Bioethics Forum Essay
In Search of an Ethical Constraint on Hospital Revenue
Last year, The New York Times detailed how Providence–one of the largest nonprofit hospital chains in the United States–had developed the “Rev-Up” program, a brainchild of the consulting firm McKinsey & Company, “to maximize revenues by wringing as much money as possible from [even the most indigent] patients.” Providence ultimately agreed to refund payments to over 700 low-income patients who were erroneously billed for health care that could have been covered by financial assistance policies.
A physician whistleblower came forward alleging that Detroit Medical Center, owned by for-profit Tenet Healthcare, refused to halt elective procedures in early days of the pandemic, even after dozens of patients and staff were exposed to a COVID-positive patient undergoing an organ transplant. According to the physician, Tenet persisted on account of the margin it stood to generate. “Continuing to do this [was] truly a crime against patients,” recalled Dr. Shakir Hussein, who was fired shortly thereafter.
Earlier in 2022, nonprofit Bon Secours health system was investigated for its strategic downsizing of a community hospital in Richmond, Va., which left a predominantly Black community lacking access to standard medical services such as MRIs and maternity care. Still, the hospital managed to turn a $100 million margin, which buoyed the system’s $1 billion net revenue in 2021. “Bon Secours was basically laundering money through this poor hospital to its wealthy outposts,” said one emergency department physician who had worked at Richmond Community Hospital. “It was all about profits.”
The academic literature further substantiates concerns about hospital margin maximization. One paper examining the use of municipal, tax-exempt debt among nonprofit hospitals found evidence of arbitrage behavior, where hospitals issued debt not to invest in new capital (the stated purpose of most municipal debt issuances) but to invest the proceeds of the issuance in securities and other endowment accounts. A more recent paper, focused on private equity-owned hospitals, found that facilities acquired by private equity were more likely to “add specific, profitable hospital-based services and less likely to add or continue those with unreliable revenue streams.” These and other findings led Donald Berwick to write that greed poses an existential threat to U.S. health care.
None of the hospital actions described above are necessarily illegal but they certainly bring long-lurking issues within bioethics to the fore. Recognizing that hospitals are resource-dependent organizations, what normative, ethical responsibilities–or constraints–do they face with regard to revenue-generation? A review of the health services and bioethics literature to date turns up three general answers to this question, all of which are unsatisfactory.
Answer #1: The first, and least inspiring, answer is that hospitals have only a responsibility (only!) to obey the law, broadly defined. The law constrains hospitals by making potentially lucrative behaviors illegal and law-abiding hospitals forego opportunities to raise resources when they abide. In my experience teaching business students, many believe this to be businesses’ only ethical responsibility. They are willing to submit to lawmakers’ power to set the rules of the marketplace, and then see it as their role as strategists to work within the letter, if not the spirit, of those rules. The same can likely be said for at least some senior health care administrators.
In some cases, the law acts an effective constraint. For instance, hospitals might want to charge patients considerable sums for generating copies of their medical records, but state governments cap this amount. The problem with relying on laws (alone) as an ethical constraint is that lawmakers can never anticipate every conceivable opportunity for ethically problematic revenue generation. It is a problem of contract failure. Given this reality, hospitals must develop an internalized sense of restraint that adds to the regulation that law provides. This necessity has been recognized by business ethicists and economists. Kenneth Arrow, a Nobel Prize-winning economist, conceded that profit maximization strategies are likely to yield inefficient outcomes in most conditions, which would include modern health care markets. Accordingly, he suggested the need for “ethical codes” to guide business conduct.
Answer #2: The second answer is that hospitals’ mission statements provide a set of ethical responsibilities, including potentially viable constraints on revenue generation. The idea of an organization having a mission that guides their behavior is a product of the nonprofit organizational form, but many mission statements read as aspirational, or worse, hypocritical, alongside the documented conduct of nonprofit hospitals. Academicians’ longstanding interest and faith in hospital “mission” has rarely acknowledged that missions are often too broad to confer meaningful accountability, can be and are changed at will by boards, and function largely as marketing devices.
Whatever confidence one may have in mission statements to curb the behavior of nonprofit hospitals should not extend to the more than 1,200 for-profit hospitals in the U.S. Some of the largest for-profit players, including HCA and Tenet, feature mission statements on their websites, but there is little reason to think these statements provide a binding check on profit-generation when these corporations face a clear, legal obligation to act in the financial interest of shareholders.
Answer #3: The third answer relies on the concept of professionalism to provide ethical parameters for revenue generation. Indeed, professionalism has done ample ethical work in promoting pro-social behavior among clinicians. Recently, the relative successes of professionalism in promoting ethical behavior by physicians has led some scholars to propose that organizations also inhabit an ethic of “professionalism.”
The problem with relying on professionalism to constrain hospital revenue generation is that it rests on the idea of a cogent profession in which people are trained and seek to remain in good standing. While physicians can surely draw on this notion, recent estimates suggest that fewer than 10% of hospitals are led by physicians. People occupying the CEO or president roles are more commonly trained in business administration, public health, or health administration. Physicians and other clinicians are omnipresent in chief medical officer roles and on senior teams, but they rarely have final decision-making authority. Similarly, the latest data on hospital board composition indicates that physicians on boards are rarely the majority. Given the diminishing role of physicians in hospital leadership, it is hard to imagine how physician professionalism would reliably penetrate, or act as an effective constraint upon, hospital behavior.
In sum, we cannot rely on laws alone to provide an effective check on hospital revenue generation due to the law’s inevitably limited scope. We therefore must identify an internalized ethic to guide hospital revenue generation. The concept of an organizational mission is a weak check on nonprofit hospitals and virtually meaningless among for-profit hospitals, and reliance on professionalism is incongruous with the empirical data about who has final decision-making authority over hospitals today. We need a new way to conceptualize hospital responsibilities.
Two critiques of this idea merit confrontation. The first is that there is no urgent need for an internalized constraint on revenue generation because more than half of hospitals are currently operating in the red; seeking to curb their revenue further is counterproductive. But just because a proportion of this sector is in the red does not undercut the egregiousness of the hospital actions described earlier. Moreover, if hospitals are running a deficit in part because they choose not to undertake unethical action to generate revenue, then any rule developed saying they can’t undertake ethical actions to generate revenue won’t apply to them. The second critique is that the current revenues that hospitals generate are legitimate because they bolster institutional “rainy day funds” of sorts, which can be deployed to help people and communities in need at a future date. But with a declining national life expectancy, a Black maternal mortality rate hovering at roughly that of Tajikistan, and medical debt the leading cause of personal bankruptcy in the U.S. – it is already raining. Increasing reserves, by any means, can no longer be defended with this logic.
The search for an internalized normative constraint on hospital revenue generation can and should proceed in tandem with efforts to strengthen legal and regulatory frameworks that hospitals face. Although these frameworks will never be perfect, they offer an important, broad-based layer of public protection against financial exploitation. Indeed, even the most compelling statement of internalized responsibility will not be a magic bullet either, as some organizations routinely transgress even the most basic moral obligations. Assuming a non-ideal world, the most fulsome approach to pursuing justice in hospital revenue generation includes both external and internal accountability mechanisms. Laws and regulations are routinely and robustly debated in our community. It is time to devote similar attention to the normative principles that should guide the ways in which hospitals accumulate revenue.
Lauren A. Taylor, PhD, MDiv, is an assistant professor in the department of population health at NYU Grossman School of Medicine and a senior advisor to The Hastings Center. @LaurenTaylor_LT