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. 

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. 

Insuring Profits 

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." 

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.