How Hospitals’ Profit Orientation Led to Covid-19 Unpreparedness

The Wall Street Journal has a new story, Why Did Covid Overwhelm Hospitals? A Yearslong Drive for Efficiency, which is simultaneously enlightening and frustrating. On the one hand, this extensively researched piece confirms what many observers have strongly suspected, that major hospitals’ fixation with efficiency meant they had no slack when Covid-19 struck. And the article gives a key insight: the critical shortages most often weren’t beds but medical personnel, above all emergency room nurses, whose pay levels rapidly escalated as medical systems desperately tried to hire anyone who was free (which included nurses rolling off contracts).

On the other, the Journal’s reporters tacitly accept the neoliberal point of view that efficiency, which in a private sector context means lowering costs and increasing profits, is a reasonable prime directive for hospitals (and by implication organizations generally…as opposed to safety and service quality. If humans were optimized for efficiency, we wouldn’t have two kidneys, for instance, since it’s possible to live with only one. Excess capacity is pro survival, but like all insurance, it comes at a near-term cost.

The article also attempts to paint this bottom-line-driven approach as not all that bad by focusing the story around the Banner Health, which is nominally a not for profit, and per the story, did an adequate job of Covid-19 improvisation. The article does describe how the well-funded Banner’s quest for emergency staffing hurt smaller, poorer hospitals in the state.

The story does manage to work in, but underplay how these nominal not for profits in fact have strong imperatives to lower costs. Large medical systems, like universities, have been colonized by MBAs or MBA indoctrinated executives and senior managers who expect to be paid at private sector levels. Peter Fine, the CEO of Banner, made $25.5 million in 2017 and $10.5 million in 2018. One key tell:

Over the past five years, Banner Health has reported a combined $941 million in operating income and another $1.09 billion from its investments, according to Banner financial disclosures.

Banner is more in the investment business than the patient business. This resembles the behavior of the well-endowed universities like Harvard, which are increasingly hedge funds with education affiliates. One of the justifications for a lavishly paid CEO and senior administrators is all the fundraising they do.

As the story notes:

In recent years, hospitals have shifted resources to outpatient settings for a growing number of lucrative, high-volume procedures such as knee replacements, bolstering staff outside hospitals where the sickest patients get care….

The upshot is fewer hospitals, with less capacity for intensive services…

Even large nonprofit hospitals, which receive federal and local tax breaks and treat two of every three patients in the U.S., according to federal data, have adopted similar financial models.

“They are not the ‘Little Sisters of the Poor’ charitable institutions that hospitals once were back in the 19th century,” said Martin Gaynor, an economics professor at Carnegie Mellon University who studies the health industry. “These are big businesses.”

Admittedly, hospitals weren’t seeking to reduce their number of beds and move more patients to outpatient services in a vacuum. Recall, for instance, how many accounts of New York’s Covid-19 train wreck stressed how Andrew Cuomo not only pushed, but also took credit for, the reduction in hospital bed over the years. This goes back to the acceptance of neoliberal objectives for the provisions of public or ought-to-be public services. Yet the US has wound up with perversions like just-in-time practices in hospitals while the US simultaneously has the most bloated health care system in the world.

Now to the story.

The state’s governor in late March ordered hospitals to be ready within a month to increase their available beds by as much as 50%, which Banner and other hospitals did. But they didn’t also ensure there would be enough skilled nurses to handle the possible crush of sick patients…

In June, as patients poured in from Northern Arizona, Banner halted transfers to Banner-University Medical Center Phoenix, one of its premier facilities, according to a spokeswoman. It shifted patients to Banner’s other area hospitals to manage the strain on its hospitals, including its staff….

Banner pulled staff from its ambulatory centers to help its ICUs. Lacking needed qualification, they were often paired with ICU-certified nurses. “We put them through very quick training programs to upskill their capabilities,” Mr. Fine said. It eventually trained and reassigned 700 employees.

It also hired 898 nurses and 113 respiratory therapists on short-term contracts.

By shuffling patients across its hospitals and hiring more staff, Banner ultimately denied only 13 transfer requests from the state and accepted 870 patients through the state-coordinated transfer center, a spokeswoman said.

The Journal isn’t in a position to opine, but double-teaming ICU nurses with newbies isn’t going to double capacity. The ICU nurses if anything will be mildly distracted in trying to manage what amount to assistants who may not yet know where everything is the facility. This sounds like 1 + 1 = 1.4

Back to the article:

Less financially strong hospitals, which tend to be public or rural, were more vulnerable. Well-funded hospitals across the country soaked up much of the available supply of traveling nurses, leaving the rest priced out of the market….

By mid-June, the staff at Valleywise Health, a large public hospital in Phoenix, was worn down from pulling extra shifts. Sherry Stotler, the chief nursing officer, tried to hire 20 to 30 traveling nurses. “We needed to let people take time off,” she said.

She was able to hire only six….

Valleywise, usually the hospital of last resort in the Phoenix region, began to turn down transfer requests from rural hospitals that wanted to send their sick patients to a better-equipped urban hospital.

The situation was also chaotic at Yuma Regional Medical Center, a three-hour drive southwest of Phoenix on the Mexican border. The hospital had struggled to recruit to its remote location even before the pandemic…

Yuma Regional pulled nurses from its operating rooms, canceling surgery to free up staff. But on peak days in June, it was transferring as many as 11 or 12 patients a day on helicopters and airplanes, because it didn’t have enough nurses…

Staff from other parts of the hospital were brought in to care for less-critical patients, but despite the reinforcements, nurses in the emergency room were stretched too thin for the number of critically ill who needed their help, [emergency room nurse] Ms. [Yasmin] Salazar said.

She couldn’t leave one dangerously sick patient to help when an emergency code sounded in the room next door. “I couldn’t go,” she said. “We all had a critical patient.”

Yuma Regional’s ICU also filled up. Typically, an intensive-care nurse is assigned to one or two patients. That increased to three to four patients for each nurse as the surge took off, said Gail Galate, one of Yuma Regional’s intensive-care nurses who works overnight in the hospital.

The article describes how the state stepped in to hire traveling nurses for hospitals that could not afford them, but this was after the crisis had started to wane.

Some Wall Street Journal readers didn’t buy the “This was an emergency, of course things were a mess” presumption. Many were not impressed with the whinging about nurses’ pay. For instance:

andrew shaw

A hospital that is run purely by market forces ends up full of traveling nurses who chase the highest salary and staff that constantly needs to be retrained. Meanwhile, the hospital could hire dozens of nurses for what it pays their CEO

Peggy O’Neil

If the CEO could spend one day with an RN, he would be humbled. I did the job for 37+ years and it takes everything out of you.

Traveling nurses operate @ 50-60% competency as they are not familiar with the systems of a particular hospital.

As someone else mentioned, the CEO’s salary could cover the salaries of many nurses.

Patients today are sicker as they cannot be hospitalized unless they meet insurance/M-Care criteria. Admission criteria in the past was much more lax.

Proper staffing is critical and it is constantly challenged by the ‘bean
counters’ who know nothing about patient care.

There are many RN’s in the country, but most will not work under these conditions.

And one made an important observation. Even though public health is managed at the state and local level, there’s not reason not to have a better national overlay:

Gary McCale

Much of the failure resulted from a shameful lack of preparation–specifically the failure to bring hospitals into a national Incident Command System. ICS is the backbone of U.S. wildfire response; it enables the rapid deployment and redeployment of critical resources in emergency conditions at a national and even international level. In fact, many hospitals and EMS systems use ICS for local tactical situations. But there is no reason in the world to not bring the medical system into ICS like the wildfire community has. Even with the incredibly intense, expansive fires on the Western seaboard you do not see governors hollering “I need ten thousand fire engines” like Cuomo was screaming about needing ventilators early in the pandemic (which need, by the way, never materialized at the scale he was screaming for). Taking that narrow facet, under ICS, a national pool of ventilators could have been established with courier aircraft to deliver them and teams to train/operate them.

Needless to say, a lot of people in positions of authority are falling back on the “whocouldannode?” excuse, when experts have been warning of a pandemic for at least 20 years and the countries hit by SARS overall had much better responses. The default of our putative leaders, of trying to shift blame, guarantees we won’t learn from our bad experience.

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  1. ZacP

    Ah yes “up skilling” for the ICU, the second biggest scam they pulled on us all year. These poor nurses, all of the legal responsibility and licensure risk with none of the preparation.

    1 + 1 = 1.4 indeed

    1. America invented the imperial CEO

      Do they get a bonus healthcare savings account if they’re upskilled? Or perhaps do they get a digital coupon for an Uber ride share each month? Maybe they’re given charity tokens – asked which charity would you like the hospital’s nfp to invest in?

      These are all fair emergency worker exchanges for emergency labor in our bipartisan economy. Let’s negotiate to the middle of something ! Hurrah

  2. PlutoniumKun

    Anecdotally, the issue is as much one of the infection of MBA’s as it is of the profit motive. Even in public hospitals here in Ireland I’ve heard multiple complaints that there is an overuse of agency nurses over permanent staff, not because they are cheaper (they are not), but because management finds them more controllable. I know one agency nurse very well and she freely admits that the care she can give a patient is not optimal because she never knows the systems of a hospital as well as a permanent nurse. But on an hourly basis, she earns several times what a permanent nurse makes.

    And I know from a relative in business consultancy that many public hospitals here have adopted just in time techniques for delivery on the advice of outside consultants (and sometimes on their own initiative as its seen as the ‘right’ way to do things). The efficiency gains (at least in terms of reduced waste) are genuine, but I would be interested to know just how much this contributed to hospitals running out of safety gear so rapidly.

  3. a different chris

    >ICS is the backbone of U.S. wildfire response; it enables the rapid deployment and redeployment of critical resources in emergency conditions

    Haha yeah sure, aren’t a lot of our “critical resources” for wildfires ‘(cough, helicopters, cough) stuck in Afghanistan?

    You would also think a country at war for…um….jesus forever would have a lot of true RN-equivalent personnel hanging around. But no, somehow we have evolved war prep and execution from a arguably necessary evil to absolute uselessness in all aspects.

  4. jackiebass

    Our local hospital used to be led by a medical doctor. He was replaced by a person with a MBA. Since then the entire operation of the hospital and related health care system has changed for the worse. It has become harder to see you doctor. All doctors have become employees of the health care system. appointments used tone scheduled on a half hour schedule. Now they are scheduled on a 20 Minuit cycle. When you go to the editor you only actually are with the doctor for 10 minuets. It is difficult to get a new doctor that isn’t an intern. The system has partnered with the local medical school so most of the people are students of the school. Instead of quality of care the focus is on increasing their bottom line. Unless you are willing to travel for care you have no choice but use their monopoly.

  5. Mark K

    I say let’s allow MBAs, maybe even private equity, to start running all the fire departments, They can start squeezing all of the “inefficiency” out of the fire response system and paying themselves outsized salaries. Maybe they could rationalize “fire care” even more by closing outlying firehouses and replacing them with “fire clinics” that don’t have the ability to extinguish anything larger than a small brush fire.

    As Yves says, redundancy exists for a reason.

    1. Ford Prefect

      More useful would be to have them run the police departments. It would be interesting to see them address the overtime payments, especially in the last year before retirement to boost pensions.

    2. Adam Eran

      Nasim Taleb notes that efficiency and resilience are inverse. As for the fire departments, that troublesome equipment maintenance and testing is just a pure cost. After all, how often do you need to use the truck? So it fails from time to time, so what?…etc. (See PG&E’s maintenance of that gas pipeline that blew up in San Bruno for a case in point.)

      For a stinging critique of MBA education, try Matthew Stewart’s The Management Myth

      Turns out the founders of “scientific management” (e.g. Frederick Winslow Taylor) cooked the books on their “experiments” that demonstrated the validity of their methods. MBA education is rotten from the root up.

  6. Mikerw0

    Unfortunately, our daughter has a serious, chronic disease that has resulted in 11 operations and at least another 15 hospitalizations over the last 15 years. (She is doing well and has an amazing attitude.) We have witnessed first hand the hollowing out of hospitals. She is treated at Presbyterian-Cornell in NYC. They self promote as the #1 in NYC and #3 nationally.

    They have systematically reduced nursing staffing and hurt their morale. We have seen many retire early and heard first hand the negative changes. They have similarly reduced other support staff — which really matters when you are in post-op waiting for a room but they don’t have the staff to prep a room for you. Nursing is critical as they are the one’s who really provide the care.

    Her primary specialist lost her PA in a cost cutting move. Again it hit morale. More importantly, it reduced the quality of patient care.

    At the same time, they have materially increased the space for high paying VIPs. Profit over health care is their real slogan.

    One anecdote. After a surgery I left post-op to get my wife and me lunch. To follow the rules I sat outside to quickly eat a sandwich. The main entrance to the hospital is a circular driveway that is a chronic traffic jam of cars, cabs, etc., and is also the access to the ER entrance. I noticed two black high end sedans parked and semi blocking traffic. I went and looked. One was the Dean of the Med School and the other the CEO’s. What arrogance. They have valet parking yet they could inconvenience everyone else so they didn’t have to wait a couple of minutes for their cars. To me it speaks volumes.

  7. Bob Hertz

    The drive to make hospitals more ‘efficient’ was not solely a power play by greedy CEO’s.

    There was a strong feeling that expensive hospitals were leading to higher health costs for everyone, and paring them down would help hold down insurance rates and Medicare expenses.

    Again this was not just a cover for hedge fund greed. This was a serious academic position held by respected health economists including Uwe Reinhardt, Henry Aaron, and Paul Starr.

    Let’s look at it from another angle. As noted in the article, an ICU nurse is normally assigned to one or two patients. That is an extremely expensive allocation, and 99% of societies in world history have never provided this.
    If America has had to up this ratio to four patients per nurse, that to me is not a scandal.

  8. Chris Herbert

    First of all, we need to re-educate the economics departments. They’ve been teaching mythological economics ever since Friedman blew up economics as an honest academic profession. The MBAs no doubt got a big dose of Friedman in their studies, so they are fairly useless outside of bookkeeping. I’m at the point of just chucking it all out and going back to placing critically important work squarely in the public sector. Medical care would be the first I’d change (medicare for all). Next would be banking (more public, less private). Public utility energy production and distribution using sustainable energy. EV transportation required everywhere (Private corps, but federal regulations) with Congressional spending picking up the transformation tab. Restoration of farming as a regenerative science, not a mass produced cancer causing unhealthy food producer. This could be private, but Congress should subsidize the makeover and allow all those small farmers pushed out by Industrial Ag to get their farms back. Oh well, nothing will happen until Congress learns how it actually funds its spending. Incredibly, most members don’t know this. Unbelievable.

  9. Susan the other

    Hospitals should be emergency only. And they should be turned into utilities – public utilities. Because they are vulnerable to exploitation; it is a segment of medicine that can be controlled, monopolized, restricted and earn the profits that go along with extreme need. Daddy Warbucks only it’s Daddy Healthbucks. Everything about our medical system is wrong. Including a scarcity of doctors and nurses; drugs; PPE. It’s vertical grift and graft at its finest. State-of-the-art equipment? Forget it until the old one is amortized even if it’s a piece of crap. What else keeps a hospital “in business?” Rural hospitals are shutting down for lack of revenue. They can’t even pay their utility bills. Doctors are fighting a losing battle. Private Equity knows this. They have been busy buying up the profitable ends of practices and of hospitals – especially emergency rooms – for a few years now. Who’s gonna buy up the rest of the hospital? We need people who are actually medical professionals to look at the whole mess. I’d think that if all hospitals were emergency-only they could organize themselves to provide adequate, even good, care all the time. Then there needs to be a medical system for things like disasters and epidemics. Nobody has a clue how to do that one, but one thing is for sure – it should not be left to private equity wizards. All the Milo Minderbinder acolytes need to be re-educated. Pandemic Care needs to be put together from scratch, obviously. Then at a less immediate level we need good 24/7 clinics with good equipment and personnel. Specialty clinics will try to remain private to the bitter end. Good luck to them. We need more than M4A – we need an actual functioning health system.

    1. Ford Prefect

      Countries like Canada have done quite well in this pandemic. They had experience from SARS and cascaded leassons learned out. The public health departments and the medical systems worked together. Wit hthe single payer system, they realized the money was ultimately coming out of one pot, so reducing people who would go into the medical system was a major cost savings.

      Canada spends half of what the US spends on per capita healthcare but is able to get better outcomes due to better system decision and viewing the entire population as worthy of receiving healthcare..

  10. Arizona Slim

    Banner took over the University of Arizona’s medical center a few years ago. Let’s just say that, here in Tucson, saying the word “Banner” is an invitation to get your mouth washed out with soap.

  11. Barry

    I’m glad you contextualized ‘efficiency’. It is so often treated as a fundamental innate quality, rather than a description of a ratio of two metrics someone thinks one should optimize.

    What should we optimize for? With hospitals, maybe it should be their ability to provide for the healthcare needs of their communities.

    And maybe they should optimize for capacity and preparedness rather than cost-benefit models that fit statistically-typical days.

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