Thursday, September 03, 2009

The Medical Industrial Complex

Journalist and Health Care Advocate Maggie Mahar has a new book and documentary out titled "Money-Driven Medicine: The Real Reason Health Care Costs So Much" and the documentary is starting to shake up some of the current debate about Health Care in America.

Here's some excerpts from the movie, which was featured on Bill Moyer's PBS show last week. She spends some of the film talking with doctors and others in Nashville, which is home to a large number of medical corporate headquarters. Here's some excerpts from Mahar's documentary:

Maggie Mahar: One time Dr. Donald Berwick called a hospital in Texas and said, "We've heard you have a very good procedure for treating a particular disease. We'd like to learn more about your protocol so other hospitals can use it." And the hospital said, "We can't tell you that. It's a competitive advantage in our market that we're better at treating this disease and it is very lucrative. So this is proprietary information."

Dr. Donald Berwick: We believe in markets, right? Isn't that the American way? Well, markets mean competition. Isn't that the American way? Competition makes things come out right. Well, what does that mean in health care? More hospitals so they compete with each other. More doctors compete with each other. More pharmaceutical companies. We set up war. Wait a minute, let's talk about the patient. The patient doesn't need a war.

Maggie Mahar: The patient isn't the center of a collaboration. The patient is the victim of a competition. There's a saying in Swahili, "When…" I can't remember this one… "When the elephants fight the grass is trampled." The patient is essentially the grass.

Dr. Clifton Meador: Somebody says, "Nobody in Nashville makes anything. We just do stuff and people send us money." I've been told they never had a recession in the history of the place. This is music row. Every one of these houses is now a recording studio. There's Love Monkey Music, Flashville, Sharp Objects Music, Seasac, whatever that is. This is the heart of "music city" USA.

Here's what a nurse told me. "Tell patients to remove the foil from a suppository before insertion."

Maggie Mahar: Clifton Meador has had many careers. He's been an author, a family doctor, an epidemiologist, a health care administrator and the youngest ever Dean of the University of Alabama Medical School. Over the years, he's watched the business of health care turn into a driving force in the US economy. Much of it headquartered in Nashville.

Dr. Clifton Meador: This is Marilyn Way. Marilyn Way is a center road of Marilyn Farms. Marilyn Farms is a huge complex. The predominant business in here is health care corporations of one sort or another. This goes on and on for over a mile here and this is not called for-profit hospital row, or anything like that, but this, this is the equivalent of the music row that we went down for the recording industry.

Dr. Clifton Meador: This is titled "The Nashville Health Care Industry, The Family Tree 2006." Every little square here is a health care business industry or spin-off. We have 3 mother corporations here: HCA, which is the Hospital Corporation of America, spun off all of these. Hospital Affiliates, which is a spin-off of HCA, spun off all of these. And Health Trust, which is a spin of Hospital Affiliates and HCA, spun off all of these. So this is a massive, industrial health complex that's headquartered here in Nashville.

Maggie Mahar: After World War II, while other countries let their government begin to intervene in health care to make sure everyone got care, to regulate it to make sure it was good care, in this country doctors very, very strongly opposed any government involvement or anyone being involved in telling a doctor what to do. After Medicare was passed in 1965, elderly patients were getting far more care than they had been before then.

Then that's when our industrial medical complex, I would say, took off. By the early 70s, there were so much money involved that suddenly people began to say, "You know what? Medicine is too important to be managed by doctors. We all know doctors are bad managers. What we need are businessmen managing health care." And that's when health care went from being physician centered and controlled, to a large degree, by doctors to being controlled by the corporation and the CEOs of those corporations.

And, over time, more and more the CEO of the Hospital would not even be somebody with a MD. He would be somebody with a MBA. And CEOs bent on growth, bent on higher quarterly earnings, quarter after quarter, and year after year, are always pushing for more sales, more revenues, more and more and more. It produces more. But more may not be better for our health."

You can see and read more about "Money-Driven Health Care" here.

And while there is an intense and rising anger among some about the evils of a government medical program like Medicare, surveys show patients are actually happy with the program (via Health Beat):

Medicare is the second largest health care payer in America, trailing only Medicaid. The program is very popular with its enrollees, with polls showing a higher level of satisfaction than with private insurance.

Medicare is less popular with hospitals.

Opponents of health care reform in general and of a strong public option in particular often cite hospital dissatisfaction with Medicare as a reason why the reform programs won’t work. They report that evidence suggests that overall Medicare pays hospitals less than what it costs them to provide care. Private insurers pay more, and by “cost-shifting,” hospitals use these payments to make up the losses on Medicare. Opponents worry that if a public option linked to or modeled on Medicare becomes the dominant payer for people under 65, hospitals will go broke without the “subsidy” from private insurers, and the health system will be destroyed. Data collected by hospital groups and the insurance industry suggests that this is unlikely to happen.


First, according to the American Hospital Association itself, 42% of hospitals make a profit on Medicare overall.

In the remaining hospitals, most Medicare patients are profitable. Losses on Medicare patients are related to a minority of patients who need much more care than average because of longer stays, more complications, and underlying health problems. Since the profits on most Medicare patients are small, large losses on this small number of outliers can drive overall payments below costs.In looking at any data on payments, it is very important to distinguish between Medicare and Medicaid. Payments by Medicaid – the government plan for the poor—are significantly lower. On average, Medicaid pays 72% of what Medicare pays for the same service. Those who oppose any government plan often lump Medicaid and Medicare reimbursements together to argue that Medicare grossly underpays providers. There is no question that Medicaid needs significant revision. Medicaid reimbursements should be hiked; payments to states should cover states’ costs. The House health care bill takes a step in that direction by mandating that Medicaid reimbursement for primary care must be raised to equal Medicare payments, and by providing direct funding to cover that raise and to cover new patients enrolled as a result of reform.

However, it is true that while many hospitals actually make an overall profit on Medicare patients, at the other end of the spectrum some hospitals lose more than average.One reason for some disparities is that Medicare payments to hospitals are not uniform throughout the country. In some areas, Medicare pays far more than in other areas. The differences can be quite large, with the highest paid hospitals collecting twice as much as the lowest paid. In some cases, this variation contributes to losses and has led to political controversy. “Blue Dog Democrats,” whose predominantly rural constituencies contain many of the low payment areas, are especially concerned.

As usual, this is more complicated than partisans would like us to think. Many rural hospitals in Blue Dog districts actually enjoy better than average Medicare margins, partly because of special adjustments to payments specifically for rural hospitals. Critics suggest that much of the focus on hospital payments was at least partially orchestrated by the Blue Cross plans to try to kill the public sector insurance option that progressive Democrats say we need to keep private insurers “honest”—and to give Americans choices.


"The other big question regarding Medicare reimbursements to hospitals is whether hospitals are spending their money in appropriate ways. Everyone agrees that hospitals need to spend the money necessary to provide high quality care. However, many hospitals spend a great deal of money that is not directly related to patient care. More and more hospitals have invested large amounts in d├ęcor and esthetics, creating marble lobbies and hallways, building large patient rooms with features that mimic expensive hotel rooms, purchasing art installations, and so on. These amenities do not contribute to patient care. A visit to most European hospitals or to most VA hospitals illustrates that excellent care can be obtained in hospitals considerably less elaborate than many “flagship” hospitals. A few years ago I had the experience of visiting a friend who was a surgeon for Kaiser in the Bay Area. When I first saw his hospital, I was startled – it looked a lot more like a Motel 6 than a Four Seasons. Kaiser is a prospective payment system, so that when the money is gone there is no more. Kaiser also has to compete, at least partly on price, with other HMO’s and insurers in its market. That obviously results in closer attention to what is essential and what is not. However, the results attained at the hospital were excellent – according to the Dartmouth Data, better than at some of the “marble palaces” they compete with.

Salaries for hospital administrators have risen sharply in the last twenty years, with many hospital CEO’s now making seven figure salaries (and a few making eight figures,) and with lower ranked administrators paid proportional amounts. This makes its own contribution to costs.

Hospitals often invest large amounts of money in pleasing doctors who will bring them profitable patients. Many hospitals have overbuilt their angiography and OR capacity to make OR’s and angiography suites available at times when doctors prefer to operate, rather than distributing use through the day. OR’s are sometimes built to fit the personal demands of a surgeon, with side by side OR’s for other surgeons. An OR might be used only by a single surgery group or even a single surgeon and stand vacant when they are not operating. Angiography suites and their staffs might be jammed with work from eight AM to noon, but be shut down while the doctors tend their office practices, or take time off, in the afternoon.

Hospital units are customized to please doctors in other ways. Special parking garages for physicians, expensive meeting and dining facilities, and so on are all set up to attract the “right” doctors.

In the last few years, hospital advertising has exploded. In many cities you cannot drive very far, read the newspaper, or watch TV very long without seeing expensive ads for hospitals. Despite the recession, in 2008 total advertising spending by U.S. hospitals increased to more than two and one half times what hospitals paid for ads in 2001. The costs of these ads are added into hospital overhead—in other words, the charge for your appendectomy includes the cost for the ads. Ironically, this type of advertising is often the hallmark of “overbuilding.” When hospitals wind up with excess capacity, they are then forced to compete aggressively to fill the added beds. This gives costs a double whammy, first incorporating the costs of overbuilding, then absorbing the costs of advertising dictated by the overbuilding.
There is also a well documented hospital “arms race” going on in many markets. Hospitals vie to buy the latest and most impressive equipment, regardless of utilization or cost effectiveness. Relatively new and still useful equipment is discarded because of the perception that something is better. A two year old CT scanner may be replaced because a newer and shinier model is available. In a sense, this is a form of advertising aimed at both physicians and patients, trying to sell the notion that the hospital is the best and most modern.

All of this adds significantly to hospital costs without providing any real health benefit to patients."


  1. For more information on Money-Driven Medicine, how to use it, to purchase DVDs, and other resources, visit the companion web web site at

  2. Jenn Simoneaux1:48 PM

    Funny how you were so opposed to government run cable TV, but are such the shill for government run health care.

    Full disclosure, please.

  3. I'm with you, Joe. I don't mind capitalism but for profit healthcare is wrong in every way. That is just the truth. Maggie Mahar did an outstanding job here.

  4. Oh and I posted your post to my blog to share, as well as twitter.