Everyone hears about the escalating costs of healthcare in America. There are many reasons, but an article in today’s SacBee focuses on one of those reasons. It shows that a few are becoming very wealthy in healthcare, but doesn’t connect the dots on how. It’s a tale of manipulation and market distortions that place corporate health, wealth, and growth above better customer care and lower prices. (What other industries are following this model? Been on a plane lately?)
The SacBee article shows a list of CEO compensation for the 50 largest non-profits in the region. 21 of these are healthcare related businesses. And the CEO paychecks are substantial, ranging from $300k up to $7.5M.
First, why are healthcare related companies mostly registered as non-profits? One simple reason – tax avoidance. These non-profits get all the benefits of local, state, and federal governments (use of streets, infrastructure, police & fire protection, etc) and they get it all for FREE.
Second, non-profits are actually required to NOT make a profit. But in many cases, their net revenues are very large. In 2016, Sutter Health had total revenue of about $12B with a net revenue (profit) of $554M. And this was a 784% increase over net revenue in 2015. (Source – Sutter Health Annual Reports for 2015 & 2016) Because they are not allowed to make a profit, they must spend it all, and some of it goes to extremely generous executive compensation. Why don’t they use some of the revenue for the benefit of their patients in the form of reduced pricing?
Here’s why – the healthcare industry has mastered the art of a distorted market. For most other products we use, as the technology advances and the products become more common, the prices go down. Think of big screen TV’s. 10 years ago, they cost $1000’s. Today they cost $100’s. Not so with healthcare. As medical technologies advance and procedures become more commonplace, the prices go up. A distorted market.
So rather than share their wealth with customers (like Walmart does), healthcare uses it to richly reward top executives, create lavish facilities, and populate them with medical equipment that’s not needed or seldom used. A couple years ago, I got a tour of a new hospital in Denver and they showed me a storeroom in the basement that was filled with brand new patient monitors. They told me they bought more patient monitors than the number of beds in the hospital. When asked why, they said “We needed to spend some money before the end of the fiscal year and this is what they bought.” Why not use it for patient benefit, like rebates or lower prices? No response.
I get upset at the way the healthcare industry scams Americans. They know people will pay anything to stay alive and healthcare takes advantage of them. It’s a travesty and no one has the courage to confront it thanks to the army of lobbyists they hire in Washington.
I’m done ranting. If you’ve kept reading this far, I appreciate your attention. It’s not a terribly riveting topic.