Hospitals Can No Longer Shoulder the Costs of a Broken System

Hospitals Can No Longer Shoulder the Costs of a Broken System

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As our nation, individual states, and local communities emerge from the acute pandemic phase of the COVID-19 crisis, the time has come to take stock of our healthcare system and see how it stands. 

In doing so, it has become clear that one of the most critical components of our healthcare system, our hospitals, has absorbed several tremendous hits. Not only that, but these facilities continue to shoulder the brunt of the financial burden for much of the healthcare supply chain. This status quo is simply unsustainable, and steps must be taken to fix this broken system to ensure our nation’s hospitals can keep their doors open. 

Among the most dire issues facing America’s hospitals is a staffing crisis of a magnitude that is difficult to overstate. The problem is most severe in terms of nurses, who are the backbone of any hospital. Even as COVID-19 slides from the pandemic to the endemic stage, nurses across the country continue to experience burnout, and are leaving the profession in alarming numbers. The U.S. Bureau of Labor Statistics projects that half a million nurses are expected to retire or leave by the end of the year. That means a shortage of more than 1 million nurses in the country.

The greatest expense hospitals currently face is personnel, but the problem is, many hospitals cannot afford to raise wages in order to retain staff and keep their doors open. Such facilities have been left on financially shaky footing from incurring the significant expense of purchasing additional personal protective equipment (PPE) needed to keep employees safe during the pandemic and from the loss of two years’ worth of revenue from cancelled elective surgeries.

Other external factors are only making matters worse. Big labor is taking advantage of the situation to push for forced unionization of nurses, which will only drive labor costs higher. Meanwhile, the major players in the health insurance industry have leveraged their market dominance to dictate pricing and reimbursement terms that limit patient access to treatment and increase costs for providers – while all the while managing to rake in impressive profits. 

Just four publicly traded companies control 48% of the private health insurance market and the top ten health insurance providers control 71% of the market. This market distortion that grants an unbalanced amount of pricing power to these top insurance companies is a consequence of the 2009 passage of the Affordable Care Act (ACA) or “Obamacare,” which kicked off a wave of consolidation within the insurance industry. The ACA’s structure – expanded Medicaid eligibility, coverage mandates, and the like – has allowed insurers to raise their premiums despite the cost of healthcare delivery remaining relatively flat. This has generally been to the benefit of the insurance companies, who have further used their market power to provide lower reimbursement rates to providers, but it has been increasingly devastating for hospitals – even before the ravages of COVID 19.

Hospitals have not had the same relative luxury that pharmaceuticals, insurance, and other sectors have experienced in being able to take advantage of some of these structural elements of the ACA. Rather, they have for years been the ones to take on most of the cost-shifting that the act carved into law. Now, hospitals are facing a perfect storm of financial stress – the triple onslaughts of higher system costs, ever lower reimbursement rates, and a critical nursing shortage. 

The ultimate result of this financial storm is not difficult to predict; fewer hospitals available to provide needed medical care. The cruel, hard fact is that if nothing changes, hospitals around the country are going to face three stark choices – drastically downsize and reduce services; enter bankruptcy; or close their doors. For rural areas especially, this will be, and has been, devastating. Hospitals in rural parts of the country are not just prime economic drivers for the communities in which they are located but provide critical health and emergency medical services for people whose only other options may be hours away. It does not get more life-and-death than that. 

Hospitals can no longer continue to be expected to carry the water for the entire health care system. Changes need to be made to bring reforms that are based on sound, free-market economic principles that will lower actual costs – not just point-of-service prices – and spread those costs more fairly and reasonably. What we have tried has not worked, and health care is too important an issue to risk on economic experimentation and favoritism. 

Rep. Matthew Soper (R-Delta) is a member of the Colorado State House of Representatives, and sits on the Board of Directors for Delta Memorial Hospital.