How Non-Profit Hospitals Are Driving Up The Cost Of Health Care

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Last year, when New York Governor Andrew Cuomo was battling to win the Democratic primary, his campaign solicited a donation from the Greater New York Hospital Association, according to a recent report from The New York Times. The hospital lobbying group gave over $1 million to the New York State Democratic Party. And not long after, according to the Times, "the state quietly authorized an across-the-board increase in Medicaid reimbursement rates." The increase is expected to cost taxpayers around $140 million a year.

The hospital lobby is a juggernaut in New York, as it is in other states. Over the last year, hospital lobbyists have fought reforms for billing transparency in Ohio, minimum nurse staffing levels in Illinois, and cheaper payment rates in North Carolina. Last month, a leaked email from the Kentucky Hospital Association showed that it was urging members to donate to gubernatorial candidates to "assure access."

In Washington, D.C., the hospital lobby is battling Medicare for All as well as efforts to end surprise billing, which is when Americans go to in-network providers but then — surprise! — end up getting billed for more expensive, out-of-network services. Three-quarters of Americans say they oppose the practice, and leaders from both political parties have been working to end it. Yet, hospital lobbyists are making reform really difficult. Which is weird, because most hospitals are nonprofits.

More Than Just Quid Pro Cuomo?

A recent study by Yale School of Public Health economist Zack Cooper and colleagues takes a look at hospital politics and helps shed light on why American health care is so insanely expensive.

In 2003, President George W. Bush began fighting for a major expansion of the Medicare program. The Bush Administration knew it would be a hard sell, alienating small-government Republicans and putting Democrats in the awkward position of supporting Bush's agenda before an election year.

Cooper says their study was inspired by one of his grad students, who served as a congressional aide when this legislation was being passed. "And the rumor was the U.S. Health Secretary, Tommy Thompson, was on the floor of the House with a notebook, writing down members of Congress who voted for the bill," Cooper says. Thompson allegedly did this to sweeten the deal for lawmakers on the fence, offering to reward supporters by "bumping up payment rates to hospitals in their districts" through a special provision, Section 508.

Cooper and his colleagues have spent years investigating whether this was true, filing Freedom of Information Act requests and crunching data. They've uncovered evidence that suggests it was true. They find that legislators who were on the fence and voted "yea" for the legislation were 700% more likely to see a large bump in Medicare payment rates to hospitals in their district. Between 2005 and 2010, Congress shelled out over $2 billion to 88 hospitals through the horse-trading Section 508 provision. It was a clear win for these hospitals, which spent the money on more equipment, buildings, services, and staff.

Dropping opposition to the Medicare expansion also ended up being a political win for lawmakers on the fence. Not only did the special provision funnel extra federal funds to their districts and create jobs; the lawmakers ended up seeing a 65% increase in contributions from people who worked in their state's health care industry and a 25% increase in overall campaign contributions. "It's suggestive to me that this was in a sense a quid pro quo," Cooper says, adding that their analysis shows how health care spending becomes a "piggy bank" for political influence.

Giving New Meaning To The Term "Nonprofit"

"Hospitals are the largest individual contributor to health care costs in the U.S," Cooper says. Americans spend over a trillion dollars a year at hospitals. That's about a third of national health spending, which now consumes almost 20% of U.S. GDP. Cooper's research shows that, after a long period of consolidation, the cost of hospital services has been exploding. Between 2007 and 2014, hospital prices grew 42 percent.

The irony is most hospitals are "nonprofit," a status that makes them tax exempt. Many (but not all) do enough charity work to justify tax benefits, yet it's clear nonprofit hospitals are very profitable. They funnel much of the profits into cushy salaries, shiny equipment, new buildings, and, of course, lobbying. In 2018, hospitals and nursing homes spent over $100 million on lobbying activities. And they spent about $30 million on campaign contributions. Health industries have also been funneling hefty sums into dark money groups. But their political power isn't just the result of lobbying or electioneering. Hospitals are often the biggest employers in states and cities across America.

Health care reformers direct much of their ire at the nation's health insurance companies. Perhaps they're the easiest targets because they're faceless paper-pushers, located outside their districts or states, who are often the only entity in the system controlling costs. Studies suggest insurance administration and profits do contribute to wasteful health care spending, but they're just one contributor to a bloated system. Hospitals, which often escape criticism, are a significant part of the problem.

We reached out to the Greater New York Hospital Association to get a response to criticism of the appearance of a quid pro quo between them and the Governor of New York. They stressed that state hospitals "hadn't received a Medicaid rate increase in 10 years" and that while they "aggressively lobbied" to change this, they deny the interpretation that suggests their large donations were motivated by increasing Medicaid rates. They say, instead, the donations were aimed at defending the Affordable Care Act from "relentless attacks" from lawmakers in the nation's capital.

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