A facility that saw 53,000 emergency room visits per year disappeared from Philadelphia this summer with the prolonged and still-unfinished closure of Hahnemann University Hospital. The 496-bed hospital employed 2,700 people and saw 17,000 admissions in 2017, its last year under the management of the Tenet Healthcare Corporation. Tenet, one of the nation’s largest for-profit hospital conglomerates, owned ninety-six hospitals and nearly 500 outpatient centers in the United States that year. Not all of them turned a profit. Hahnemann, for example, booked $790 million in revenue in 2017, $115 million short of breaking even. So Tenet embarked on an international restructuring program, liquidating seventeen low-margin hospitals in the United States and the United Kingdom. In Philadelphia, Tenet sold Hahnemann to Joel Freedman, a man from Los Angeles who sat on the advisory board of the University of Southern California’s Leonard D. Schaeffer Center for Health Policy and Economics (his name has since been removed from the center’s website) and managed an investment fund, Paladin Capital, with interests in “the world’s most innovative cyber companies,” according to its website. By spring 2019 Freedman was still losing $3 to $5 million a month on Hahnemann. He had burned through four CEOs in fifteen months. In June, hospital administrators announced that the facility was shutting down.
Hahnemann is just one of the historic hospitals across the United States that has closed this year while claiming that Medicaid and Medicare payments fail to meet rising costs. In November, M Health Fairview, one of the largest healthcare providers in the Minneapolis–St. Paul region, proposed closing the oldest hospital in Minnesota, the 250-bed St. Joseph’s Hospital, after merging with the hospital’s owner, HealthEast, in 2017. In August, both the 200-bed Ohio Valley Medical Center in Wheeling, West Virginia, and the 140-bed East Ohio Regional Hospital in Martins Ferry, Ohio, announced impending closures due to a patient population paying predominately through Medicaid and Medicare. One of the largest rural hospital closures this year was the 400-bed University of Pittsburgh Medical Center Susquehanna Sunbury Hospital in central Pennsylvania. Nineteen rural hospitals closed in 2019, according to the Sheps Center for Health Services Research, the largest number in any year it has recorded.
For hospitals that serve low-income, working-class patients, public insurance payments from Medicaid are the primary source of revenue. Those rates are lower than those of private plans, and hospitals that rely on them often fail to operate as going concerns. If they do, they are often subsidized by the profits of a larger conglomerate.
This problem cuts to the heart of the debate underway within the Democratic Party over how to reform the country’s healthcare system. For presidential candidates such as Pete Buttigieg who insist on retaining the multi-payer system for hospital financing, private insurance represents a positive good to be protected. During an October debate hosted by CNN, for example, Buttigieg objected to the idea, espoused by Senators Elizabeth Warren and Bernie Sanders, that “the only way to deliver affordable coverage to everybody is to obliterate private plans.” Public health insurance, Buttigieg and his supporters argue, pays benefits inadequate to guarantee high-quality care. As Tom Nickels, an executive vice president of the American Hospital Association (AHA), told the New York Times, a single-payer system “would have a devastating effect on hospitals and on the system all over.”
But as the history of Hahnemann Hospital illustrates, it is private insurance that is fueling rising costs among hospital conglomerates in the United States, making Medicare and Medicaid payments appear paltry by comparison.
The provision of medical care in the United States is today nearly everywhere supported by the pooled resources of insurance programs managed from Washington, Wall Street, and state capitols. In 1960, over half of the nation’s healthcare “consumption” (non-investment) spending came directly from the pockets of individuals; by 1980 these direct payments had fallen to less than a quarter of the revenue going to doctors, hospitals, and pharmaceutical companies. Today the portion carried by individuals is about one in nine dollars spent: the overwhelming majority of the industry’s funding now comes from pooled insurance benefits.
Within this gradual socialization of healthcare financing, the share of insurance spending managed by government authorities has grown. Total spending by the Medicare and Medicaid programs has exploded twenty-fold in real terms since the early 1980s. Yet as public spending on healthcare consumption increases, as a share of all insurance spending it has plateaued around 50 percent. As the federal government has attempted to shape and stretch the pools of socialized healthcare financing to extend access—broadening enrollment in public insurance and regulating expenditures of private insurance—it has been continually stymied by the industry’s rising costs. This is part of the reason why, since Congress amended the Social Security Acts to create the Medicaid and Medicare benefit programs in 1965, healthcare spending as a share of total spending in the United States has increased from 5.6 percent of GDP to nearly 18 percent in 2015. As early as 1994, the congressional appropriation for Health and Human Services, the cabinet-level agency that houses both the Social Security Administration and the Center for Medicaid and Medicare Services (CMS), surpassed that of the Department of Defense. During the past thirty years, healthcare spending has come to rival military contracting as the primary channel through which the federal budget interfaces with the national economy. About a third of this spending goes to hospital expenses—more than the portion claimed by either profes