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At various points over the last few weeks, news reports have told stories of booming hospitals: emergency departments overwhelmed by patients, imminent shortages of both ICU beds and ventilators, and even the need to create makeshift field hospitals to accommodate extra patients. At the same time, they also showed how hospitals are furloughing staff and cutting salaries and retirement benefits.

And Congress has allocated $100 billion to bail out hospitals in financial trouble.


How can hospitals be so busy and still be losing so much money?

If you could have walked through a few hospitals at various points over the last few months, you would have seen parts of the answer. While large hospitals typically run near capacity, many have been largely empty. Hospitals preparing for the surge of Covid-19 patients opened up beds by decreasing or cancelling elective procedures and admissions. Those recovering from the first wave are still waiting for non-Covid-19 patients to come back. Expenses have gone up as hospitals redeployed staff, repurposed beds to create additional ICU capacity, paid overtime, and bought needed supplies at higher cost.

But an even more important reason that hospitals are currently running in the red is because of how they are paid. Hospital margins — how much they make or lose — vary dramatically across different types of care. Procedural services such as hip and knee replacements, colonoscopies, and radiology tests are the cash cows for hospitals, while they break even or lose money on non-procedural admissions, such as those for pneumonia or psychiatric conditions. Hospitals often lose money when a patient has a prolonged ICU stay because of the high expense of providing intensive care.


So the profitable procedures and radiology tests subsidize the unprofitable care, and it sort of works out in the end.

Except when it doesn’t, like during a viral pandemic when hospitals have to cancel all the lucrative services, pivot almost exclusively to unprofitable treatment, and provide selected patients with weeks of critical care. It is no surprise that hospitals are running massive financial deficits. In every respect, the pandemic has exposed the discrepancy in how hospitals are paid for doing procedures compared to providing non-procedural medical care.

This policy approach was problematic even before the pandemic struck. It encourages the hospitals to perform potentially low-value but well-reimbursed procedures with little benefit and unnecessary risk to patients. From a hospital accountant’s perspective, it is far better to invest in highly reimbursed but minimally beneficial technologies like proton beam therapy than in effective and evidence-based cancer treatments. Hospitals in financial trouble may cut back on critical but relatively poorly reimbursed facilities such as emergency departments and psychiatric wards, with predictable adverse effects on community and mental health.

Since reimbursement discrepancies are also reflected in the salaries of clinicians who provide procedural versus nonprocedural care, they distort the physician labor market and harm public health. Areas of the country with higher numbers of primary care physicians have better survival, but our best and brightest medical students are understandably less likely to enter this relatively low-paying field.

Here are three things we can do about this problem:

First, we can fix imbalances in Medicare’s reimbursement schedule. In addition to being the largest payer in the country, Medicare’s prices are often the starting point for negotiations between hospitals and insurers, meaning that distorted Medicare prices echo throughout the health system. Second, new procedures often command high prices when they are first introduced, but then their relative prices fail to fall when more efficient ones are developed. Better mechanisms must be created to continuously update relative prices of different procedures and types of hospitalizations to prevent these imbalances. Third, we should bolster efforts to develop, refine, and test new payment models, such as accountable care organizations, that provide specific incentives for cost-effective and clinically appropriate care.

It shouldn’t have taken a pandemic, with hospitals overwhelmed yet underwater, for our country to reform how hospitals are paid for the services they provide. We hope that once the Covid-19 crisis is over, one of its long-lasting effects will be a critical re-evaluation of how we pay for hospital care, improving our nation’s health for the long term.

Zahir Kanjee is a physician at Beth Israel Deaconess Medical Center and instructor in medicine at Harvard Medical School. Ateev Mehrotra is a physician at Beth Israel Deaconess Medical Center and an associate professor of health care policy and medicine in the Department of Health Care Policy at Harvard Medical School. Bruce Landon is a physician at Beth Israel Deaconess Medical Center and professor of medicine in the Department of Health Care Policy at Harvard Medical School.

  • This is what happens when unaccountable public health terrorists (Fauci and Birx) speak for entire medical community. Both are politicians with MD after their names. Dems love them because they’ve destroyed the economy in the name of public health and falsely blame Trump. This is why the hospitals are tanking, I work at one in Boston myself and lost my job April 2nd for this reason. A job I had 18 years and because of these unaccountable public health terrorists I’ve lost my $145k job and told today it’s not coming back. Meanwhile Fauci and Birx still being paid for being so wrong. How do we know when they’re lying? Their lips are moving!

  • Hospitals were NEVER ovrwhelmed in 99% of locations. They are not doing much now because of the lack of elective procedures. Please stop the false narrative of overwhelmed hospitals. The vast majority of people with COVID are not hospitalized and show little to no symptoms.

    • “The vast majority of people with COVID are not hospitalized and show little to no symptoms.”

      They don’t have Covid. You’ve fallen for the media’s lie….they had the virus, not Covid.

      They are not the same thing.

      Covid is a fake media term for SARS II a severe respiratory disease. The corona virus is what you’re referring to.

      Viruses are not diseases.

    • It’s pretty much irrelevant whether or not the vast majority of people with COVID are not hospitalized and show little to no symptoms. The number of people who do get very sick and/or die is not affected by whatever number of people are eventually found to have been affected without symptoms. Also if you read the article carefully there is no false narrative of overwhelmed hospitals, simply a reference to news reports of overwhelmed hospitals. Plenty of hospitals such as my own were not overwhelmed, but had you spent an hour in my emergency room any time during late April through early May you would quickly have shed your illusions about the harmlessness of this virus.

  • 1. Takeover by large corporations
    2. Screw nurses over the last 30 years
    3 the disaster called Obama care
    4. Free medical care for illegals

    Solve those problems which were DELIBERATELY created and itll fix everything

  • Well, sorry to tell you, but I know many in the medical field and hospitals I am aware of have been running at less than 50% throughout the pandemic. The reason the hospitals are going broke is the “experts” got it wrong and the surges never happened outside the sanctuary areas where immigration is unchecked and vaccinations and wellness checks are a thing of the past. NY then seeded most of the US according to articles I have read on the subject, just like China seeded the rest of the world.

    Now we have moved into totalitarian territory where we have government officials saying what can and can’t be done in healthcare, what PPE we must wear, and who can and can’t gather.

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