Yet hospitals are not killing (no pun intended) it like apple or Microsoft. The massive margins are getting eaten somehow. Expensive equipment, salaries, commissions, patients telling them to shove the bill. I don’t know something is missing
The hospitals themselves operate on relatively thin margins usually. Insurance companies, labor costs, pharmaceuticals, blood products, single use sterile items, housekeeping, taking care of uninsured patients that can’t pay the bills, and other regulatory requirements are extremely costly and eat up most of the budget. Reinvesting in IT infrastructure isn’t something that is a priority.
US hospitals are ripe to attack. They make huge profits and use extremely outdated tech or use new (untested) software.
I take this opportunity to complain about regulatory capture and the medical cartels. Their constant irresponsibility (opioid epidemic, coronavirus response) affects everyone. Yet they still are paid more than any other industry.
Some, if not most, of this is a result of the insurance system. The insurance companies only pay x% of any given item, therefore the hospitals have to jack prices through the roof to collect enough to survive.
The problem with our healthcare system is that too much money goes to drug companies, medical device makers, and insurance companies and not enough makes it to the people actually providing the care. Its a bit more complicated than that, I'd admit, but that's the TLDR version.
Cry me a river. The more I've learned about it, the more it seems like hospitals are the ones making the majority of the profit in the US's strange and byzantine healthcare system. The cost of their services are generally absurd, and not adequately balanced by customers and competition because 'insurance will pay for it'.
Because the margin is so huge in healthcare products and services, especially at hospitals. Hospitals rely on astronomical margins on certain payer classes to subsidize uncompensated care costs.
The point is that providers are far more invested in maintaining the huge margins rather than minimizing the cost.
Problem is the payer mix has been shifting from insurance companies to patients via high deductible health plans over the past decade so it's starting to wreck their margins, even though the cost doesn't change.
In my experience working the tech side of the healthcare industry, every aspect is inefficient and most players are doing their best to extract as much wealth as they can from it. There is a lot of room for improvement in terms of cost and efficiency. I've given up hope for a political solution. Nobody seems to want to talk about why everything is so expensive. They are too focused on who is going to pay for it.
This seems to be highly bifurcated, like so much in the US, between the haves and the have-nots. But overall I don't think it's fair to say "Hospitals BARELY make their budget." As usual, the whole system is broken. There are some hospitals with a wealthy customer base with full-ride insurance who can bill obscene amounts and profit massively, and then there are some hospital systems with uninsured and underinsured customer bases who are just scraping by.
I looked up my local hospital network, UCHealth (Colorado, there are many UCHealths it would seem), and their EBITDA in 2021 was 16.6%. Mayo Clinic posted 1.2 billion dollars in _operating profit_ in 2021, and also have a gigantic investing arm with several billion dollars under management.
Then we look at networks like Spectrum in Michigan, who posted only a 3.6% margin, or Henry Ford, with a negative operating margin offset by investment income, and it becomes clear that _some_ hospitals barely make their budget while _others_ rake in dollars.
Most hospitals run at profit margins well below 10%. Median operating margins are in the vicinity of 2% (https://www.modernhealthcare.com/providers/operating-margins...) And for the last few years, expenses have been growing faster than revenues (though the rate of growth of expenses has slowed.)
Whatever you imagine they're bringing in, they're not.
Nor is their job to maintain the long-term health of the country. That's literally the government's job.
[1] Those numbers have a historical reason behind them, which people are either ignorant of or choose to ignore. The short version is: hospital prices are set as a part of the negotiations with insurers. Insurers account for the vast, vast majority of dollars going into hospitals, so their business operations are built completely and entirely around insurance dollars. Uninsured patients register as barely more than a rounding error. So while, yes, being uninsured in this context sucks, hospitals aren't gleefully rubbing their hands and going "muahaha, $5K for stitches!" They don't expect to see that 5K, they don't rely on that 5K, and they're not trying to gouge that uninsured person who's almost certainly not good for that 5K. That person has just fallen into the crack(s) in our healthcare system, which are more complicated than "evil greedy hospital", or "evil greedy insurer."
Hospital profit margins are razor thin in the US. Their pricing is so convoluted because they have to come up with inane contracts with insurance companies to squeeze out every dollar they can.
In some instances, doctors in private practices have told me that taking Medicare or Medicaid means making less than minimum wage for certain procedures because the rates are fixed at such low values. In other cases, ER and intensive care units make nothing because they cannot legally turn anyone away for not being able to pay.
All of that has to be made up somewhere, and bilking insurance companies when they can are how they stay afloat.
Big companies can take the hit on high insurance rates. Drug makers live in boom and bust cycles (drugs are either fabulous money makers or bottomless pits that suck money from research, to testing, to the famously expensive FDA approval process).
The people hurt the worst are the small business employees and owners, the self employed, and the part time workers who can't afford to have the hospital come after them.
True, but that said, rates in US hospitals are massively over-inflated. They get away with it, insurance companies are not pressuring enough to lower cost (they're probably in on it), and there is no real competition.
You’re downvoted likely because the high expenses of hospitalization speak more to inefficiencies in healthcare supply chain and the economics of insurance and really has nothing much to do with how much hospitals can afford on IT. Some hospital systems are rich... but they’re not that rich.
That said I agree (based on 1st hand experience) that the larger healthcare multibillion dollar systems in the US can afford to pay more for better IT/engineering. There is simply little incentive to do so. And further it’s more than just hiring a few engineers with FAANG pay... these institutions are organizationally not suited to engineering. Changing this would not be easy for them...and no, we don’t need a hospital run like Facebook or Uber.
Then there are the tons of smaller systems in the US.. they cannot afford high priced engineers regardless of the pre-insurance line charge for a bag of saline.
Something seemed off about your statement, so I went and looked up some data. Gross margins for Anthem Blue Cross [1] are about 15%; they take in $117B in premiums and pay out $102B in benefits. Gross margins for HCA healthcare are better at about 80% ($50B gross profit on $58B in revenue) [2], but net margins aren't much better at 11%. Half of that $50B goes into "selling, general, and administrative" salaries, with much of the rest in "other expenses". By contrast, Google has gross margins of about 50% and net margins of about 30% [3].
I think the real explanation is Baumol's cost disease [4], which does come from labor cost, albeit indirectly. The tech industry is extremely high productivity, which is why they can afford to pay their not-very-numerous employees $500K+/year. But that means that you have to pay people in other industries more to keep them from becoming tech employees. Probably not as much more - programming has pretty high barriers to entry - but more than a middle-class worker used to make. Housing, healthcare, education, and childcare are essential services, which gives them the negotiating leverage needed to pass these labor cost increases along to consumers. Things like manufacturing, food service, and retail are not, which is why those industries are just going bankrupt.
It's not really oversupply or undersupply of labor that matters here. It's productivity. To get prices of housing/healthcare/education/childcare down to reasonable levels, you need to invent ways that one nurse could take care of hundreds of patients, or one teacher could teach tens of thousands of students. This is why things like telemedicine, machine-learning based diagnostics, mRNA vaccines, immunotherapies, MOOCs, online learning, 4-over-1 condos, etc are so appealing to investors. The problem is that these innovations haven't yet proven attractive enough to win in the marketplace, so we're stuck with conventional labor-intensive ways of servicing these industries for the foreseeable future.
They are but it is first and foremost to cut their own expenses for healthcare. If they can figure it out, they could eventually turn it into a business.
However, part of the cost in today's healthcare is not about the misaligned incentives it is about our need for convenience. We work closely with a hospital group that does over $1B in annual revenue. They built a bunch of UrgentCare facilities to try to lower costs and run a smaller ED unit. What they found is that the UC usage is high but the ED has barely decreased at all. People complain about cost and go the UC when their kid clearly has a cold and has had it for all of 4 hours. It costs a lot of money to build and staff these UCs. That is part of what makes healthcare so expensive. We want our health to be as convenient as Netflix. We want it all on-demand and instant satisfaction. It doesn't work that way, sometimes a virus just needs to run its course and your kid just needs rest. But we pay lots of money looking for magic fix anyway.
Yup. And in healthcare most of the focus is on Pharma (which is certainly profitable and gouging Americans but is a small piece of the pie) and insurance companies (which don’t even make much profits), but not on hospitals which constitute around 70% of healthcare costs.
I was corrected earlier in the pandemic: I thought Hospitals LOVED covid because of all the money they got for services.
Someone then pointed out that COVID prevents a lot of really high margin care, substituted instead for drudgery healthcare and is killing the hospital bottom lines.
I suspect what is REALLY going on here is a combination of both the surge of care for the explosive Omicron variant, and the loss of high-margin care is undermining the profitability again.
The four big mafiosos of US healthcare are Health Insurance, Drug/Device makers, Doctors/Hospital Providers, and the Malpractice Trial Lawyers. All four of them have REALLY powerful lobbying arms (even the Trial Lawyers, the least significant revenue wise and numbers wise of the four, but they are lawyers so they know how to gum up the system). They point to everyone else when the question of "why so expensive" comes up.
But it's all about the unsustainable profit margins/revenue structures in the US care system. If you see an article like this, I always suspect it's really about unsustainable profitability whatever complaining entity has setup.
It's layers of markups and artificial scarcity stacked one on top of the other. Hospital associations that lock up their turf, and have geographic monopolies. Electronic medical record companies that create proprietary and incompatible standards. Medical device manufacturers that use regulatory capture at the FDA to ensure they have exclusive production rights. The American Medical Association restricting the supply of doctors and nurses, to keep their wages high.
Pharmaceutical manufacturers making slight tweaks to existing drugs to extend their patents only to cease all production on the old generics... causing even simple things like insulin to be outrageously priced.
Since insurance plans shield consumers from the costs, they have little or no incentive to price shop. So nobody notices these layers of markups, they just notice the big insurance premiums and assume it is all evil insurance companies charging too much when that is just the tip of the iceberg.
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