Dying for Dollars
The South has long had the worst health in the nation. Stetson Kennedy documented that fact with the publication of the original Southern Exposure in 1947. Since the 1940s, the federal government, foundations and private enterprise have poured billions of dollars into programs intended to increase the availability of quality health care. Nevertheless, the South is still the nation's sickest region. The massive infusion of money has increased corporate profits in the health care industry far more than it has improved quality and quantity of medical service. Statistics show that the disparity between public care and private profits is still greatest in the South, as it was thirty years ago.
For example, the South has:
• the fewest number of doctors and medical professionals per capita and the "prime market” and home base for the largest, fastest growing medical care corporations in America;
• the highest rate of work-related disease, injury and disability and the least protection by low-cost group insurance plans;
• the lowest life expectancy rate in the country, and highest out-of-pocket per capita dollar volume of purchases from private drug companies;
• the worst availability of outpatient service and preventive-care departments and the highest portion of its hospital beds controlled by privately-owned, for-profit corporations;
• the least coverage by insurance, and the highest per capita premium paid for services received;
• the lowest proportion of elderly people receiving adequate medical care, and the highest portion of nursing homes controlled by private, forprofit companies;
• the lowest wages and fewest skilled employees per hospital and the most profitable hospital systems in the country.
Other factors make health care in the South particularly poor. Southerners, more so than other Americans, live in rural areas. Southerners suffer from dramatically higher rates of poverty. Southerners also have less money in general to spend on health care, and comparatively few of them belong to unions or other associations which provide the benefits and cost savings of employer-paid or group-rate insurance.
More significantly, however, the disparities listed above have been aggravated rather than cured by three decades of federal programs. Instead of preventing illness and injury, federal drawing by Ted Outwater money has subsidized profit-making methods of delivering care; instead of supporting alternative programs that improve health and cut costs by competing with private medicine (as the United Mine Workers Fund did), the philosophy behind government programs has been to increase health care delivery by making it more profitable for private providers to enter the field. The result of that policy has been higher profits for corporate health providers/suppliers, inflationary costs to consumers, and only a marginal increase in the care or control people have over their health.
Lethal Statistics, 1947
from the original Southern Exposure, by Stetson Kennedy*
Hand in hand with undernourishment goes disease — nowhere is there a vicious circle more vicious than the misery-go-round of poverty and sickness. First poverty causes people to lose their health; then ill-health prevents them from overcoming poverty. And so the wheel of misfortune goes around and around...and when it will stop depends upon what people do about it, together.
The poor Southerner has been scrawny, puny, and ailing from way back Mother and child have less chance of survival in the South than anywhere else in the country. In 1939 the maternity death rate (per 10,000 live births) was 56.16 in the Southeast, compared to 40.39 in the nation. Florida's rate was highest: 65.27. Similarly, the Southeast's infant death rate (per1,000 live births) was 58.6, compared to 48 for the nation. In 1937 stillbirths throughout the South ranged from a rate of 52 to 68, while the national rate was only 29.9.
When the National Youth Administration surveyed the health of its employees, it found that Southern youth exceeded the national rates for hookworm, venereal diseases, heart trouble, faulty blood pressure, and so forth.
The relatively poorer health of the relatively poorer Negroes finds expression in a life expectancy of only 45 years, as compared to 59 years for whites. In other words, to be born black in America is to be sentenced to die 14 years sooner than your white contemporaries. The Negro death rate is 32 per cent higher than the white (in 1925 it was 62.5 per cent higher); total daily sickness among Negroes is 43 per cent higher than among whites; the incidence of tuberculosis among Negroes is more than two and a half times higher than among Southern whites and five times as high as Northern whites. Moreover, the Negro maternity death rate is three times as high as the white rate, and the Negro infant mortality rate is two thirds higher than the white. Those are but a few of the hazards incurred by being born black in a white man's country.
Chief subverter of the South's health is malaria. In 1940 the Southeast's death rate from this disease (per 10,000) was .45, compared to .11 for the nation. The rates of Mississippi, Alabama, and South Carolina were highest — .80, .72, .62. Worse yet, 39 of the Southeast's counties had rates of 2 or more. On the basis of $10,000 as the value of a human life, malaria cost the South $39,500,000 in 1936 alone. More than 90 per cent of the national incidence of five or six million cases of malaria annually occurs in the South. At the minimum out-of-pocket expenditure of $40 per case, the annual cost of the South's 5,400,000 cases is $216,000,000. In addition, the disease reduces the South's industrial output approximately one third....
The Southeast's death rate from tuberculosis per 10,000 population in 1940 was 5.35, compared to the national rate of 4.99. Tennessee was high with a rate of 7.58, while 110 Southeastern counties also had rates of 7 or more.
Syphilis caused a death rate of 1.85 per 10,000 in the Southeast in 1940, while the national rate was 1.44. Florida had the highest rate, 2.65, and 76 Southeastern counties had rates of 3 or higher....
So much for the South's priorities on disease. The question is: What is being done about it? The answer is: Damned little. It is an inhuman truth that more attention has been given to the conservation of such resources as soil, water, forests, minerals, and even wild life than has been given to the preservation of human life and health.
In 1942, 204 of the Southeast's counties — nearly a third of the total — neither had full-time public-health departments nor were included in consolidated full-time health districts. Georgia was worst-off in this respect, with two thirds of its counties lacking full-time health service; and more than half of Florida's counties were likewise deficient. Even of those Southeastern counties which had full-time health service, more than half had 2 or less health-service employees for every 10,000 persons in the population; while only 6 per cent had more than 4 employees per 10,000 population. Total receipts for public-health services in 83 per cent of the counties were less than 71 cents per capita, and more than 40 per cent of the counties took in less than 40 cents per capita per year. Altogether, public-health expenditures in the region in 1941 amounted to only 7 percent of the national total — to provide for 14 percent of the country's people.
"Obviously most of the health departments in the region are without adequate personnel to carry on an effective health program," concludes the Planning Report. The need is greatest in the thinly populated rural counties, and the most immediately available solution for them would seem to be consolidation into health districts.
Another aspect of the South's lack of medical service is the region's wholly inadequate number of physicians. With its 14 percent of the nation's people, the Southeast in 1940 had but 9 percent of the nation's physicians to serve them. In 80 percent of the region's counties there was but one physician for every 1,112 people.
Still another index to the region's lack of health facilities is the fact that in 1939 it had but 11.5 per cent of the nation's hospitals to accommodate its 14 percent of the nation's people. Even more indicative of the inadequacy of the region's hospital facilities is the fact that it had only 5.57 hospital beds for every 1,000 people, while the nation had 9.74. Furthermore, 41 percent of the region's counties had less than 3 beds for every 1,000 people, while less than 1 percent of the counties had as many as 5 beds per 1,000 persons.
To add tragedy to tragedy, even these hospital beds are not fully occupied — not because Southerners shouldn't be in them, but because they can't pay the price. In part this is due to the fact that a greater proportion of the Southeast's hospitals are under private control than are those throughout America. More than half of the region's counties had no general hospitals in 1941.
* Excerpted from Southern Exposure, a 1947 muckraking account of the South's problems.
The Hospital Business
Large-scale federal spending began with the Hill-Burton Act of 1948, aimed at getting hospitals built in rural America. Spending skyrocketed in the 1960s with the creation of Medicare and Medicaid, and helped turn health care into a $150 billion business, second only to defense in its share of the Gross National Product. When Hill-Burton began, the government paid less than ten percent of the nation's health care bill; today, it pays a fourth of the bill. As a result, corporations which once contented themselves with profiting on poor health by selling drugs, insurance or medical supplies have now expanded their business into the actual delivery of health care itself. And they have been particularly interested in the $60 billion which gets spent annually in the nation's 7,000 hospitals.
Currently, Americans choose among several types of general purpose hospitals. Over half are privately-owned institutions run on a not-for-profit basis; another 35% are operated by governments. But a growing number — 13%— are owned by investors in search of profits. The South has a disproportionate share of these so-called proprietary hospitals: of its 2,000 hospitals employing almost a half million workers, one-third are private, not-for-profit, 45% are government owned, and 21% are proprietary.
The relatively higher proportion of government-owned hospitals in the South has helped make the region the industry's number one target. Historically, Southern lawmakers have favored private control over government control; they are easily convinced by the leading argument in favor of proprietary hospitals: as cost-conscious, profit-making businesses, they keep the costs of health service down. Unfortunately, keeping the costs down can also mean — as it has with other public services in the South — sharp cutbacks in the quality of care.
In fact, the cost-cutting, business-minded approach epitomized by the investor-owned proprietaries characterizes all hospital care in the South. Most obviously, hospitals in the region spend less on each patient, despite the fact that a higher proportion of Southerners suffer from disabling illnesses or accidents, relative to the nation as a whole. Southern hospitals also save money by hiring fewer workers per patient and paying the workers the lowest wages in the nation: about $7,500 per year, a third below what hospital workers receive in the Northeast and Pacific states, and $2,000 below the average annual wage for manufacturing workers in the South. Contrary to many reports, the low wages of hospital workers have only kept pace with inflation, while non-payroll expenses (and costs to consumers) have increased much faster. The rising cost of hospital care has been due primarily to unnecessary expansion and expensive equipment purchases, not to increased wages for hospital workers.
Hospitals in the South also save by relying heavily upon those workers who are unskilled, hence the cheapest to employ. Thus, they employ fewer doctors and registered nurses, but more licensed practical nurses. Rural America as a whole is underserved in almost every category except nurse's aides (including orderlies and attendants) and specialties like veterinarians and lay midwives. Highly trained professionals are not necessarily better health care providers, but in our society their presence does indicate a commitment to more health care.
Better health care does result from aggressive outpatient programs in hospitals. These programs are especially important to poor people who can not afford private physicians. But with large numbers of unoccupied hospital beds, administrators prefer patients to stay in the hospital overnight where profits are high. Out- patient departments are among the first programs cut by money-conscious administrators.
Unfortunately, treating only the most profitable diseases is entirely legal. Sometimes. Under the 1948 Hill-Burton Act, the federal government has spent $3.25 billion for the construction of hospitals in underserved rural areas. In return, Hill- Burton hospitals must, by law, provide a certain amount of free service to people unable to pay. But in 1974, the Southern Regional Council documented the systematic denial of free health care in these hospitals. Many hospitals simply ignore the requirement to advertise clearly the availability of free health care. In other cases, people who might be eligible are harassed for payment of their bills. Those who do inquire about the eligibility for free care are often told the hospital can not give an answer in advance of treatment; fearing bills, many simply stay away. Finally, and in direct violation of the Hill-Burton Act, some hospitals write off bad debts and charges beyond the “reasonable cost” reimbursements allowed under Medicaid and Medicare as “free service” to the poor.
Of course, proprietary hospitals have no legal obligation to provide free care. In fact, much of their increased income derives simply from increased harassment of patients to pay bills. Proprietaries combine all the cost-conscious practices of other hospital administrators with none of the imperatives to keep their doors open to all people. They can simply refuse to serve any patient whose payment is not guaranteed in cash or by some third-party payer, such as the federal government or an insurance company. The dramatic influx of federal health money through Medicare and Medicaid has directly encouraged this policy of profiting from the care of every patient, regardless of their ability to pay. It has likewise encouraged the rise of a new breed of multi-million dollar corporations, the hospital chain, whose stocks have soared on Wall Street despite the economy's stagflation.
The biggest chains (see chart) all do a large portion of their business in the Sunbelt. Their approach to hospital care is perhaps best symbolized by the fact that hotel chains like Hyatt and Ramada Inn hold significant shares of the industry. Hilton Hotels, a subsidiary of TWA, recently attempted to enter the business by offering to buy American Medicorp for over $100 million, but was outbid by Humana, the nation's secondlargest proprietary chain. While the best of the bunch try to avoid the reputation of being “Holiday Inns with patients," they do follow the basic dictates of trade — for maximum occupancy, efficient use of resources, standardized service, computerized billing, low wages, etc.
Hospital Corporation of America (HCA), based in Nashville, heads the field with a growth rate which would be impressive for any other industry, but which is typical among proprietary hospital chains. Founded in 1960, and thus the oldest of the majors, HCA began its spectacular rise by buying seventeen other companies during 1968-69. As of September, 1977, HCA owned 72 hospitals (11% of this nation's investor-owned hospitals) and managed another 23 (12% of the hospital management market). In 1970, the entire industry had combined revenues of $500 million; in 1976, HCA alone grossed $506 million, 36% of that from Medicare and Medicaid. Its annual income has been increasing 21% each year.
Because proprietaries still account for only a small portion of all hospitals, HCA has many institutions left to pick from; it favors those in the suburbs of the Sunbelt almost exclusively. But HCA's success does not actually reflect an existing need for its services. Its hospitals have an average occupancy rate of 67% compared with 74.5% for all general hospitals; the ideal is 85%. In fact, most HCA hospitals simply replace older facilities with operations based on new cost-cutting techniques, including much lower costs for labor. Only one HCA hospital has a union.
While the policies of proprietary hospitals often point up the inequities and failures of health care, they do make money for investors. Actual ownership by for-profit companies continues to account for only a fraction of all hospitals, but the cost-conscious philosophy which they espouse is increasingly attractive to trustees of other hospitals, as well as to local governments. The result has been the creation of a second avenue by which profit-minded corporations can move in on the multi-billion dollar hospital market: the hospital management company.
The largest of these firms are the proprietary hospital chains themselves, like HCA and American Medicorp. Hospital Affiliates, Inc. (HAI), also based in Nashville, boasts a growth rate twice that of its parent company, INA, the $2.9 billion insurance corporation. Probably the largest management firm, HAI operates 66 hospitals in addition to the 44 it owns outright; figures for both categories rose 50% in two years. Like proprietaries, hospital management by contract arose during the early stages of the Medicare/Medicaid era; Hospital Affiliates is only ten years old, and its 10,000-plus employees bring in over $100 million each year.
Make no mistake, hospitals do not hire management firms to improve health care. The primary purpose is to ensure the financial growth of the institution. The fee paid the managers is contingent not upon quality of service, nor even upon increased efficiency, but on a percentage of growth in the hospital's revenues. The more money a hospital brings in (i.e., the bigger it grows), regardless of quality or even profitability, the more the management firm gets paid. Expansion is the key to profit, even for hospitals which are already too large and centralized.
Keeping the Public Out
In 1974, Congress enacted the National Health Planning and Resources Act directed at clearing up the institutional and bureaucratic nightmare that followed the creation of Medicaid and Medicare in the 1960s. Under the new act, health planning decisions became the responsibility of regional Health Systems Agencies (HSAs) rather than allowing the uncoordinated expansion of the health care system to continue unchecked.
Last year, the Southern Regional Council surveyed the operations of twenty-eight Southern HSAs (about half the total) and published its findings in Placebo or Cure? State and Local Health Planning Agencies in the South. The SRC survey found that, despite their newness, the HSAs "are dominated by vested medical interests, and have failed to promote comprehensive health planning and stem soaring medical costs The HSAs are simply not effective health planning agents."
The SRC report focuses on the crucial innovation of the Health Planning Act to survive the onslaught of lobbyists from the American Hospital Association, the National Association of Counties and the National Governors' Conference. Despite the lobbies, the final act required that consumers —rather than providers— be the majority on HSA boards and that each board contain full representation by women, minority groups and low-income people. Consumer control would, in theory, challenge the power of professional health care providers who have no interest in keeping prices down. The SRC study concludes that "hospital administrators and medical doctors are over-represented on most HSA boards. They enhance their power by selecting sympathetic HSA directors and staff who dilute the influence not only of consumer representatives, but of health providers other than medical directors and hospital administrators....Women, minority groups, and the poor were often found to be under-represented or not represented at all."
The SRC report points out:
• One of the low-income members of the Florida Gulf Health Systems Agency owns low-income housing.
•Of the eight low-income members of the Mid-Louisiana HSA, "four are teachers, one is a retired city councilman, another is a construction worker, another is a bus driver, and one is executive secretary of the Chamber of Commerce."
• The West Arkansas HSA says only people familiar with health care problems could beeffectiveon its board. Of its thirty members, only five are women.
• Members of the North Alabama HSA were nominated almost exclusively by health care providers who had a decided bias against any government involvement in health planning. One board member said, "What do [consumers] know about health care needs."
• Texas lags far behind the rest of the South in developing any HSAs — let alone effective HSAs — due to the opposition of Governor Dolph Briscoe.
• With one exception — the Mississippi HSA in Jackson — no HSA in the South is controlled by its consumer members.
• A Charlotte, NC, lawyer nominated for the Southern Piedmont HSA stated, "Every good American should oppose this legislation." A former board chairman concurred: "The people on the board of Southern Piedmont Health Systems Agency have the same interests as you or I, preserving a voluntary, private health system."
• The US Department of Health, Education and Welfare has exhibited little interest in enforcing provisions of the Health Planning Act mandating public accountability and consumer representation.
If the private management companies can not be expected to hold down the cost of your medical care, neither can the insurance companies. Although common sense suggests that insurance companies would try to keep hospital bills down in order to maximize their profits, it just doesn't work that way. Government regulation of the insurance industry, like federal regulation of utilities, is designed to guarantee the investor-owned companies a "reasonable" rate of profit. Instead of keeping costs down, regulation allows the insurance companies to pass increased medical costs on to consumers without suffering any decrease in profit. Insurers only need to make sure the costs of their policies remain affordable for the consumer. One solution the industry favors is national health insurance that subsidizes coverage of all Americans by private companies. Another, more immediate plan, euphemistically called "co-payment,” allows the companies to pay a smaller portion of the hospital bill, leaving the consumer to pay the balance directly.
Some insurance companies have found another way around higher hospital bills. They have entered the business themselves; when they pay the providers, they pay themselves. INA has taken the lead in this questionable practice. For several years, INA has owned a portion of AID, Inc., a proprietary chain controlling 5% of the investor-owned hospital market. In 1976, INA increased its share of AID from 64% to 91%, "reflecting INA's belief that the health care field will continue to expand profitably." Indeed, over the last five years, AID'S profits increased 20% annually. Undoubtedly, the rapid growth of AID encouraged the parent company to buy Hospital Affiliates International in 1977.
The insurance industry's concern about getting their profits first and worrying about high costs later has been doubly hard on policy holders in the South. Southerners already get shortchanged on the protection they receive for the money they contribute in premium payments, largely because they tend to be covered by individual, instead of group, policies. More of their money is thus eaten up by the insurers' administrative overhead (e.g., processing 100 individual premium payments is much more expensive than processing one group payment for 100 people). Nationally, half the people with health insurance purchase the more expensive private plan; but in the South, two-thirds use private plans. A primary cause of this difference is the lack of unions in the South to force employers to provide group insurance for their workers.
The South also receives fewer benefits from Medicare and Medicaid. Rural residents are especially hurt. Last year, city dwellers received an average of $123 from Medicaid, while those outside the city got only $78 per person. Nearly all the Southern states rank in the bottom third of reimbursement rates, despite the region's obvious health and poverty problems.
Blue Cross/Blue Shield programs return more money to Southerners than the private companies, but they still respond to doctors and hospitals, not to patients. For example. Blue Shield plans, which cover about 40% of the population, account for onefourth of all money paid to doctors; Federal Trade Commission investigations have shown that most plans are controlled not by health consumers, but by medical societies and local physician associations. At Congressional hearings, Rep. Albert Gore of Tennessee noted that many members of Blue Shield boards also serve on boards of major institutions which hold Blue Shield funds. “These persons," said Gore, "also have a direct interest in seeing that these financial institutions make a profit."
Why Investors in the Proprietary Hospitals Love Herman Talmadge
'"Why Investors...Love Herman Talmadge." That's not an original title. Fortune, "the magazine for business," used it in December, 1977, without intending irony or criticism. Specifically, Fortune's article described the delight with which proprietary hospitals view Talmadge's Medicare and Medicaid Administrative and Reimbursement Reform Act. That unwieldy title avoids the announced purpose: to control the rapid rise of hospital costs. His bill is one of several now being considered by Congress; Talmadge's and another proposed by President Carter share the limelight.
What makes the debate crucial is the extremely high inflation in the health industry. Hospital expenses for the nation increase at over one million dollars every hour, or at a rate two and a half times faster than the rest of the country's inflation. A day in the hospital cost $15.62 in 1950; $175.08 in 1976. Some form of cost containment bill is almost inevitable this year.
Carter's bill sets immediate limits on the increase in hospital revenue next year to nine percent over this year's revenue. Other features of his plan encourage use of outpatient services rather than overnight admissions, exempt pay increases for low-paid hospital workers from the nine percent figure, and limit major expenditures for expansion and expensive equipment to under $2.5 billion next year. The Department of Health, Education and Welfare regards the nine percent cap and other provisions as necessary predecessors to a workable National Health Insurance somewhere in the future. The proprietaries do not like Carter's plan. In the words of their lobbyist, "[HEW Secretary Califano's] gratuitous attack upon the free enterprise system cannot disguise the bankruptcy of the HEW cost containment proposal."
While Carter's plan claims to punish hospitals for high costs, the Talmadge plan — co-sponsored by Russell Long and a number of less powerful senators — claims to control cost by rewarding efficient hospitals. Although Talmadge insists his bill would encourage lower hospital charges, it appears just as likely to encourage overcharges. If a hospital charged less than the going rate for service, it would share the savings with government reimbursement agencies. But high charges would be reimbursed up to twenty percent over the going rate. The going rate is accepted as a reasonable standard, a dubious proposition. Although announced as a cost-containment concept, Talmadge's proposal sets significantly higher limits on profits than presently allowed in Medicare/Medicaid reimbursements. Lastly, unlike the Carter proposal which would take effect immediately, Talmadge's controls would not become fully effective until 1981. Costs would continue to soar until then.
The American Hospital Association (AHA) prefers Talmadge's bill because it sets no limits on revenue increases (nine percent in Carter's). The Federation of American Hospitals (FAH), the industry association for proprietary hospitals, prefers Talmadge's Bill because it sets no limits on expansion ($2.5 billion in Carter's.) With so much industry support, the Talmadge Plan might be in danger of being unacceptable to liberals, except that the AHA and the FAH — with the AMA — have proposed a third plan. The industry idea makes all cost controls voluntary, relying on publicity focused on those hospitals which exceed the voluntary standards as the only punishment. Besides its obvious similarity to the non-control that has already given us such high prices for hospital care, the industry plan probably violates antitrust law because it suggests hospitals agree among themselves on what to charge. The FHA-AHA-AMA plan has no hope of passing, but it may nudge congressional debate several steps to the right.
Some program will pass this year, probably an amalgam of Carter's and Talmadge's plans. Although they have been compared to carrot-and-stick, the two camps see themselves as almost compatible. Talmadge initially gave tepid support to the general approach of the Carter proposal, while the administration stresses it supports the Talmadge plan in the long run with the nine percent cap needed immediately.
Meanwhile, Talmadge holds the key to any legislation as Chairman of the Senate Finance Subcommittee on Health. The proprietaries like his bill, but they love his pace: Carter proposed the cap last April, but the Senate version never reached the floor as Talmadge delayed revealing his plan for several months and then delayed hearings.
As the debate drags on, the publicity around the need for controlling expenses enhances the value of hospital management stocks. And in spite of their furious words, the proprietary hospitals are not extremely worried. As the FAH's Michael Bromberg says, "Even with the sharpest legislation, I'm not afraid of what's coming. The nonprofit hospital is our umbrella. They'd have to go bankrupt before we'd be hurt."
Health vs. Wealth
The South suffers further at the hands of the true giants of the medical industry — the pharmaceutical companies. In 1975, consumers spent $10 billion on drugs directly and billions more indirectly through hospitals. Drug companies, unlike proprietary hospitals, have been around a long time, but their revenues took a sharp upswing with the discovery of antibiotics in the 1940s, and birth control pills in the '60s.
The continuously expanding market has produced a relatively calm, albeit still quite profitable industry dominated by giant corporations. Forthcoming federal legislation may soon limit drug prices, but will also extend Medicare/Medicaid coverage of drug purchases by consumers.
The average American spent $23.80 of pocket money on prescriptions in 1973; Southerners spent $26.70; rural Southerners spent $29.10. Southerners were also more likely to receive no reimbursement for these purchases from federal programs. While each purchase cost less, Southerners made far more individual purchases in the course of a year.
The health industry obviously extends far beyond hospitals, insurance and drug companies. With quick profits to be made in the construction of hospital facilities, companies devoted solely to this purpose now earn $4.5 billion a year. For a set fee, they will build a hospital; other companies locate financial partners on investments. Typical of the new breed of health care contractors is Elmo R. Zumwalt, former chief of US naval operations and unsuccessful candidate for the US Senate from Virginia. Zumwalt entered the medical field in October, 1977, as president of American Medical Building, Inc., a hospital construction company. His Washington contacts will more than make up for his ignorance of health care delivery.
Nursing homes account for another $10 billion of our health care money each year. In fact, nursing homes are now the fastest growing part of the health industry with a 53% increase in revenues between 1972 and 1975. Like hospitals, two types of nursing homes co-exist, for profit and nonprofit. The South has once again been the favored location of the proprietary institution. But unlike proprietary hospitals, which have a moderately respectable public image, the nursinghome- for-profit has been one of the scandals of the decade. Despite their rapid growth in revenue, however, nursing homes show a relatively low rate of profit (about 5% on invested capital), and major corporations are starting to move from nursing homes to hospitals in pursuit of a higher rate of profit (6.3%).
Health Empires Without Health
Americans spend an ungodly amount of money on health. The hundreds of billions of dollars must end up in someone's pockets. Financial empires exist on our poor health. Undeniably, some health problems have lessened in the three decades since Stetson Kennedy pinpointed the South as the worst region, but the South still lags. Friendliness to private enterprise, the high degree of poverty, the large rural population, and the shortage of unions and consumer organizations all contribute to keeping the South at the bottom.
The prime cause for the inflation of health costs has been, not the vast sums spent by Washington, but the design of the spending programs. At no point have federal programs been willing to challenge or compete with private control of the delivery of health care. Regulations now being pushed by advocates of private control, led by Senator Herman Talmadge of Georgia, would begin to control costs but might threaten public and nonprofit institutions (see box). Similarly, doctors have been almost free to charge whatever they liked knowing their services were necessary, their rates beyond effective public control and their monopoly secure. In otherwords, the providers who profit control the health care system rather than the consumers who pay the bills. The goal of the providers is profit; the goal of the consumers is health. The arrangement encourages inflation and discourages quality care.
The pursuit of profits in the health care industry has deeper effects, effects felt most strongly in the South. Our health care system functions mainly to take care of problems after they occur rather than attempt to prevent their occurrence. This is best illustrated by the high rate of work accidents in the South and the prevalence of workrelated diseases such as black lung and brown lung. Southern states have been unwilling to enact or enforce laws to effectively protect the health and safety of workers.
The problem has become severe enough to be too costly to employers as well as workers. A few corporations have instituted health insurance programs designed to prevent illness, both to lessen demands for the protection offered by unions and to ensure a healthier work force. Some Southern politicians have even introduced federal brown lung legislation, to shift the responsibility for compensation to the national treasury, e.g., the taxpayer. Southern states still largely refuse to insist that corporations provide health insurance or healthy working conditions for fear of implying that workers have any rights beyond those insisted upon by Washington.
The failure to control corporations has implications for health extending far beyond the workplace. The primary cause of much disease is poverty. Poverty means not only less ability to purchase care, but also less money for adequate food, less money for adequate housing, less education stressing the importance of proper health care. To improve health would require challenging the causes of poverty.
The inequitable distribution of wealth has further social results that adversely affect health. Up to 90% of cancers — the prima donna disease of industrialized nations — result from the chemicals in the air and water. Most cancers could be prevented by cleaning up the environment: that is, by controlling the corporations that do the polluting. Yet the costly research focuses on finding cures for the remaining 10% of cancer associated with viruses. The $2.75 billion dollars going to medical research each year may not have cured cancer, but it has created quite a few empires in universities, research hospitals and private laboratories across the nation.
Ultimately, consumers pay all the costs of health care — in tax money, in insurance premiums, in sickness. Solutions to the health care dilemma will come when health decisions are made, not by corporation executives on the basis of profits, but by health workers and consumers on the basis of our need.
An Alternative? Health Maintenance Organizations
While American health care focuses on cure, a turn-of-the-century concept of medical care designed to prevent illness has come into prominence in recent years. Stimulated by rising health care expenses and an unhealthy workforce, corporations and the federal government have both been examining the potentials of health maintenance organization (HMOs). Even more importantly, many people view the HMO as the best vehicle for providing good health care in rural areas.
On the surface, HMOs resemble insurance programs. Members pay set fees in advance for medical care as a whole. The similarity soon ends, however. HMOs provide care, while insurance companies simply pay the bills. Because the income of an HMO is limited by the fees it collects monthly, the HMO must — as a business — strive to keep its expenses down. The major avenue for accomplishing this is to provide care before illness appears. Members of an HMO receive, in addition to insurance coverage for hospitalization, the availability of a doctor and related staff for regular check-ups and tests. By keeping members healthy, HMOs cut the rate of hospitalization — with its accompanying higher costs — in half. And because fees are collected in advance, rural HMOs can attract medical professionals by guaranteeing their income.
Despite its obvious health benefits and a 1973 federal law supporting HMOs, prepaid, preventive health care bypasses the South for the same reasons the South has always been shortchanged on health. The effectiveness — indeed, the life — of an HMO depends largely on the resources available within a community. Many rural areas can not enroll enough members in an HMO to maintain a clinic and pay the doctors enough money to compete with the income he or she could get in a city by charging each patient for each visit (the fee-for-service system.) Moreover, rural areas less often have the organizations which could help create and operate an HMO. Lastly, medical professionals often prefer urban areas for reasons beyond the financial rewards to be found there.
The one large-scale, successful HMO in the South is the exception that proves the rule. R.J. Reynolds, the nation's leading cigarette manufacturer, began an HMO in 1976 for its workers. But the Reynolds HMO serves a major city, Winston-Salem, not rural North Carolina. Although severely underserved, Winston-Salem already does have proportionately more medical services than most North Carolina counties. Winston-Salem has an HMO because it has the prerequisites that rural areas lack. First, it has people: 10,000 people joined the Reynolds HMO in its first year; 30,000 will soon belong. Second, Winston-Salem has a powerful corporation willing to organize an HMO and use its influence to overcome doctors' traditional opposition to the HMO's threat to their profits under feefor- service. In fact, the Reynolds HMO grew out of the corporation president's inability to find a private doctor when he moved to Winston-Salem. Unlike poor and rural people, he could call on the resources of a multinational corporation to solve his problem. Third, Reynolds' HMO could attract doctors partially because it is located in a city and because the HMO is big enough to finance a wellequipped clinic.
But, R.J. Reynolds is the exception in the South. Most corporations do not offer HMOs for employees just as they do not offer health insurance. Fringe benefits, such as medical insurance or an HMO, tend to reflect unionization and pay scales. Just as Southern businessmen refuse to recognize unions, and pay the lowest wages, so they resist offering HMOs. The federal HMO Act does little to push companies to provide health care; it obligates those large employers who do provide health insurance to offer HMO as an option. More important, the law says nothing about deducting HMO payments from paychecks: the check-off. Just as checkoffs for union dues guarantee the economic strength of unions, so check-offs for an HMO guarantee its viability. Southern employers oppose the check-off just as they oppose any compulsory benefits as an infringement of their absolute power. Since the act said nothing about the checkoff, Duke Power challenged the regulation requiring it in court in 1976 and won. As the director of a small, non-corporation HMO in Greenville, South Carolina, put it, "The people who write HMO regulations must not have heard about places like Greenville."
HMOs are not without their dangers. With a fixed income, an HMO must limit expenses and — without consumer control — could be liable to the same business-minded limitations as a proprietary hospital. On the other hand, because they hold down costs and have a steady income, HMOs may be viewed by business as another investment: American Medical International took the first small steps in this direction by purchasing two HMOs in 1977. (It began by introducing measures to control high expenses.) And, of course, corporations like R.J. Reynolds do not create an HMO out of sheer generosity. The Reynolds HMO means 1) workers are out sick less often; 2) the company has another argument against unionization; and 3) the company reaps the profits from health care rather than the expenses. While Reynolds boasts about its HMO, the company refuses to provide the evidence of its financial success. "We don't want our people to think we're profiteering on their health."
Marc Miller was a staff member of the Institute for Southern Studies and Southern Exposure for eight years. He is now a senior editor of Technology Review magazine. (1986)
Marc Miller is associate editor of Southern Exposure. He edited Working Lives: The Southern Exposure History of Labor in the South, published by Pantheon Books in 1981. (1980)
Marc Miller is an historian on the staff of the Institute for Southern Studies. He is currently editing a book of first person accounts of work in the twentieth century. (1978)