End Profiteering in Healthcare

The Problem

Financial actors, strategies, and calculations have increasingly dominated U.S. healthcare — a process known as financialization. This has led to the extraction of excessive wealth in nonprofit as well as for-profit and private equity owned organizations – profiteering at the expense of patients, communities, and taxpayers. Medical decisions are subordinated to revenue targets, resulting in higher costs, lower quality, and reduced access to care. Ending profiteering is key to universal, affordable, quality healthcare.

Past Failures to Solve the Problem

Changes in health policy, tax law, antitrust enforcement, and financial and labor market deregulation under Republicans and Democrats alike have encouraged profiteering over patient care. Federal efforts to stop Wall Street looting, increase transparency, and hold decision makers who prioritize profits accountable have gone nowhere. Current laws are reactive, provide minimal redress to those harmed, and fail proactively to prevent profiteering. Some states have proposed or passed laws to increase transparency or sharpen sanctions against the corporate practice of medicine; but they remain fragmented and lack adequate resources for enforcement.

Game Changer: End Profiteering in Health Care

Financial actors are chameleons: If one form of profiteering is outlawed, they will create another. The task is to change incentives that lead actors to raise prices, cut labor costs, reduce quality, and limit access to care. Hold financial actors accountable, end profiteering, and eliminate the profit maximization motive in nonprofits. Here are seven policies that can help fix our health care system.

1. Public Financing of Healthcare Infrastructure. End healthcare organizations’ dependence on financial markets for funding new construction and modernization. Replace it with public financing of health infrastructure that benefits all healthcare organizations — regardless of their creditworthiness — and enables them to prioritize the quality of patient care for all.

2. Hold Tax-exempt Hospitals Responsible for Indigent Care and Prohibit Self-enrichment. Make nonprofit hospitals’ tax-exempt status conditional on a mandated percent of total operating expenses spent on poor patients. Enforce the prohibition against self-enrichment.

3. Hold Financiers Responsible for Bankruptcy Debts. Change bankruptcy rules so that every entity with a financial interest in a company – including private equity firms and Real Estate Investment Trusts (REITs) – is jointly responsible for repaying any debt the company acquires. This would mitigate excessive use of debt.

4. Take Labor Out of Competition. Set specific minimum staffing levels for all hospitals and nursing homes. To support these standards, increase funding for Medicare and Medicaid and federally funded education and training programs. Minimum staffing standards will limit the ability of employers to compete on the basis of low-cost labor. Publicly funded education will build a new generation of skilled workers needed to fill current and future shortages across all nursing occupations.

5. Break up Large Healthcare Conglomerates in Concentrated Markets. Horizontal concentration undermines competition in local health markets, leads to monopoly rents and higher prices, and reduces consumer choice. Anti-trust regulators should break up companies with excessive market share to relieve upward pressure on prices and give patients greater choice.

6. Break up Vertically Integrated Conglomerates. Break up large, vertically integrated health conglomerates that own companies that provide services to the patients they serve or provide services to each other. These structures facilitate self-dealing and monopoly pricing.

7. End Patent Monopolies for Medical Products. Patent protections for prescription drugs, medical devices, and other medical products create exorbitant prices of these patient care essentials. Monopoly pricing incentivizes secrecy and illegal activity. Replace patents with government funding of research via competitive bidding and prize funds, then price medicines/devices as generics.

Rationale and Feasibility

Eliminate conditions that enable profiteering and make healthcare attractive for wealth extraction:

• Public financing of healthcare infrastructure occurred in the U.S. under the Hill Burton Act from 1945 until phased out after 1965. It reduces dependence on profits for access to financial market funding for vital investments and helps equalize the quality of facilities across communities.
• Since colonial times, care for the poor was a core tenet of voluntary (today nonprofit) hospitals. It formed the basis for tax exemptions until IRS rule changes in 1969. Currently tax advantages far outweigh nonprofit hospitals’ spending on care for the poor.
• Financial actors who are beneficial owners of a company are not passive investors. Their decisions affect investment, debt, operations, labor, and patient care. They are jointly responsible with the company for its financial stability and patient care, and should be held jointly responsible in bankruptcy, unfair labor practices, and medical malpractice proceedings.
• Prior to 1982, anti-trust regulation was based on market share and effects of consolidation on competition to prevent monopoly pricing and extremes of inequality; but that was changed during the Reagan Administration. The 2023 merger guidelines reinstate the earlier regulations, enabling regulators to break up monopolies.
• The 2023 merger guidelines treat vertical mergers the same as horizontal ones because vertical mergers reduce or eliminate competition between conglomerate subsidiaries and their competitors in local markets. UnitedHealth Group owns 2,964 subsidiaries, a problem for businesses that compete with those subsidiaries.
• Patents are government-granted monopolies that distort market entry and prices and enrich drug companies and device manufacturers at the expense of patients, providers, and taxpayers. Eliminating patents monopolies removes this distortion – improving affordability, access, and quality.