What's Wrong with Profits in Health Care?

by Tom Bodenheimer, MD.
Reprinted from PNHP Newsletter, July 1997

The Case Against Profits in Health Care

1. Investor-owned companies are legally required to place the interests of their investors above the needs of their patients. Thus any conflict between increased profits and better service is likely to be resolved in favor of profits.

2. The profit motive within HMOs, medical groups, and capitated physicians strongly encourages the enrollment of healthy individuals and the avoidance of the chronically ill and those at high risk of illness. it also encourages the restriction of services to those most in need of medical services. This is a negation of why health care professionals enter their professions - to provide care for those who are sick. It also negates one of the fundamental purposes of the health care system, which is to provide care to people in poor health.

3. The profit motive is corrupting the medical profession with bonus payments for keeping patients away from care. Both practicing physicians and physician-entrepreneurs are increasingly thinking about money rather than single-mindedly providing service.

4. The profit motive leads to severe irrationalities of resource planning in health care. Hospitals may be closed in poor neighborhoods and rural areas because they cannot survive in Medicaid reimbursement while caring for many of the uninsured and for-profit HMOs no longer allow them to cost shift to private patients. Also, good specialists may be driven from practice as HMOs and medical groups reduce short term costs by keeping patients away from specialists and by "deselecting" specialists whose costs are too high.

5. The profit motive sets in motion a irreversible process of mergers and acquisitions in the never-ending battle for market share. This leads to an oligopoly which concentrates the power over health services in a few hands; reduces patient choice; eliminates the possibility of healthy competition among health care providers based on access and service, and will lead to a resurgence of health care inflation as monopoly pricing takes hold.

6. For-profit health care institutions are less efficient. Compared with Medicare's 2% administrative costs, many for-profit HMOs channel 20-25% of the health care dollar into administration and profits. for-profit hospitals have higher administrative costs than non-profit hospitals. A substantial portion of health care administrative costs are profit-creating administration, such as utilization management to reduce hospital stays, advertising that is designed to attract healthy enrollees, lobbying to prevent government regulation, and payment of huge compensation packages to executives.

These arguments point strongly to the concept that we should abolish profit in health care; we should not just prohibit non-profit entities from converting to for-profit status, but also abolish for-profit HMOs, hospitals, and medical groups.

(editor's note: Bodenheimer here includes a section called "Haven't profits always existed in health care?" In it he makes the case that "the influence of profits in health care is far more pervasive and pernicious now than previously." Only the fifth point from that section is reproduced here.)

5. Non-profit health care providers and insurers are increasingly behaving like for-profits in order to survive in the profit-dominated market. private non-profit Blues plans and hospitals have often behaved poorly toward patients, but increasingly, these non-profits are forced to become for-profit look-alikes. Blues plans that community-rate or accept high-risk patients will lose out to for-profit plans that cherry-pick healthy enrollees or charge more to those who are older or sicker; so the Blues have to assume the [policies of the for-profits. Non-profit hospitals that formerly cared for at least some uninsured people are now unable to shift their costs to paying patients as for-profit HMOs force them to accept low reimbursement rates; the non-profit hospitals are increasingly placing their bottom line above any commitment to community service. The profit motive, then, has spread from the for-profit sector to the non-profit sector.

Is opposition to profits in health care distracting us from the real problem: universal access to care?

It could be argued that opposition to profits in health care is a side issue, diverting people from our true cause, which is the battle for universal health insurance in the U. S. Indeed, winning universal health insurance is the fundamental issue; but the profit motive is in large part responsible for the failure of our nation to care for all people regardless of ability to pay.

1. For-profit hospitals provide fare less care for the uninsured than non-profit hospitals, who in turn provide far less than public hospitals. For-profit HMOs care for no people without insurance.

2. For-profit companies divert billions of dollars in profits and profit-creating administration away from needed health care. these billions are sufficient to provide comprehensive health insurance to all the uninsured in the nation.

3. The growth of uninsurance in the past ten years has been caused by less employers insuring their employees. Why are employers deserting the insurance market? In order to increase profit margins.

4. Government refuses to solve the uninsurance problem because "there is no money." Why is there "no money?" Because huge tax breaks are available to the wealthy and the large corporations who provide campaign contributions to politicians; and because corporate welfare programs siphon off tens of billions of dollars each year that could be used to insure the uninsured. Thus it is precisely the profit motive that has prevented government from performing the simple task of insuring all Americans for health care.