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High Hospital Profits Hurt Medicine, Expert Says

Opulent “Taj Mahals” drive up health care costs

Is the medical profession losing the race to attract the best and the brightest? In a commentary published in the American Journal of Medicine, retired cardiologist Robert M. Doroghazi, MD, explains how high hospital profits are hurting the practice of medicine.

Previously published commentaries by Doroghazi have focused on other negative trends, including high student debt, high CEO salaries, and long training periods, as factors that discourage the smartest kids in the class from choosing medicine as a career. He now cites high hospital profits, even from so-called “nonprofit” institutions, as one more of these negative trends.

Doroghazi doesn’t believe it’s a coincidence that the first for-profit hospital in the United States opened in 1967, barely two years after the passage of Medicare and Medicaid reduced the need for charity care. He suggests that the only options by which for-profit hospitals generate the excess revenues needed to pay investors a dividend are by “cherry-picking”––minimizing the patients who can’t pay while maximizing the profitable ones–– and simply by charging more. In the U.S., 49 of the 50 highest-charging hospitals are for-profit.

“In 2013, the 10 most profitable hospitals in the U.S. earned from $163.5 million to as much as $302.5 million from patient care services. The top four and seven of the top 10 are (supposedly) ‘not-for-profit’,” Doroghazi writes. He notes that Stanford’s one-year profit of $224.7 million could fund the tuition of all of their medical students—for the next decade. He also believes that the executives at “nonprofit” health chains have used some of the tax-exempt advantage for their own personal enrichment, paying themselves millions or even tens of millions of dollars in compensation. So why are such high hospital profits detrimental to medicine?

According to Doroghazi, “I believe the quest for profits between all hospitals, nonprofit and for-profit, has been one of the main drivers causing our health care costs to be the highest in the world, far outstripping inflation. There are two kinds of competition. Henry Ford was relentless in building cars that were of higher quality and less expensive. This is America at its best: all society benefitted. I believe current hospital competition has done nothing but drive up costs: new hospitals are often described by locals as a Taj Mahal, with spacious, well-appointed rooms, art work on the walls, and lobbies larger than indoor football fields. Hospitals add high-end, expensive technology that benefits few, and then unleash their Madison Avenue-size advertising budget to tell everyone they are the fourth in the area with a helicopter.”

Sources: Elsevier; November 3, 2016; and AJM; November 2016.

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