The regenerative economy: the real prescription patients need
Extractive healthcare
Most of what is written about the exorbitant cost of the US healthcare system focuses on such issues as fragmentation and lack of universal coverage. But the problem is actually much bigger. The entire US healthcare sector has been co-opted by financial interests, making the first goal of healthcare short-term returns for shareholders and relegating health outcomes to a distant second. Only when we understand this fundamental logic can we fully grasp where the fragmentation, persistent inequities, and growing costs associated with the sector come from—and why meaningful solutions will require systemic change.
Like much of the rest of the US economy in recent decades, our healthcare sector has become highly financialized. To meet the demands of investors for swift and high returns, Wall Street has found that making money from money is quicker and easier than making money from long-term investments in the infrastructure, maintenance, and human resources so desperately needed to provide high-quality services in a sector like healthcare. Financialization in healthcare means that an increasing share of the extraordinary resources we put into the healthcare sector are extracted from the productive provision of high-quality care by healthcare workers with living wages, and instead lands in the pockets of shareholders and executives.
The COVID-19 pandemic illuminated the grave consequences of this choice. Healthcare corporations that prioritized delivery of high-margin elective procedures were not prepared either structurally or financially for the emergency room pandemic surge. Despite unprecedented demand, many hospitals—particularly in rural areas—sustained record losses; some closed and others struggled to remain open. Even so, federal funding to ensure COVID-19 testing and treatment was universally accessible enabled the private healthcare sector to successfully extract public funds to boost its own profits, demonstrating the sheer lucrativeness of publicly funded, privately provided healthcare delivery. Whether it is federal programs or private insurance companies paying for-profit providers directly for these essential services, it all pumps up the profits of private companies, at ever-increasing costs to the public through rising insurance premiums or higher public spending.
The heaviest burdens are borne by historically marginalized people least able to bear them. As one analysis put it, "the unequal toll of covid-19 has exposed extractive domestic economic structures that disproportionately disadvantage the same racial and ethnic groups that were exploited under slavery or colonialism, and revealed inadequacies in social safety nets." The extractive economics of US healthcare assumes whole classes of people—the elderly; the disabled; "essential workers" who are largely immigrants, women and people of color—are disposable and can be sacrificed as long as their sacrifice serves the interests of capital.
Extraction is everywhere. From insurers to for-profit hospitals, nursing homes to pharmaceutical companies, many key players in the healthcare system are run by financial interests. Increasingly, those interests are private equity firms that are largely unregulated and operate away from the scrutiny of public markets. Even large, publicly funded healthcare programs are privately administered (by insurers) and privately provided (often by for-profit healthcare facilities such as nursing homes), creating massive opportunities for profit extraction throughout the system. For example, in 2021, 63 million Americans were enrolled in Medicare Advantage, Medicare supplement, and Medicaid plans operated by the “big six” for-profit health insurance companies, which made over $60 billion in profit.
But these examples do not capture the breadth of extraction throughout the healthcare system. Nursing homes (now 70% privately owned), though they generate most of their income from Medicaid payments, are massively profitable, in part by paying workers a sub-living wage. Similarly, most dialysis care is funded by Medicare (for which patients of any age with kidney failure are eligible) while the two major dialysis providers dominate the market and reap massive profits.
As an increasing number of nurses find that working conditions have become unbearable, hospitals have increasingly come to depend on staffing agencies to provide “travel nurses” to fill the gaps. This creates a self-perpetuating, highly profitable cycle: As staff nurses struggle to provide quality patient care, they work alongside agency nurses sometimes making double their pay but lacking the specific knowledge they would gain from consistent work in the same facility. This experience leads more staff nurses to instead decide to pursue higher pay and lower commitment, leading hospitals to spend even more money on staffing agencies, which may bill the hospitals double the hourly pay of the nurses.
Private equity and venture capital firms have had a particularly destructive effect on the sector as they acquire staffing agencies, primary care practices, fertility clinics, hospice care providers, medical specialties, dental support organizations and more. Designed to focus on "short-term revenue generation and consolidation and not on the care and long-term wellbeing of patients," they will often squeeze all the revenue they can out of a company and then dump the “asset” back into the community in financial ruin. This serves neither patients nor healthcare workers and preempts any local control over or cohesion in healthcare services by breaking up health systems to sell them for parts.
One recent study found that private equity-owned nursing homes had both higher costs to Medicare and higher rates of emergency department transfers and hospitalizations than other for-profit facilities, suggesting the care provided was of poorer quality. Nursing homes have become so thoroughly financialized that it is hard to hold owners accountable, as regulators have difficulty keeping track of who owns the "asset" at any given time. Researchers for a study of NJ nursing homes (in the wake of the first wave of COVID-19 deaths in the state) remarked, "A facility may change ownership multiple times in a single week."
Large pharmaceutical companies have also been financially engineered to prioritize shareholders’ profits over productivity, often downsizing and taking on debt in order to distribute more than 100% of profits to shareholders. Top companies spent $57 billion more on stock buybacks and dividends than research and development (R&D) between 2016-2020, so while they produce ever higher profits, clinically meaningful innovation has seen a steady decline since the 1950s.
These sources of extraction mean that while huge amounts of taxpayer and employer money is going into "healthcare," much of it is siphoned off by absentee owners and shareholders, rather than getting invested in the workforce, in patient care, and in the local community in ways that contribute positively to the social determinants of health. The healthcare workforce is an afterthought: exhausted, unprotected, worked to the bone during the pandemic. Many have already suffered years of stagnating wages and deteriorating working conditions in the service of greater profits. In fact, the majority of jobs in the sector are underpaid, precarious positions in healthcare support and services (like homecare, housekeeping, and nursing aides), primarily held by women and people of color.
Patients are treated as additional sources of extracting profit, for example, through “surprise billing” schemes (invented by private equity firms), even when profits have already been extracted from insurance payments or public subsidies.
The regenerative economy of healthcare we need
A healthcare system built on the interests of profiteers cannot somehow pivot and prioritize population health or equitable quality care. Indeed, these profiteers can and will fight tooth and nail to stop it from doing so. Orienting the sector to serve the healthcare needs of our communities first—not the financial "needs" of investors—requires structural change.
Treating healthcare in the US more like a public service instead of as a commodity would allow us to re-center people (both workers and patients) and produce more equitable health and economic outcomes. This requires providing more healthcare goods and services in the public sector and/or by and for communities themselves in the form of worker or community-owned, not-for-profit clinics and hospitals, where fewer healthcare dollars are whisked away into the financial economy and more stay in the real economy.
This means ending investments in highly financialized private providers and increasing investment in public-interest institutions operating in the real economy. This way, more healthcare dollars are spent on the actual work of caring for one another, improving both access and responsiveness to patients’ needs as well as working conditions for healthcare personnel—particularly those in traditionally low-paid positions like home care workers, nursing aides, and janitorial staff.
The public sector is a more equitable employer than the private sector—it has much higher rates of unionization and employs more women and people of color in these stable, good jobs. For example, the fully public Veterans Health Administration (VHA) is almost wall-to-wall union, and the highest-paid executive at the VHA in 2020 earned just 2.2% of the median CEO compensation in the private healthcare sector ($15.5 million). At private hospital chains, CEOs routinely make several hundred times the median employee's wage and shareholders take a significant percentage of profits. Meanwhile, at public healthcare institutions no shareholders take a cut. Investing in public sector healthcare institutions over private sector ones produces more good, public sector jobs in local communities and less income inequality in the sector.
By removing the constraint of profit-maximization and short-term returns, public and community-owned healthcare services are free to invest in their staff as an investment in population health. Raising the wages of low-wage workers increases productivity and reduces turnover. It also provides more income to those most likely to put that money back into the community, contributing to a more regenerative economy.
Shifting away from an extractive model of healthcare is an investment in health equity. Only about 20 percent of health outcomes are directly attributable to medical care; our life expectancy and quality of life are largely determined by a combination of social and economic factors, such as housing, employment, and education. Thus, treating healthcare as an important source of fair and equitable employment and community investment is an upstream strategy to improve community health and wellbeing.
Even if we wrest just a small percentage of current corporate healthcare profits and direct those to public and community-owned healthcare institutions, the returns to society could be significant, both in reduced out-of-pocket healthcare spending by patients, and better wages and working conditions for many healthcare professionals.
These dollars could be used to scale up such existing successful and cost-effective models as the VHA and Federally Qualified Community Health Centers (FQCHCs), and to seed public pharmaceutical enterprises for producing and distributing low-cost essential medicines (much like plans California and Washington are starting to implement). FQCHCs are public clinics designed to provide comprehensive primary care to medically underserved communities. They are associated with lower total per-patient costs to Medicare and Medicaid than other providers, higher levels of care coordination, and more equitable health outcomes. The VHA is a fully integrated public healthcare system providing evidence-based care to veterans and serving as a backup to the overall US healthcare system in times of crisis. It consistently meets or outperforms private sector providers on a range of health outcomes, and often produces more equitable results, all at a much lower overall cost.
Together, these public and community-controlled institutions could be tasked with serving all Americans with high-quality, evidenced-based, cost-effective medical care tailored to the needs of individual communities and anchored in the real economy.
Healthcare will always account for a significant portion of our economy. It's a sector that can never be fully outsourced and must be staffed by people engaged in the complex but very human work of supporting human life. The sector could be the basis of a new industrial strategy for the nation—one designed to produce equitable, broadly shared prosperity and healthy working and living conditions—but not if we don't first liberate it from the constraints of financialization and profit-maximization. We have examples of what a regenerative healthcare system might look like when we consider publicly owned pharmaceutical and medical technology companies, or an expanded VHA and FQCHC program. By investing in healthcare as a source of individual and societal health and good jobs, we could create a virtuous circle, rather than a downward spiral that serves the ownership class at the expense of our societal health and wellbeing.
Rebecca Givan is an Associate Professor, Labor Studies and Employment Relations (LSER) and Co-Director, Center for Work and Health (CWH) at Rutgers School of Management and Labor Relations.
Dana Brown is the director of health and economy where her research focuses on health and care systems, the pharmaceutical sector, and economic transformation for health and well-being.
1 According to a multi-year study (forthcoming) of GDP conducted for the Democracy Collaborative by an international team of economists.
