Last March, West Suburban Medical Center, a 230-bed safety-net hospital serving one of Chicago’s poorest neighborhoods, abruptly closed its doors. Area residents, whose average lifespan is two decades shorter than that of residents in wealthier parts of the city, must now drive or take public transit to access emergency room and clinical services that were once within walking distance.
Shantis Johnson, 38 and pregnant when interviewed by the local public radio station, is asthmatic. She rushes to the hospital’s ER whenever struck by a debilitating attack. “What if people just start dying because they can’t get to the hospital on time?” she asked WBEZ. “That’s my biggest fear.”
Safety-net hospitals, whether serving inner cities or rural areas, depend on state-run Medicaid programs, which are every hospital’s stingiest payer. As a result, they operate on shoestring budgets, often in depopulated areas, making it almost impossible to maintain the full range of care needed in their service territories.
But over the last several decades, a new set of players has arrived on the scene, making it even harder to serve shrinking populations with high health care needs and low incomes. Private equity investors, claiming they could solve these hospitals’ financial woes through superior management skills and a tough-love approach toward staff, have taken over scores of safety-net hospitals across the United States. They include Cerberus Capital-owned Steward Health Care in Massachusetts; Leonard Green & Partners-owned Prospect Medical Holdings in Pennsylvania, Connecticut, and Rhode Island; and Stanton Road Capital-owned Pipeline Health in California, Texas, and Illinois. The latter bought West Suburban and Weiss Memorial, another safety-net hospital in one of the poorest communities along Chicago’s lakefront.
But instead of saving these hospitals, financial engineering by these operators, usually involving sale-leaseback arrangements of real estate and high management fees, led in almost every case to draining much-needed cash from their hospitals’ budgets. This led, in turn, to reductions in services and, eventually, to facility shutdowns.
In West Suburban’s case, Pipeline unloaded it and Weiss Memorial to two small-time private equity “investors” in 2022. One took over the real estate; the other brought in his nascent management company. Neither had the financial resources, technical skills, or a real plan to save the facilities, according to a recent Chicago Tribune investigation. The two hospitals stayed open for another three years by obtaining $100 million in state loans, which the manager-owner admits will never be repaid. He is now fighting his partner’s lawsuit claiming that he failed to pay rent and extracted exorbitant management fees. The court case, well covered in the local press, is like two piranhas fighting over a carcass.
Is this recent incursion of profit-driven, private equity ownership into what had previously been largely a non-profit and patient-oriented sector of the economy an aberration from long-standing practices? Or is it the apotheosis of the market-driven behavior that has become endemic in health care, the most fetid part of what the late Dr. Arnold Relman, the former editor of the New England Journal of Medicine, once dubbed the medical industrial complex? In his new book America’s Wrong Turn: U.S. Health Care in the Neoliberal Era, Harvard public health professor John McDonough argues convincingly that the predatory behavior of private equity investors in health care is only the latest manifestation of the money-making behavior that over the past half-century has infected the entire sector: Hospitals, physician practices, insurers, pharmacy benefit managers, drug companies, nursing homes, dialysis clinics, and more.
“The long-cherished American value and expectation of ‘patients first’ is now ‘profits first’ for investors, shareholders, and executives,” he writes in his introduction.
Amid the broad sweep of political and economic changes in the United States wrought by the neoliberal revolution jump-started in the 1970s and 1980s, medical care was not a prime target. Because health and medical care are so vital and intertwined in our economy and society, these sectors could not escape the revolution’s impact. Neoliberalism is the principal explanation for the modern deterioration of U.S. health and medical care.
McDonough doesn’t provide a concise definition of neoliberalism; instead, he chronicles the philosophy’s birth after World War II through the writings of the Austrian anti-Keynesian Friedrich Hayek and his star pupil, Milton Friedman. He then offers a set of behaviors that accurately describe the reigning philosophy governing the nation’s political economy and, by extension, much of the health care sector since Ronald Reagan took office in 1981. Markets should be left free and unconstrained by regulation, even if that leads to greater inequality. Taxes should be cut, even if it leads to escalating public debt. Managers’ only obligation is to deliver greater profits to shareholders, even if it comes at the expense of other stakeholders. And when outsiders try to ameliorate the perverse outcomes of these behaviors, forget about it. Antitrust should be avoided, labor unions eliminated, and public services privatized, all in the name of delivering lower-cost goods and services to consumers.
A simple recitation of the U.S. health care system’s performance over the last half century shows how these neoliberal precepts have failed at every turn to deliver on their promise. The U.S. has the highest prices and, therefore, the most expensive system in the world, gobbling up 18 percent of gross domestic product. Yet it has fewer doctors, delivers fewer services, and serves a population where one in 12 people doesn’t have health insurance. It lags behind other advanced industrial countries in key public health measures (longevity, maternal and infant mortality, obesity, substance abuse) even as it shortchanges the social programs that would address the deep-rooted causes of the nation’s multiple chronic disease epidemics: Poor diet, food insecurity, lack of exercise, gun violence and myriad mental health disorders.
Most of these health care issues stem from neoliberalism’s impact on the broader economy. The decline of manufacturing, exacerbated by the neoliberal free trade regime, coupled with the rise of a greed-driven information and service economy, has created wealth and income inequality that now surpasses the Gilded Age.
The health care sector was not immune to neoliberalism’s changes to the zeitgeist. Salaries for top executives and specialists at hospitals, large physician practices, insurance, pharmaceutical, and medical device companies are little different than their Wall Street peers, while the industry’s grunt workers—nurses aides, laundry and food service workers, the small army of billing clerks—labor for salaries that leave many eligible for Medicaid. CEOs at the nation’s largest hospital systems, including the non-profits that operate three-quarters of all hospital beds in the U.S., earn over $10 million a year while many report annual “surpluses” of 5 percent of revenue or more. “No margin, no mission,” they say, even as they cry poverty because of all the uncompensated care they must provide to the nation’s growing ranks of uninsured patients and burden the impoverished sick with uncollectible debt.
McDonough provides a sector-by-sector review of how financialization has undermined health professionals’ ability to care for the sick. Private equity-owned hospitals have higher prices, higher post-operative mortality, and greater incidence of hospital-acquired conditions than their non-profit peers. He documents how publicly traded real estate investment trusts and private equity-owned staffing firms have siphoned cash from hospital budgets, and how private owners have taken over the nursing home sector, which has become chronically understaffed and dependent on low-wage immigrant labor.
He next turns to monopolization of the hospital, specialty physician, and insurer sub-sectors of the health care economy, where most actors either are or once were non-profits, but now all operate as profit maximizers. About 90 percent of hospital markets, 65 percent of physician specialist markets, and 74 percent of health insurance markets are highly concentrated. The poster child is UnitedHealth Group, the nation’s dominant private insurer whose affiliates include OptumHealth (physicians and care-delivery networks), OptumRx (the nation’s third-largest pharmacy benefits manager), OptumInsight (health care information technology), and Change Healthcare (a medical claims clearinghouse). “Today, there is a strong consensus in the academic, policy, and practitioner communities that when it comes to exploiting monopoly power, nonprofits do behave like for-profits in disguise,” he reports.
The pharmaceutical industry sets the tone for many medical technology suppliers, including imaging machines, durable medical equipment, and implantable body parts and assistive devices. Without high prices, innovation will evaporate, they claim. McDonough documents how drug companies spend more on stock buybacks and dividends than on R&D. Ditto for insurers, who spent $141 billion to buy back shares between 2007 and 2022, money that “could have been used instead to lower excessively high premiums or to shrink burdensome patient cost-sharing.”
Where was the government while all this monopolized rent-seeking took place? The Federal Trade Commission and Department of Justice allowed 99 percent of health care mergers to go through unimpeded in the first two decades of this century. While there were some nascent efforts to challenge mergers during Joe Biden’s administration, those efforts have mostly evaporated during Donald Trump’s second term.
McDonough concludes his review of pervasive market-driven behavior in health care by diving into how it affects patients. For them, neoliberalism dictates that they must have “skin in the game” since health care is, after all, a market. How can markets function without consumers paying a price? Never mind that most health care services aren’t shoppable or that physicians and hospitals determine what sick people need. Yet medical consumers today face a dizzying array of out-of-pocket co-pays and deductibles, often delivered as bills from private equity-owned practices and facilities with whom the sick payer never had a personal interaction.
That is not a market. It is a rip-off, and the reason why over 20 million Americans owed $220 billion in medical debt by 2021, with more than three million families owing over $10,000. “What kind of ‘advanced’ nation puts their sick and injured fellow citizens through such hellish nightmares?” he writes. “Only the United States of America.”
I expected the concluding chapter of this sweeping condemnation of a fifth of the U.S. economy to offer a comprehensive reform program. I wasn’t disappointed. Lamenting the difficulties in achieving the single-payer option that would be his preferred solution, McDonough opts instead for a set of principles that should guide every health care organization, to be enforced by new government laws and regulations where necessary. The goals are what matter, not any specific path for achieving them.
First among those goals is affirming that the health and well-being of patients and consumers should be the core purpose of every health care-providing institution, with the system as a whole guaranteeing access to high-quality and affordable care. Further, equity demands that the special needs of different groups, especially those suffering from unequal outcomes, be recognized and addressed. Diversity, equity, and inclusion were in during the Biden years and eliminated by Trump. It needs to be put back in, especially in health care, where African Americans suffer significantly worse outcomes than the rest of society.
He calls for an updated patient bill of rights that goes well beyond existing consumer protections, including eliminating pre-existing condition exclusions and banning surprise billing. State and federal governments need to pass new laws protecting the privacy of electronic medical records and addressing the use of artificial intelligence.
To address costs, McDonough prefers government price controls on all health care services (it already sets those prices for Medicare) and all new drugs—in contrast to the current negotiations, which only take place after those drugs have become outrageously expensive for Medicare. He would set strict limits on patients’ out-of-pocket expenses.
Price controls would be easier to achieve if for-profit companies were removed from the delivery of care. Recognizing that health care institutions have mistreated their own workers, he calls for greater union recognition and public shaming of institutions that put maintaining profits and surpluses ahead of giving their support staff a living wage.
Public health must become a national priority to make a significant dent in its many chronic disease epidemics. “An easy, fair and effective pathway exists,” he writes. It “requires taxing the hell out of tobacco, alcohol, sugar-sweetened beverages, guns and gambling, among other addictions. Nothing else would come close to saving as many lives and advancing population health improvement in the short, medium, and long term.”
Like so many reform advocates, McDonough fails to wrestle with the contradictions implicit in several of his prescriptions for change. He calls for an end to fragmentation in the delivery system yet demands greater antitrust enforcement to break up vertical monopolies in which both insurers and hospital chains own physician practices and other provider organizations. Does the system need more competition? Or does it need more coordination and collaboration? It can’t have both.
Recognizing that every one of his reform principles would engender fierce opposition from some special interest in health care, he throws up his hands and calls for campaign finance reform. Such reform is much needed. But it requires overcoming the opposition of the entire corporate class that embraced neoliberalism in the 1970s, politically supported its imposition, and benefited from its triumph. The Washington Monthly has offered solutions to this problem, including from me late last year and earlier this month.
As McDonough notes near the book’s end, the half-century-long neoliberal era appears to be ending. When he began writing, the Biden administration’s response to the COVID-19 pandemic seemed to herald a return to New Deal principles. By the time he completed its final chapter, an authoritarian populism in the person of Donald Trump had prevailed, deepening every problem and setting the stage for dramatic change. Should Democrats win big this November, there needs to be a healthy debate over the shape that change should take.
