Beset by Wasteful Spending, American Healthcare Needs an Overhaul

What’s Next for Hospitals

By Spiros Hatiras

The year is 2020, in the midst of an unprecedented pandemic, and the subject is the U.S. healthcare system — more specifically, the average U.S. hospital. Is it alive and well, or is it ailing?

I will argue that all is not well with our healthcare system, and that the average U.S. hospital is facing tremendous challenges now and for the foreseeable future.

It is important to establish that, while the healthcare-delivery model has been shifting to less hospital-centric models, the acute-care hospital remains solidly in the center of our delivery system and, in my opinion, will continue to do so. Any notion of a more decentralized model with less emphasis on hospitals has been pushed many years into the future, in part as a result of the COVID-19 pandemic. Despite the accelerated growth of telemedicine during the pandemic, the need for hospital bed capacity, specialized equipment, and personnel — including the ability to ‘surge’ when needed — has all but ensured that the trend toward a smaller hospital footprint will slow down if not entirely reverse.

Shouldn’t that be good news for the future of hospitals? Well, not quite. While we may have a new appreciation for the need of readily available inpatient hospital care, we have also not solved any of the problems that hospitals have been facing for many years. In fact, the pandemic laid bare one of the most fundamental problems facing the industry, especially for smaller community hospitals. At the very onset of the pandemic, it was immediately clear that many hospitals, suffering from years of underfunding, faced immediate financial threat and would not be able to survive without a financial bailout, while private insurance companies reported record profits.

“I will argue that all is not well with our healthcare system, and that the average U.S. hospital is facing tremendous challenges now and for the foreseeable future.”

Why is this the case in a country where healthcare demands the highest per-capita expenditure of all developed countries? According to a study published in January 2019 by the Johns Hopkins Bloomberg School of Public Health, the U.S. topped the ranking of healthcare spending among developed countries in 2016 at $9,982 per capita per year, a figure that is more than double the median of $4,033.

The reason for this disconnect is that most of that money is spent not on actual care, but on administrative costs. A recent study by the Center for Medicare and Medicaid Services found that, of the $3.5 trillion spent on healthcare in 2017, 33%, or $1.1 trillion, was paid to hospitals. Unfortunately, a significant portion of that money covered unnecessary costs to process bills and get paid by insurance companies, meaning the total spent on actual hospital care was far less. The same is also true for doctors’ offices.

In a study published in 2017 in Annals of Internal Medicine, Steffie Woolhandler and David Himmelstiein noted that the administrative cost of our healthcare system was estimated to be $1.1 trillion, of which the vast majority is excess and unnecessary spending. We are spending vast sums of money on a deliberately confusing and complex insurance system.

Trying to navigate the onerous billing requirements, denied-claims management, pre-authorization requirements, and a host of other administrative hurdles unique to the U.S. healthcare system is wasteful and frustrating to hospitals, doctors, and patients alike. We spend more money administering the system than we spend on care. This should alarm each and every one of us and prompt us to look a little more carefully at proposals for a single-payer system.

It is time to ignore private insurers who portray a single-payer system as the boogeyman, or the end of healthcare as we know it, and recognize their argument for what it really is: a reluctance to part with huge profits being made from a broken system at the expense of our health.

Spiros Hatiras is president and CEO of Holyoke Medical Center.