COVID-19 has Exposed the Flaws in how We Finance Hospitals

Though covid-19 has filled hospital beds in hot spots across the country, the disease has walloped hospitals’ financial well-being. Throughout the spring, the industry claimed financial losses of $60 billion a month because of postponed elective procedures. Health-care workers, lauded as heroes, have seen their wages cut even as they are pressed into service to battle the virus.

The pandemic has been so bad for hospitals because the health-care system was designed around profit rather than care. Administrators created specialty departments to generate profits, overselling high-priced surgical and technological procedures instead of aiming to provide needed, affordable care for everyone. Covid-19 has laid bare the cost of those decisions.

Starting in the early 20th century, hospital administrators and physicians found that innovations like X-ray and radiotherapy devices returned revenue greater than expenses, unlike the sort of day-to-day care hospitals traditionally provided. Eager to capture these profits, administrators purposefully developed high-tech specialty units as profit centers at the expense of less-lucrative services. They prioritized “super acute” specialty centers over badly needed general acute-care services, such as treating people with infections, asthma attacks, mental health crises and injuries from car wrecks.

Hospitals were not the only institutions driving this change. Insurance companies, which grew significantly after World War II as medical services and costs increased, agreed to pay more for procedures than for office visits or general acute care to offset the high costs of equipment and specialists. This created incentives for hospitals to build facilities for specialties with procedures reimbursed at the highest possible rates, rather than necessary services that promised lower rates from insurers.

The most common methods of financing hospital construction and specialty infrastructure compounded the situation. Business tycoons and their wealthy foundations funded the construction of many specialty-oriented academic hospitals in the 1920s as tax-deductible philanthropy.