Profit-driven Medical Care Takes an Ever Bigger Bite out of Working People’s Incomes

Nov 17, 2003

The U.S. spends more per person than does any other country–but fewer people get care than in any other country. All of this is the result of the fact that the medical system in this country is organized first of all to provide profit, not care.

The deadly results are shown in a recent study carried out by the Institute of Medicine, an organization of experts advising Congress on medical questions. They reported that more than 18,000 adults die each year because they are uninsured and can’t get proper health care.

Medical insurance for profit

At the center of the U.S. medical care system is the insurance industry, which is dominated by for-profit insurance companies that administer the financial parts of the system. While there still is a part of the medical insurance industry in the non-profit Blue Cross system, that portion continues to shrink. Today, the non-profits cover less than 27% of the insured.

Not only is the health insurance industry today dominated by for-profit companies, it’s dominated by only five companies, which cover 40% of the insured. Such tremendous concentration has made it easier for the insurance industry to increase premiums at a rate that is going up much faster than is the cost of providing medical care, a cost which also increases outrageously.

Hospitals for profit

Six years ago, one fifth of all hospitals were for profit.

Today, a recent study, whose results were published in the New England Journal of Medicine, found that for-profit hospitals are always more expensive than public or non-profit hospitals. And they also tend to provide less care. Besides that, they don’t usually provide extremely important medical services such as burn treatment, spinal cord injury treatment, AIDs treatment, and neonatal intensive care, since these community services generate little net revenue and are often operated at a loss. Private for-profit hospitals also provide almost no care for people who cannot pay.

Said Dr. Steffie Woolhandler, Associate Professor of Medicine at Harvard and the co-author of the study, "It’s a myth that for-profit hospitals are efficient. They save money by laying off nurses, then hire consultants and bureaucrats to figure out how to avoid unprofitable patients and maximize revenues. For-profits increase costs, decrease care and generate windfall profits like the $359 million pocketed by Rick Scott [the CEO] of Columbia/HCA [the biggest for-profit company]."

A study in the Journal of General Internal Medicine found that patients at for-profit hospitals are two to four times more likely than patients at not-for-profit hospitals to suffer complications from surgery or delays in diagnosing and treating an illness. In fact, the only thing these hospitals are good at is generating profits that are often four to five times greater than the surpluses generated by non-profit or public hospitals.

The golden pharmaceutical industry

Drug costs are consuming an ever larger part of spending on medical care. In 1993, prescription drugs made up 5.6% of all health care spending. It rose to 8.0% in 1998. It has risen even faster in the last five years. This increase is one of the reasons that the elderly pay a larger share of their income today for health care than they spent before the advent of Medicare in 1965.

The giant pharmaceuticals may justify these rapidly increasing costs by saying that the money goes to fund research and development of new drugs. But, in fact, only about 10 to 15% of what these companies take in actually goes to what they call research and development. Most of the rest goes to big marketing campaigns, administrative costs–especially the high salaries and bonuses of the executives–or to profits.

Pharmaceutical companies regularly earn profits at rates that are three times higher than companies in all other industries. It’s not research but profit that has driven drug prices into the stratosphere.

Bureaucracy and waste

The very structure of the health care industry, which is organized around the production of profits, is incredibly fragmented, bureaucratic and inefficient. There are multitudes of private insurance plans, public programs and no programs at all for the uninsured. Enormous staff are needed to create and revise provider plans, then administer them. There is a whole bureaucracy whose work is aimed at keeping sick patients out of hospital beds and sick patients away from doctors. Armies of administrators are used by hospitals to try to squeeze payments from insurance companies, and at insurance companies, armies of administrators do the reverse. And they both are busy trying to squeeze down the prices they pay to the pharmaceutical companies. Rather than work together, the administrators from one sector of the medical care system are constantly at war with administrators from other sectors, wrestling over who keeps each health care dollar.

Over the last 30 years, as the health care industry has become a more and more important provider of profits, this bureaucracy has mushroomed, increasing in size 25 times! It grew at a rate that was 10 times faster than the number of people who actually provide health care and make the health system run, from doctors and nurses to technicians and janitors. Last year, administrative expenses accounted for 400 billion dollars, or more than 25% of all health care costs. If the administrative costs were reduced to the level of Canada, which has a single payer system of medical care, more than 286 billion dollars would be saved. This is enough money to extend health care coverage to the uninsured–and better coverage to the rest of the population.

The fact that profit dominates the health care industry is what has been pricing health care increasingly out of reach of people with ordinary incomes. According to Hewitt Associates, a benefits consulting company, the annual out-of-pocket costs for employees of large companies have more than doubled over the last five years to an average of $2126, with bigger increases projected in the years to come. Part of this is due to the rising prices that the health industry charges. But it is also due to the fact that companies large and small are increasingly shifting the burden of these costs onto their employees.

Nowhere is the parasitic nature of capitalism more clear than in the very profitable health care industry in this country.