Profit as Primary Driver: The Daily Disaster of U.S. Healthcare

“THE ICU COVID-19 NURSE FROM CALIFORNIA” BY STEPHEN REMICK/WWW.STEPHENREMICK.COM

This article comes from the winter 2020 edition of the Nonprofit Quarterly as part of an article series on “America’s healthcare crisis.” To learn more about this topic, please join us on Thursday, January 21^st, at 2 pm EST for a free webinar on Health, Racial Disparities, and Economic Justice.

The Nonprofit Quarterly has long suggested that some fields of endeavor should be removed from the for-profit marketplace—because when profit takes a front seat in those particular endeavors, they actively violate the public good and rob public pocketbooks all at the same time.

Nursing homes are one of those endeavors that should be restricted to nonprofits and/or be far more tightly regulated to prevent profiteering that is against public interest. Other such enterprises in the realm of healthcare might include hospice, home healthcare, and the pharmaceutical industry. In each of these fields, there is clear evidence based in research of the profit motive profoundly harming the quality/cost proposition. But there are also powerful lobbying groups at work. Changing away from a system that places profits above mission and patient rights would require a dedicated effort based on a clear set of design principles that put the health of the public over profit-making.

Many long-standing faults in this country’s infrastructure have been laid bare by the COVID-19 pandemic. It is not that what we have found in its wake is new; but, at least in terms of healthcare realities, the problems caused by profit-making in at least some kinds of healthcare systems have been horrifying in their immediate human implications.

This article looks at the differences between for-profit and nonprofit health-related systems. In some cases, we have been able to do a straight across-the-board comparison—for nursing homes, for example—but in other instances we will look at emerging alternatives to profit-centered systems such as Big Pharma that have dominated important fields.

Nursing Homes as Publicly Funded Death Traps

Nursing homes used to be entirely nonprofit and government run, but now 70 percent of them are owned by profit-making corporations. And multiple research studies have indicated that there is currently a clear difference both in quality and cost between nonprofits and for-profits: for-profits charge more for a lower quality of service.¹ That lower quality of service can, at least to some extent, be attributed to lower direct care staffing levels, which translates to the most basic of services: turning people who are bedbound so they do not get sores; feeding people, and helping them with their toileting; spending time with them; and making sure that they are as active as possible.

Additionally, the level of private equity buyouts of nursing homes has increased significantly over the past few years, and new research from the University of Pennsylvania’s Wharton School, New York University’s Leonard N. Stern School of Business, and the University of Chicago Booth School of Business links that phenomenon with “higher patient-to-nurse ratios, lower-quality care, declines in patient health outcomes, and weaker performance on inspections.”² This is not at all surprising.

Private-equity funds have a single, clear objective that distinguishes them from other types of owners, namely “making the maximum of money as fast as possible,” says Ludovic Phalippou, a professor of financial economics at the University of Oxford’s Saïd Business School. And if a business falls into financial distress, he says, “they will be more willing than others to cut corners in order to keep control of the business to have a chance to make money.” Cutting corners in health care, he adds, “can be tricky.”³

This differential between nonprofit and for-profit homes has become much more stark during the pandemic, in part perhaps because 40 percent of all COVID-related deaths in the United States have occurred in nursing homes.⁴ Some of those deaths might be attributed to the vulnerability brought on by age, but some must be seen as the result of congregate sites that are, in some cases, inadequately staffed and prepared—sometimes even by design, because for-profit nursing homes optimize revenue over quality of care as a general rule.

In Mississippi, for instance, the Clarion-Ledger reports that for-profit nursing homes have had twice the number of infections and three times the number of deaths from COVID-19 as nonprofits have.⁵ A study in Connecticut puts the deaths in for-profit nursing homes at 60 percent more than in nonprofits. In that state, deaths in nursing homes and assisted-living facilities by mid-August comprised a shocking 74 percent of all of the state’s COVID-related deaths—three thousand souls in all.⁶ Researchers in that case call out large chains in particular, saying that they had 40 percent more deaths than independently run facilities.⁷ Another study, in Ontario, Canada, similarly references for-profit chain ownership as a key factor in increased infections and deaths; there, 85 percent of commercial nursing homes are run by chains, and a terrifying 81 percent of all COVID-related deaths have been in nursing homes.⁸

Again, that difference in care is nothing new—nor is it negligible;⁹ so, perhaps we have no right to be horrified by COVID’s uneven impact on the elderly served by for-profit versus nonprofit institutions. It is greed as a preexisting condition. The formulas are pretty straightforward—you either play primarily to what you need to fully optimize net profits, or you play to what is needed to provide quality of care and life for residents. Organizations that place profit first will err on the side of frugality of service, even, apparently, when the results are deadly, because there are few financial rewards for doing otherwise. The bald cynicism of the for-profit nursing home field is emphasized in its responses to coming under scrutiny, which have been less about investing more as necessary and more about lobbying for less regulation and public accountability—even though it is the public footing the biggest part of the bill, through Medicare and Medicaid.

Dozens of state laws have been passed in the past year to protect nursing homes from lawsuits,¹⁰ and the industry has fought hard to avoid consequences of low care standards. As one example of the political machinery deployed, Politico reports that relatively early in the pandemic, Life Care Centers of America—a megachain of long-term-care facilities that included the Seattle facility that became ground zero for nursing homes as epicenters—hired no fewer than four of ex-senator Robert Phillips Corker’s (R-Tenn.) aides to lobby on COVID-19 issues among Senate leaders.¹¹ Another multistate chain, Greystone Health, is reported to have donated $820,000 in 2019 to Trump’s failed election campaign on the same day that bids were due in a federal government auction of another chain.¹² Greystone’s nursing homes later became epicenters of death in the coronavirus crisis even as Greystone facilities made generous use of federal dollars meant for the protection of the public.¹³

In fact, as the Washington Post reported in August, many nursing homes that had been the subject of Department of Justice investigations for Medicare fraud received millions in Care Act money.¹⁴ It noted that the largely unconditional money was aimed at supporting the institutions rather than the residents: “Agreements between the providers and HHS include language prohibiting nursing homes from using the federal money for abortions, gun-control lobbying and the purchase of chimpanzees, but do not require homes to spend on such things as personal protective equipment or hazard pay for nurses and aides caring for Covid-19 patients.”¹⁵

In May, Karen Kahn wrote for NPQ that “under the Trump administration, the Center for Medicare and Medicaid Services (CMS) has reduced staffing requirements and proposed eliminating an Obama regulation that would have required every facility to hire an on-site infection control specialist. These decisions were bad to begin with, but as tens of thousands of older Americans die as a result of inadequate infection control, they appear utterly negligent.”¹⁶

Writing for the American Prospect, Maureen Tkacik calls American nursing homes a long-standing “hellscape,” where predators are set loose on elderly residents.¹⁷ Tkacik points out that the networks of organizations now controlling that industry are next to impossible to trace even if one were to want to regulate them:

Many profitable industries are incestuous and dominated by the sons and grandsons of tycoons. It’s just harder to track in nursing homes, whose trade publications fill my in-box each morning with incessant announcements of the buying and selling, recapitalizing and reorganizing of assets. The New Jersey consultancy commissioned to review the state’s devastating nursing home death toll found that some changed hands “multiple times in a single week.” When a registered nurse named Angela Ruckh decided to sue her old nursing home for defrauding the government, she ended up suing seven different companies. A defense attorney who tried to sue the same chain for wrongful death discovered it was spread out over 15 different entities. But all those entities originated with Formation Capital, a private equity giant founded by Arnold Whitman and his shadowy partner, Steve E. Fishman. “You could spend forever trying to untangle this stuff,” said Ernie Tosh, an Austin-based attorney who runs a side business analyzing nursing home data. “The nursing home industry as a whole should not be looked at through the lens of normal corporate America. If you think of it as organized crime it will make a lot more sense.”¹⁸

Even looking at a single nursing home, you might find that owners act also as vendors to the business, thus creating myriad conflicts of interest. Additionally, there appears to be a culture of prioritizing the highest-margin services. This sometimes means placing residents into ancillary services they do not need but for which incentive funding exists, and stinting on the regular quality of care that distinguishes a generally good nursing home from a disastrous one. It can also lead to residents being placed in programs that are worse than useless, such as occupational therapy in hospice. A recent article in the Washington Post indicates that this remains the current state of play.¹⁹ Place on top of this the racial disparities that have also acted as a determinant of infection and fatality, and the picture gets even worse; as an analysis by the Washington Post found,

the death rate was more than 20 percent higher in majority-Black facilities compared with majority-White facilities. The analysis, which used demographic data compiled by Brown University and included about 11,000 nursing homes—nearly three-quarters of all facilities in the United States—also found that death rates increased as the proportion of Black residents increased.

Homes where at least 7 in 10 residents were Black saw a death rate that was about 40 percent higher than homes with majority-White populations.²⁰

According to CMAJ (Canadian Medical Association Journal), “If requirements to fund adequate levels of staffing affect the bottom lines of for-profit facilities, then it might be time for this care to be turned over to public and nonprofit entities.”²¹

To be fair, in Europe approximately 50 percent of deaths have been in long-term care,²² as compared to our 40 percent—but that 40 percent was unnecessary if we were paying attention to the multiple cost-benefit analyses that have been done on this country’s mix of for-profit and nonprofit nursing homes. The United States may actually have a chance to lead in this field, but not without recognizing the steps that need to be taken to center the right priorities in the programs we support to serve the needs of people who require daily care.

Without going into a lot of detail, then, research suggests that hospice and home healthcare are in the same category, exhibiting some of the same problems associated with profit-making. It is interesting to note that before 1980, Medicare required that home healthcare agencies contracting with it be nonprofit.²³ Now for-profits form the majority of the field, but studies indicate that their quality is lower on a number of key indicators, and their costs are far higher on average.²⁴

For millions of people who are older or who have a disability that requires support, this country has entirely failed to make the choices necessary to ensure that they are not exploited through the use of taxpayer dollars. Addressing the problem through monitoring and regulations has not worked on these increasingly byzantine corporations. Now, unembarrassed, they reapproach the public coffers for more money and protection, even after they have presented the public with a fail that can be measured in unnecessary deaths—not only among residents but also staff—and, on a more constant basis, enforced misery. It appears that these problems can be effectively addressed through a choice away from the for-profit sector—in other words, through government’s simple refusal to contract with entities for whom profit is the primary driver.

Big Pharma’s Innovation Edge Gone Awry

As with nursing homes, the machinations of Big Pharma to wrest every last penny out of a dependent public while not meeting its basic obligations to them have been obscene. Here, however, there was no preexisting field of nonprofits to move out of the space, though there were plenty to seduce into positions of support. Over the years, drug prices have skyrocketed even while common and necessary drugs have gotten scarce, because there is an insufficient profit margin. Add a layer of outrageously cynical and exploitative marketing through doctors and patient advocacy organizations, and you have another government-countenanced corporate assault on people who are sick.

The drug companies have traditionally defended their pricing by insisting that the proceeds are used to invest in advanced pharmaceutical research—the stuff of which medical miracles are made—but at the same time, the prices of already available and commonly used drugs are driven well past affordability. This, then, approximates the scenario in nursing homes, where for-profit companies are chasing the windows where high profit margins open up, while neglecting to cover their most basic service responsibilities to the public.

As with the nursing homes, pharmaceutical companies have been hard at work lobbying government to optimize their position during the pandemic; but for the U.S. pharmaceutical companies, which lack the basic price controls of other countries, the coronavirus is nothing less than the opportunity of a lifetime.

Writing for the Intercept, Sharon Lerner describes the scrum that occurred in the nation’s capital in February and March 2020, as Big Pharma positioned itself:

When the coronavirus funding was being negotiated, Schakowsky (Rep. Jan Schakowsky, D-Ill.) tried again, writing to Health and Human Services Secretary Alex Azar on March 2 that it would be “unacceptable if the rights to produce and market that vaccine were subsequently handed over to a pharmaceutical manufacturer through an exclusive license with no conditions on pricing or access, allowing the company to charge whatever it would like and essentially selling the vaccine back to the public who paid for its development.”

But many Republicans opposed adding language to the bill that would restrict the industry’s ability to profit, arguing that it would stifle research and innovation. And although Azar, who served as the top lobbyist and head of U.S. operations for the pharmaceutical giant Eli Lilly before joining the Trump administration, assured Schakowsky that he shared her concerns, the bill went on to enshrine drug companies’ ability to set potentially exorbitant prices for vaccines and drugs they develop with taxpayer dollars.²⁵

“The final aid package,” writes Lerner, “not only omitted language that would have limited drug makers’ intellectual property rights, it also left out language that had been in an earlier draft that would have allowed the federal government to take any action if it has concerns that the treatments or vaccines developed with public funds are priced too high.”²⁶

This unseemly positioning for more maximum profit is, of course, nothing new for that industry, which is nothing if not politically embedded with representatives from both parties acting as shills along with the president, whose approach and narrative is that, unfettered by regulation and constraint, everything works better. All of this may not be for naught, however, with some who oppose the Wild West atmosphere of Big Pharma making suggestions that, maybe, this country has a responsibility to its residents to act in their best interests where necessary medications are concerned. F. Douglas Stephenson writes:

The antidote is nationalization of the pharmaceutical industry, large increases in production of non-patent medications and ending monopolization by the Big Pharma industry. Drug companies should be converted to non-profit public service corporations that serve the public interest rather than being used by the 1 percent and oligarchs for unlimited profit. Additionally, we need comprehensive reform in the way we produce new drugs including a public program for producing needed drugs and clinical trials that would produce new non-patent medications that stay in the public domain.

Drugs would function as real social service items, not huge profit-producing goods for a tiny group of oligarchs. With this new, fundamental reorientation of drug manufacture, drugs become more affordable for patients and society, promote innovation, strengthen efforts to assure safety and effectiveness, and upgrade the evidence available to prescribers and the public. Because drugs developed and manufactured through new public pathways remain in the public domain, they could be economically produced generically throughout the world, benefiting many nations.²⁷

Despite all the machinations and money spent by Big Pharma in support of its monopolies over the last decade or so, nonprofit attempts to break the stranglehold of Big Pharma and its fully owned supply chain have been evolving. A recent white paper for Waxman Strategies brings up a number of what it perceives to be barriers to these kinds of companies, but we are not convinced that the worries they evince are entirely on the mark;²⁸ they remind us in some ways of the concerns advanced regarding news organizations going nonprofit.

And meanwhile, as also happened in the news business, individual efforts are forging ahead without worrying overmuch about impediments. Over the last few years, we have seen a number of enterprises in nonprofit pharma emerge.

One of the oldest (at two years) and largest nonprofit pharmaceutical endeavors is Civica Rx, which is the invention of a group of hospitals that found themselves consistently addressing shortages of drugs that were among the most commonly used in-hospital. The scarcity of the drugs was understood to be tied to pricing schemes by pharma companies, but it was creating havoc in the delivery of direct care, as well as extra costs, in that increasing numbers of hospitals were having to develop drug shortage response teams.²⁹ The hospital group, which has now grown to more than fifty health systems that represent twelve hundred hospitals, established a design that would ensure that those commonly used but scarce drugs were identified and that alternative manufacturing and delivery systems were put in place to fill the pipelines of need. To provide an indication of the speed with which the effort has been able to mobilize, according to Civica’s website, “Eleven Civica medications are being used to help treat COVID-19 patients, including neuromuscular blocking agents, sedatives, pain relievers, and blood thinners. Civica and its supply partners met surge hospital demand of up to 350 percent for some medications and also provided 2.1 million vials to the U.S. Strategic National Stockpile.”³⁰

To help others understand the kind of development the effort required, Civica Rx has published a timeline that walks people through their development.³¹ This should be an invaluable aid to others entering the field. Civica’s mission is to ensure that essential generic medications are accessible and affordable for everyone.

Other nonprofit start-ups, meanwhile, are piloting efforts in drug development. Some of these efforts were recently written up in an article in the New England Journal of Medicine, “Sustainable Discovery and Development of Antibiotics—Is a Nonprofit Approach the Future?,” in which the authors note:

Because they lack shareholders, nonprofits also face less pressure to increase drug prices and are better positioned to control postapproval antibiotic use (e.g., through the existing limited-population antibiotic drug regulatory pathway). A drug with annual sales in the tens of millions of dollars is a catastrophic failure for many for-profit companies but would be a lifeline for nonprofits, which could reinvest revenue from the drug to sustain research and development efforts. Organizations that highlight the potential of nonprofits in this area include the TB Alliance, which developed the tuberculosis drug bedaquiline and has others in late-stage clinical trials, and the Medicines for Malaria Venture, which developed artesunate and is actively developing other antimalarials.³²

As a direct illustration, the nonprofit TB Alliance has been cleared by the FDA to bring a new TB antibiotic—pretomanid—to market, specifically to treat highly drug-resistant tuberculosis, strains of which infect around 500,000 people each year worldwide. It’s one of a number of next-generation antibiotics that are pricey to produce but unlikely to generate much profit. The United Nations projects that drug-resistant infections could cause 10 million deaths each year by 2050 if a pipeline for the development of these kinds of antibiotics is not established.³³ Pretomanid is now only the third FDA-approved anti-TB drug in the past forty years.

In other words, it may be that attempts to reform a market that has proved itself to be primarily organized for profit-making is a worse use of time than attempting to promote an alternative market that is founded on principles of affordability, access, and, yes, continuing innovation—but in a way that also protects the interests of those who do not need the innovative but rather the tried and true.

…

We must begin to make far wiser choices about what types of organizations should be entrusted with what roles in society. Nonprofits have proven themselves to be a better choice than for-profits for many health-related endeavors, both in terms of quality and cost—but even they should be more tightly regulated for accountability.

Notes