Financialization – Structural Harm to US Health Care

January 13, 2024

The Financialization of Health in the United States
NEJM
January 11, 2024
By JD Bruch, V Roy, CM Grogan

We believe that health policy discussions concerning quality, equity, and cost must grapple with the emerging influence of the financial sector within the U.S. health care system. …

 “Financialization” builds on, but also departs from [corporatization and privatization]. It involves the transformation of public, private, and corporate health care entities into salable and tradable assets from which the financial sector may accumulate capital. Financialization captures … demands of financial markets for short-term profit growth and the distribution of this growth to financial actors that are external to health care entities and U.S. households.

 The rise of financialization in the health sector can be traced to economy-wide shifts that occurred in the 1970s and 1980s. … regulatory and policy changes empowered financial actors to make the U.S. health care system a core part of their growth strategies. At the same time, health care entities increasingly began to operate under “shareholder primacy,” a corporate governance strategy that prioritizes the interest of shareholders over other potential stakeholders …

Shifting Patterns of Ownership and Accumulation

One of the most prominent features of financialization in health care is the growing number of health care entities acquired directly by financial actors. For example, in the past decade, PE firms completed more than 8000 transactions involving health care entities, with an estimated combined value of nearly $1 trillion. Leveraging capital from institutional investors (e.g., state pension plans), PE firms fully acquire hospitals, nursing homes, physician practices, dialysis clinics, hospice operators, and a range of other health care operators at a rapid speed. Strapping these acquired health care companies with large amounts of debt, PE firms then engage in quick buy-and-sell turnarounds to make a profit for their partners. Real estate investment trusts (REITs) … acquire health care properties and lease the real estate back to health care facilities (i.e., sale-leasebacks).

… financialization can [also] take the form of indirect control by financial actors that obtain shares in a health care entity, often by means of early-stage investments or through the stock market. For example, venture capitalists fund health care start-ups in exchange for early equity. … Other financial actors — such as pension funds, mutual funds, and hedge funds — have also become heavily intertwined with the health care system. …

From Hospitals to Medical Credit Cards

[H]ospitals, insurance companies, and pharmaceutical firms are increasingly behaving more like financial firms. … In response to uncertainty in reimbursement and enabled by government antitrust deregulation in the 1980s, hospitals began to pursue mergers and acquisitions to increase market power while also pursuing nonoperating income by launching investment arms … can expose hospitals to fluctuations in financial markets. … [N]onprofit hospitals focus on building financial reserves with their investment arms and patient revenue streams because they are preoccupied with maintaining strong credit ratings, which increase their access to the municipal bond market. … finance and business are now the most common professional backgrounds for boardroom members at top-ranked U.S. hospitals.

Publicly traded health care entities such as health insurers and pharmaceutical companies have also become increasingly financialized, pursuing growth through price increases and mergers and acquisitions while distributing accumulated capital to financial market actors — all to maximize shareholder value. …

As health care entities race to generate growth for financial actors and shareholders, patients are facing higher costs in the form of out-of-pocket expenses and rising premiums. [P]hysician practices and hospitals are increasingly partnering with financial institutions to market medical credit cards and installment loans with steep deferred interest rates. …

The Role of the State

… [T]he substantial public financing of the U.S. health care system — which accounts for 60% of national health care expenditures — provides a steady, reliable, and attractive flow of revenue for private companies and the financial actors that invest in them. … capital is flowing to financial actors, including in Medicare Advantage organizations, nursing homes, hospice operators, and other entities …

Third, by means of myriad public policy decisions over a long period, the United States has created an extremely expensive, fragmented, and unequal health care system … contributed to a surge in medical debt and a dependence on medical credit cards.

Confronting Financialization and Its Implications

… Uwe Reinhardt described “value shifting” in health care — a phenomenon in which value is “taken away from some members of society and channeled to the owners of capital.” … Ultimately, the financial sector’s increasing grip on the health care system invites a pressing question: Is the country getting a good deal? …

inequities endemic to and produced by the financial sector — such as unequal access to financial services — may engender health inequities.

… the financial sector … has become a structural determinant of health.

Comment by: Jim Kahn

This NEJM commentary provides a thoughtful tour of the increasingly pervasive role of financial institutions, practices, and norms in US health care. Distinct from, but mutually reinforcing with, privatization and corporatization. The authors correctly conclude that financialization constitutes a structural determinant of health, fostering health inequities. Their solution, however, falls short – more evidence needed.

No, we don’t need more data. We know what we need to know: (a) There is no credible evidence that financialization (or corporatization) fosters health. (b) A profit focus leads to extracting resources from health care, shifting dollars to shareholders. (c) A profit focus also diminishes attention to patient needs, and thus creates a moral hazard for health care providers. (d) We have evidence from dozens of other wealthy countries that universal coverage with standard comprehensive health insurance prevents health care inequities. Let’s not spend another 5-10 years studying financialization and other structural impediments to health care.

Lest we forget – the primary mission of our health system is … to provide quality health care.

Please, no more nibbling at the edges. Let’s sink our teeth into real health care reform. Single payer will empower patients and providers, and disempower the financial mindset in health.