Hospitals Serving The Poor Struggled During COVID. Wealthy Hospitals Made Millions
Anyone who has watched soap operas in the last 50 years knows Los Angeles County + USC Medical Center as General Hospital. For decades, its original building graced the soap opera's opening credits.
Inside, though, there's no love story between Luke and Laura.
LAC + USC is what's known as a safety-net hospital — one of the largest in the United States. And that makes the reality inside a daily financial struggle to care for every patient who walks through its doors, patients other hospitals often try to avoid.
One recent week brought a man who said he came to the hospital to "sleep and eat," a man with dementia whom staff couldn't identify and a woman found on the street covered in feces after walking out of a skilled nursing facility. Patients who can only pay a little. Patients who can't pay at all. Patients with difficult problems.
Few of these patients, if any, have private insurance. And because the hospital must also find a place for many of them to go when their health improves, doctors say some patients have stayed as long as three years.
This past year, the nation's more than 300 safety-net hospitals found themselves on the front lines of the coronavirus pandemic, which disproportionately affected the communities that safety-net hospitals are most likely to serve. They took on a greater share of the patient burden, even as other hospitals emerged from the pandemic with huge profits, an investigation by NPR and the PBS series Frontline has found, further widening the gap between wealthy hospitals and hospitals like LAC + USC.
"Our costs went way up, and revenue went down," says Brad Spellberg, chief medical officer at LAC + USC. "Unlike a private hospital, we don't make money from our [operating rooms]. Medicaid and Medicare do not reimburse at a level where if you say, if we do more things, I'm going to make more money."
Safety-net hospitals are funded in large part by taxpayers: In this case, LA County taxpayers, state taxpayers in California and federal taxpayers, who pay for Medicaid and Medicare.
But that tax money doesn't pay hospitals nearly as much as private insurance does.
It's just simple math. A decade and a half ago, private insurance paid about $1.50 for every $1 Medicare paid — for the same hospital services, according to a study by the medical journal Health Affairs. Medicaid paid even less. By 2018, studies showed private insurance was paying almost $2.50 for every $1 that Medicare paid for services. And researchers say that every time the government does shell out a dollar, it's underpaying for what the services actually cost. The $2.50, on the other hand, is covering things quite well.
The result is that over the past 20 years, for-profit and even some nonprofit hospitals have leveraged the $2.50 into some of the largest profits and revenue the industry has ever seen. Many safety-net hospitals have wound up in the red or are barely making ends meet.
It's a disparity that has been growing for the past two decades, as medical costs have gone up and the political will to pay for health care for the poor has not kept pace.
"I think we are on a precipice," says Bruce Siegel, president of America's Essential Hospitals, a trade group that represents safety-net hospitals. "Even before the pandemic, many of these hospitals were losing money. These hospitals did not get enough federal support, and I think all these trends we've seen of Medicaid not paying enough, the pandemic is only going to make that worse. It's been a terrible year."
Profits amid a pandemic
In the first half of 2020, all hospitals were in a panic. There was a nationwide crush to secure personal protective equipment (PPE) and medical staff for COVID-19 wards. Elective surgeries, long a moneymaker for hospitals, were shut down across the country.
But then something curious started to happen. Some wealthy hospitals seemed to be faring pretty well.
For one thing, the federal government decided to send out the first $46 billion in relief money based on how much revenue a hospital had in 2019. This had the result of initially sending lots of federal money to hospitals that had lots of revenue — or wealthy hospitals.
Wealthy hospitals also had a lot of financial options at their disposal, says Ge Bai, an associate professor of accounting at Johns Hopkins Carey Business School.
"They had taken proactive action before COVID hit," Bai says. "These hospitals started to suspend their cash dividend payouts, suspend their mergers and acquisitions. At the same time, they started several lines of credit."
Most safety-net hospitals didn't have cash dividends to suspend or lines of credit to easily draw from, even as a tsunami of COVID-19 cases headed their way.
But by last July, some other hospitals were showing a profit. Profit at HCA Healthcare, the country's largest for-profit hospital system, was up 38% from the previous year, leading to a moment during the company's July investor call in which an analyst asked if COVID-19 is good for business.
"Any color you can tell us about the general profitability of these COVID patients?" the analyst asked. "Is it actually a profitable business when you bring it in?"
HCA's chief financial officer, Bill Rutherford, responded that it was too soon to tell. But by the end of the year, HCA had posted a $3.8 billion profit, more than it made in 2019. The company was doing so well that it gave its government relief money back.
And it wasn't alone. Tenet Healthcare, another large chain, made almost $400 million in profit. University of Pittsburgh Medical Center and the Mayo Clinic also posted hundreds of millions in profit.
But not many safety-net hospitals did. In October, the investors' service Moody's warned urban counties that operating a public hospital — most of which are safety nets — during COVID-19 now carried "operational risk" for their government budgets. Expenses from PPE, staff and equipment were creating "operating losses," the report said.
Analysts found safety-net systems in Chicago, Miami and Los Angeles had less than two months' cash on hand, compared with the usual six or seven.
At the same time, safety nets were carrying more of the burden. NPR and the University of Minnesota's COVID-19 Hospitalization Tracking Project found that in the past 10 months, hospitals that belong to America's Essential Hospitals saw 10% more patients in their beds compared with all other hospitals.
Bai, the researcher who studies hospital finances at Johns Hopkins' business school, says COVID-19 made an already growing trend worse.
"COVID expands the financial disparity," she says. "For the past 15 years, the financial disparity across hospitals [has been] expanding. So the richer ones become richer, and the poorer ones become poorer. This gap is not sustainable."
A lack of political willpower
The government could pay what commercial insurance pays. And it could cover the roughly 30 million Americans without any insurance at all. Suddenly, poor patients, even ones with COVID-19, would be sought after.
But Jeff Goldsmith, an industry consultant who invests in for-profit hospitals, says there's not much political support for that.
"The way we designed our health coverage, we did it by attractive demography," he says. "So we did the veterans. We did the unionized workers during World War II. We did the Native Americans, then the poor, the elderly, the disabled. And then under Obama, you did the working poor."
"Who's left that anyone cares about?" he asks. "All sorts of people that don't fall into any of those categories and probably don't vote."
The federal government has also stepped in over the years and created extra funding streams to help hospitals that are picking up more of the burden. The federal Medicaid program sends "supplemental" money that states can spread around to hospitals. Critics, though, say the program lacks oversight and there's no way to know if the money is really getting where it is needed most.
"It's a black box," says Diane Rowland, a former top adviser to Congress for the Medicaid program. "You can see how much is going out in different parts, but it's not very clear, always, where it's going. ... It hurts targeting the funds to the most needy places for the most needy populations."
Multiple reports from the Government Accountability Office and the inspector general of the Department of Health and Human Services found states have also used a workaround in the supplemental funding program to shore up their own state finances and shift the burden of paying for poor people's care back to the federal government.
The federal government did eventually create several pots of COVID-19 relief money just for safety-net hospitals. But it's still unclear how targeted that money has been. Brad Spellberg, at LAC + USC, says it will take years before safety-net hospitals' budgets balance out.
It's something many for-profit and nonprofit hospitals don't have to worry about.
"It is a little unfathomable to me how a hospital system could be making a huge profit in the middle of a pandemic," Spellberg says. "But honestly, nothing surprises me anymore. ... Nobody ever sat down and mapped out how health care should be delivered. And so you have winners and you have losers."
Industry experts expect some safety nets will close in coming years or perhaps be sold to private investors looking to turn them into for-profit moneymakers. And they can be turned into that as long as there is another safety-net hospital nearby willing to take all the patients they don't want.
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