Don Quixote and the Winds of Change

Government intervention will change healthcare within the next years

In July, I published a blog about how the threat to the US health system is becoming existential. The situation for US hospitals is unsustainable, given the upwards pressure on cost, lack of simultaneous increases in reimbursement, and demographic shifts in the patient population. In April this year, the House Ways and Means Committee held a hearing that became a comprehensive assault on US hospitals, claiming they were the primary driver of US healthcare costs. However, the average hospital in the US in August last year had a 1% operating margin - meaning any hospitals operated (and operate) with a loss, while most of the rest have razor thin margins which could turn to losses with only small shifts in procedure volume and/or payer mix. Hospital closures have reached record levels.

I argued that the problem is not that hospitals are greedy or even that they are poorly run (although some of them are). The problem is not in the provision of healthcare, but in the healthcare industry that enables such healthcare provision. In the US healthcare industry, inequities are massive and the balance of power favors everybody BUT the providers, including insurance companies, medical device manufactures, big Pharma, and distributors. These industry participants act as monopolies that drive up healthcare costs and making the situation for hospitals impossible. Ongoing litigation against medical device, pharmaceutical, and insurance monopolies is exposing deep-seated, anti-competitive behaviors and monopolistic strategies within the healthcare industry, but such litigation barely has an impact given the massive size of the healthcare technology, pharmaceutical and insurance giants. With the kind of market concentration we see in medical technology markets, two things happen: Providers (hospitals and doctors) have less and less real choice over what they buy—and prices go up, sending the financial hospital finances into a vicious circle.

Providers (hospitals and doctors) have less and less real choice over what they buy—and prices go up, sending the financial hospital finances into a vicious circle.

When the provider loses, the patient loses. Hospital closures mean patients have to travel farther to get healthcare and that wait times go up. Thin hospital margins mean that hospitals can't acquire the right technology and the best drugs - and that they can barely staff their procedures and patient care activities. The unhealthy nature of healthcare provision ultimately means fewer applicants to medical schools, less qualified doctors, and nursing shortages.

Unfortunately, while monopolistic behavior is rampant and deeply harmful to healthcare, the healthcare providers (hospitals and healthcare professionals) who have the power and the voice to speak up and call out the unfairness and illegality of industry behavior that threaten our healthcare system - remain silent. This is because the system itself, the structure and dynamics of the healthcare sector, favors a rigid distribution model and monopolistic behaviors that perpetuate - and over time increase - the financial pressure on hospitals. Medical technology companies, pharmaceutical companies, and insurance companies are allowed to operate in pursuit of higher profits, while completely disregarding the patient and the doctors and hospitals who treat that patient. “Providers have become passive contributors to industry profit cycles rather than acting as active stewards of procurement and patient care, and current incentives emphasize profit maximization and rebate capture at the expense of patient-centered clinical outcomes”. The hypocrisy is unabashed: Go to their websites and look at their mission statements: They are all about focusing on the patient. Yet every year, prices go up and hospitals are forced to reduce choice and lose ability to care for the patient.

...every year, prices go up and hospitals are forced to reduce choice and lose ability to care for the patient.

With that in mind, it may seem quixotic to continue to address the issue, and I wanted to follow up on my July writings to address an unwelcome truth about the ongoing and harmful financial pressure on hospitals: Even if attacking healthcare monopolies and industry giants seems quixotic, winds of change are set to blow in healthcare, simply because the system will crack. Hospital closures will worsen access to care, and staffing shortages and device costs will force hospitals to shut down service lines. So far, political/financial pressure from things like the One Big Beautiful Bill Act are resulting in further reduction in access to critical care and risk of permanent service line shutdowns and compromised quality of care. But over the next few years, it will dawn on politicians that the lack of financial sustainability for hospitals is not a math problem. It is a patient care problem.

I believe government intervention is inevitable. Over the next electoral cycles, healthcare cost and quality will become a more and more important issue for voters, and administrations will be forced to act. Such action, while not breaking up monopolies in medical technology, pharmaceuticals, and insurance, will force the healthcare industry giants to re-focus their behavior through price controls and regulation of market behaviors. In the light of this, the real question for the industry giants will be whether they want to be part of the past - or part of the change. The smarter decision is to embrace the change and pre-empt government intervention that will undoubtedly hurt. This means voluntarily shifting from an uncompromised profit regime to a patient-focused regime that balances sound financial decision-making with practices that allow healthcare providers to provide the best care possible.