Banishing Profit Is Bad for Your Health

The Medicare for All proposal from House Democrats follows New York state’s bad example.

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The author of this article, Bill Hammond, is director of health policy at the Empire Center.

House Democrats’ new Medicare for All bill asserts “a moral imperative . . . to eliminate profit from the provision of health care.”

The legislation specifies that federal health funding—virtually all health funding if the bill were to become law—may not be used for “the profit or net revenue of the provider.” That makes it more radical and less realistic than even Bernie Sanders’ plan.

In one stroke, the House bill would sweep away the business model used by the vast majority of doctors in private practice, 28% of hospitals, 70% of nursing homes, and countless clinics, outpatient surgery facilities, dialysis centers, home-care agencies and more.

The bill doesn’t detail an enforcement mechanism, but it seems to mean that thousands of providers would either have to reorganize as nonprofits or shut down.

The legislation, introduced by Rep. Pramila Jayapal of Seattle and boasting 106 Democratic cosponsors, would also prohibit the use of provider funds for marketing, campaign donations or labor consultants.

It would even proscribe “value-based purchasing,” a strategy for encouraging preventive, holistic medicine that was encouraged by President Obama’s Affordable Care Act. This micromanagement is what a government takeover of the health-care system looks like.

Eliminating profit from an entire sector of the national economy would be unprecedented. But the example of New York, on a smaller scale, shows why it is a recipe for dysfunction.

The Empire State’s hospital industry has been 100% nonprofit or government-owned for more than a decade. It’s a byproduct of longstanding, unusually restrictive ownership laws that squeeze for-profit general hospitals. The last one in the state closed its doors in 2008.

A report last year from the Albany-based Empire Center shows the unhappy results.

The state health-care industry’s financial condition is chronically weak, with the second-worst operating margins and highest debt loads in the country. And there’s no evidence that expunging profit has reduced costs. New York’s per capita hospital spending is 18% higher than the national average.

The overall quality of New York’s hospitals, even factoring in Manhattan’s flagship institutions, is poor. Their average score on the federal government’s Hospital Compare report card was 2.18 stars out of five—last out of 50 states.

Their collective safety grades from the Leapfrog Group and Consumer Reports magazine have also been dismal.

The state’s nonprofit hospitals also fall short on accessibility for the uninsured. On average they devoted 1.9% of revenues to charity care in 2015, a third less than privately owned hospitals nationwide.

Finally, New York’s antiprofit policy doesn’t even prevent people from getting rich. Seven-figure salaries are common among the state’s hospital executives.

If banning profit is an effective way to improve health-care, there’s no evidence to be found in New York.

Not content to destroy the profit system for health-care providers, sponsors of the House Medicare for All bill would also blow up the patent system for prescription drugs.

If a manufacturer won’t agree to an “appropriate” price for its product, federal officials could abrogate the patent and assign another company to make the drug. The original patent holder would receive “reasonable” compensation for its losses, but only after the government discounts costs as it sees fit.

Knowing that patents could be overridden at anytime, the private sector would have far less incentive to invest billions to find medical breakthroughs, slowing progress against disease and disability.

The House bill’s supporters seem totally ignorant of the power of the profit motive, when properly harnessed, to drive health improvements and cut costs. If they ever get their way, patients will pay a steep price.

This article originally appeared on the Wall Street Journal. It can be found here.