering probably won’t work for the big for-profit companies like Alecto, which are definitionally more concerned with profits than patient care, but it could make an enormous difference with the doctors who provide that care.

The current system, from which the Alectos of the world draw profit, creates many perverse incentives, encouraging doctors to perform unnecessary tests that can harm patients (and cost them money) and employing all sorts of bizarre and creative ways to bilk patients; a doctor might walk into your hospital room, ask you how you’re doing, and then charge you thousands of dollars for a “consultation.” Instead of Medicare reimbursing a certain amount for each MRI, heart transplant, or ibuprofen, Jayapal’s bill would see hospitals get their budget from the government—and be expected to spend it wisely. Imagine how rural hospitals might look if the government allocated them funds based on how many patients they served and what their needs were, instead of leaving them to the ravages of the free market.

Clearly, if hospitals were actually concerned about ensuring that their revenue covered patient care for every patient in America, they would support single-payer with global budgets. We could have a system that avoids the nightmare of hospitals going out of business because not enough privately insured people came in for knee replacements and unnecessary MRIs. Instead, we have this inefficient, illogical, and unequal system, in which some hospitals make millions from wealthier patients with private insurance, and some hospitals operate at the razor’s edge of collapse, with staff working without pay to provide the limited care for their aging, ailing patients that they can.

Some hospitals and doctors have carved out complicated and often invisible ways to profit from the current system, and so they will defend this system fiercely, even while pretending it’s about supporting the poor hospitals that don’t get enough from Medicare to survive. This is why we have hedge fund–backed physician-staffing companies like TeamHealth and Envision Healthcare cutting doctors’ salaries because of the coronavirus turndown, while spending millions on ads to fight off surprise billing legislation. A volt of similar private equity vultures have played a role in keeping hospitals teetering on the brink.

As Kaiser Health News wrote this week, the coronavirus pandemic has exposed the disparity in hospitals’ wealth. While safety-net hospitals are perpetually days away from total financial insolvency, many of the richest hospital systems have millions or billions of investment income tucked away for a rainy day. The wealthier hospitals “face sacrifices that other hospitals might envy, such as having to postpone ambitious building projects or adding to their already large investment portfolios.” The University of Virginia’s endowment is $9.6 billion. If the hospital is losing $3 million a day, it would take 3,200 days to work through the entire endowment.


The goal of single-payer is not, and should not be, just to change the way we pay for health care. Single-payer should be seen, as Health Justice Now author Tim Faust has written, as “a ladder we can climb, all together, into a better world”—not the better world itself. We should dream of a world where your race or your income don’t determine whether you get treated well at the hospital—or treated at all. We should imagine an America where a rich patient in the Washington suburbs would have no reason other than geography to prefer Inova Fairfax to United Medical Center in Anacostia. Just giving everyone insurance is not enough: We must ensure that everyone can access the same high-quality care.

Unfortunately, one of the most persistent barriers to health care reform has been the simple fact that some people have it pretty good in America, and it’s easy to demonize change by pretending that a greater share of equanimity will lead to a lower standard of living for the lucky ducks who are winning the perverse health care lottery. It’s a lie, of course: Even people who think they have it good are likely to discover how that belief is built on a frail foundation if they have an accident or actually have to use their insurance to save their lives. It’s certainly not a good situation compared to that of their better-off peers in other countries, who never have to call an insurance company to beg for drug coverage or get their wallet out at the hospital. But the lie, and the threat, is designed to convince these people that their situation is actually very lovely and privileged. You certainly wouldn’t like it if we made it worse, would you?

This sort of politics, of simultaneously reassuring and frightening the middle and upper-middle class, is so ingrained in America that it’s hard to overcome. Still, we won’t get anywhere if we don’t recognize that’s what’s at work here, and it’s just as true of hospitals as it is of insurance. They want better-off people to keep being able to go to nice hospitals with private rooms and expensive artwork or use concierge primary care with lemon water in the waiting room, and they don’t care if that means poor people keep going to ramshackle hospitals under the constant threat of closure. Safety-net and rural hospitals already exist mostly on public insurance reimbursements; the real threat isn’t that they’ll go out of business under Medicare for All but that the hospitals who pay their CEOs tens of millions might have to reassess their balance sheets.

The federal response to the pandemic that is ripping through our communities and devastating businesses has clearly been insufficient to the point of malice. This has been true of hospitals, too. But no amount of bailout money would fix the fundamental stupidity and cruelty of having a system in which a hospital can simply go out of business. The entire system, of hidden costs and constant gambles, resembles a strange kind of three-card-monte street hustle—one where the mark never wins, but the scammer somehow loses, too. Still, the money is going somewhere.