America’s Healthcare System – Part 4
A Simple Profile of the American Healthcare System, Continued
This is the fourth essay in Civic Way’s series on the US healthcare sector. In this essay, we continue our profile of the healthcare industry’s primary participants (see last essay). The author, Bob Melville, is the founder of Civic Way, a nonprofit dedicated to good government, and a management consultant with over 45 years of experience improving public agencies.
Highlights:
Corporations—pharmaceuticals, insurers, medical suppliers and technology firms—are investing heavily in healthcare
Hospital systems and medical centers have become the healthcare sector’s most dynamic and dominant provider
Primary care practices are subject to the same merger trends affecting other providers
Other healthcare providers and facilities continue to change in response to the healthcare market
Given the size and cost of the US healthcare sector, its inefficient deployment of resources is mystifying
Introduction
In this essay, we continue our profile of the American healthcare sector. Our focus is on corporations, hospitals, primary care practices and other providers. We also identify some trends that could impact the way in which the healthcare sector is organized.
Corporations
The healthcare sector continues to attract corporate investment. While vertical consolidations blur the distinctions, there are four broad types of corporations—pharmaceuticals (including retail drug chains), insurers (including managed-care firms), medical suppliers and technology firms.
Pharmaceuticals – This group, Big Pharma, includes pharmaceutical producers and distributors, biotechnology firms and generic drug-makers. The big producers include Eli Lilly, Pfizer, Roche and Merck. The three big distributors, AmerisourceBergen, Cardinal Health and McKesson, account for over 90 percent of that market. Large biotech firms include Alexion, Novo Nordisk, Regeneron and Vertex. Many generic drug firms are based in other nations, but Viatris is located here. The US also has about 60,000 retail pharmacies, two-thirds of which are controlled by huge retail chains like CVS and Walgreens.
Insurers – This category includes insurers and managed healthcare companies. They are influential in at least two ways. First, as health insurers, they negotiate provider prices. Second, as care management firms, they impact healthcare quality and costs. The largest firms include Anthem, Centene, Cigna and UnitedHealth. In addition, some firms, like HCA and Laboratory Corporation of America, operate healthcare facilities.
Medical suppliers – Some firms manufacture familiar products like bandages and others produce sophisticated equipment like MRI machines. Prominent suppliers include AmerisourceBergen, Cardinal Health, Johnson & Johnson, and Medtronic.
Technology firms – The US’ technology giants are salivating over the healthcare market’s size and profit potential. Last year, the Big Five—Alphabet, Amazon, Apple, Meta and Microsoft—spent a total of $3.6 billion on healthcare. Alphabet was, by far, the biggest investor. The technology portfolio includes medical wearables (sensors and fitness trackers), health records, online health services and artificial intelligence.
Hospitals
Hospitals are the most dynamic element of America’s healthcare sector. For much of our history, hospitals were isolated and neglected. Throughout the late 19th century and most of the 20th century, it was physicians, not hospitals, that enjoyed the most prestige and political influence.
That has changed and will continue to change. Hospital systems have become the sector’s dominant provider, at least in terms of profit and power. This trend is perhaps best illustrated by the rise of health systems, the multi-hospital or diversified multi-facility systems that reign over today’s healthcare landscape.
In 2018, there were 637 health systems in the US (up from 626 in 2016). Nearly 70 percent were owned by nonprofits, 20 percent by the public sector and the rest by churches and for-profit entities. According to the Compendium of US Health Systems, over 50 percent of the nation’s physicians, 72 percent of its hospitals and 91 percent of its hospital beds were affiliated with health systems. The largest systems include HCA, VHA, Ascension (St. Louis), CommonSpirit Health (Chicago) and Kaiser Permanente.
Medical Centers look a lot like health systems. While not as large, they may be similarly diversified, with hospitals, medical schools, specialty institutions, research centers and multiple locations. The nation’s largest medical centers include the Texas Medical Center, Mayo Clinic, Cleveland Clinic, Johns Hopkins and University of Pittsburgh Medical Center (UPMC).
Standalone hospitals remain part of the landscape. According to the American Hospital Association, there are still 6,093 hospitals, including 5,139 community hospitals (most of which are nonprofit), 635 nonfederal psychiatric hospitals and 319 other hospitals. There are about 1,100 teaching hospitals. In the aggregate, US hospitals have over 920,000 staffed hospital beds, about 12 percent of which are intensive care beds. Their services vary depending on their size and location.
Some hospitals are known as safety net hospitals. Despite wafer thin operating margins, these facilities are a lifeline for many citizens, especially those with limited means. In rural areas, they are often community anchors. In urban areas, they are typically run by public agencies or nonprofits.
More standalone hospitals are disappearing due to consolidations and closures. From 2010 to 2017, there were 778 hospital mergers. From 2016 to 2021, 348 hospitals—nearly five percent of all hospitals—changed hands via acquisition or merger. From 2010 to 2019, 113 rural hospitals closed. This trend will likely continue for the foreseeable future.
Primary Care Practices
When most of us think about healthcare we think about our primary care physician. For those of us fortunate enough to have one, the primary care physician is our portal to good health and, when we need it, quality healthcare.
It is the primary care physician, after all, who is most familiar with our health. Administering routine physical exams, tracking basic health indicators, treating minor ailments and recommending specialized care. Without quality primary care, preventable conditions worsen, serious medical intervention ensues and costs escalate.
Primary care practices come in different forms—private solo practices, private group practices and larger hospital-affiliated clinics. There are about 138,300 primary care practices in the US, increasing at a modest rate of slightly less than one percent per year since 2017. These practices account for 295,000 primary care professionals (209,000 primary care physicians, 56,000 nurse practitioners and 30,000 physician assistants). Primary care practices tend to be more concentrated in urban areas than rural areas.
Since 1965, the US also has had Federally Qualified Health Centers (FQHCs), patient-centric, community-based outpatient clinics that offer free primary care to underserved populations. There are just over 1,400 FQHCs plus another 16,500 FQHC Look-Alikes. Both offer similar services and are eligible for Medicare and Medicaid reimbursement (the FQHC Look-Alikes, however, don’t receive federal Section 330 grant funds).
The FQHCs are the go-to primary care provider for underserved communities. They serve nearly 30 million people per year (an estimated 20 percent of rural residents). Nearly 50 percent of their patients are Medicaid enrollees, nearly 25 percent are uninsured and over 90 percent are at or below 200 percent of the federal poverty level. Over 60 percent are minorities, over 30 percent are children and about five percent are homeless.
Other Healthcare Providers
The US has an incredibly diverse and dynamic assortment of other healthcare providers and facilities. Some are relatively new arrivals to the sector while others have been serving Americans for decades, such as:
Urgent care centers – over 9,600 centers (up from only 6,100 in 2013)
Home health agencies – about 11,200 agencies (down from 12,400 in 2013)
Mental health facilities – about 14,500 facilities providing behavioral health and addiction treatment services, including Certified Community Behavioral Health Clinics (CCBHCs)
Skilled nursing facilities (SNFs) – just over 15,000 skilled nursing facilities, a number that has been trending downward due in part to consolidations (since 2016, over 3,200 SNFs have changed ownership)
Long-term care facilities – 65,600 regulated long-term care facilities, including 28,900 assisted living communities and 15,600 nursing homes of which about 70 percent are for-profit (the long-term care market has been growing steadily and is expected to continue to grow)
Hospice care facilities – 4,700 hospice care agencies of which about two-thirds are for-profit
Others – a partial list includes birth centers, physical therapy clinics, imaging/radiology centers, dialysis facilities, orthopedic rehabilitation centers and dental clinics
This mix could look very different in a decade. Patient needs, provider mergers, regulatory changes and innovation will likely bring disruption and adaptation. A case in point is the rise of urgent care centers, a market-driven response to patient demands for more convenient, affordable service. Another is the growth of the long-term care market (by 2030, the number of nursing home residents could double).
Looking Ahead
So long as we continue to underfund public health programs and neglect preventive care, the demand for healthcare will likely continue to grow unabated. However, the societal costs of meeting that demand could be materially affected by trends such as the following:
The consolidation of healthcare markets and providers (horizontal and vertical)
The disappearance of small hospitals, solo physician practices and independent pharmacies
The rise of large vertically integrated health systems and retail drug chains
The presence of private equity firms and hedge fund managers
The dominance of healthcare innovation by large corporations, especially technology behemoths
The centrality and growth of primary care practices
The consequences of such trends are hard to predict, but they may defy our expectations. For example, the consolidation of healthcare providers and markets may not improve coordination, enhance quality or cut costs. Horizontal consolidation could very well raise costs (by eliminating competition).
Perhaps the most astounding feature of American healthcare—especially knowing how big it is and how much it costs—is how poorly its vast resources are organized and deployed. Some politicians wail about government control of healthcare, but the real issue is whether American healthcare can ever be controlled.
In our next essay, we will take a look at healthcare insurance, an issue that has divided us for many years.