The Nasty, Brutish Economics of the Small Town American Hospital

Healthcare in America is the naked emperor, the lie so big and all-encompassing that almost nobody sees or understands its perverse and destructive economics clearly enough to talk about it with the authority we need to have a realistic conversation about fixing anything.

That’s why Brian Alexander’s new book The Hospital: Life, Death, and Dollars in a Small American Town (St. Martin’s Press, 307 p.) is essential reading for politicians, policymakers, and citizens. It’s the chronicle of a couple years in the life of a small Midwestern non-profit community hospital, in Bryan, OH. (Population 8,500, roughly the same size as Moundsville, WV.)

What Alexander does here better than any other current journalist I’ve read is explain how management consultant-coached private equity soldiers have exploited the people living in small and rural U.S. towns, and helped cripple once thriving local – and, yes, very capitalist – economies. His work is an exploration of how, in his words, “the modern American version of capitalism encouraged – even demanded – that employers extract the value from their employees while returning scraps to them and their communities.” 

Forget globalization, automation, and China. Alexander forces us to ask this question: What would America look like without these guys? 

With them, the result, in the case of healthcare, is an economy that is screwed beyond our capacity to see what’s going on. Presidential candidates promise single-payer schemes and voucher plans, but nobody talks about the fundamental market dysfunctions that make it all inhumanly expensive and inefficient, one of the worst things this country has to offer. They should be forced to read The Hospital

On my last trip to Moundsville, last Friday, I heard multiple medical horror stories. One man pulled out a picture of his deceased mother, showing me an infection that hadn’t been properly treated. The remedy will be a lawsuit, I was told. A shot at grabbing some cash, without any meaningful change to the system. People know they’re getting a bad deal, but can’t define it.

In 2017, Alexander published another book in the same vein, Glass House: The 1% Economy and the Shattering of the All-American Town, about his hometown of Lancaster, OH, which was decimated by the fall of its glass-making factory. (It was a key text that I read while making the Moundsville film, now on PBS. For decades, Moundsville hosted the glass company Fostoria, and I’ve told the story of one of its laid-off workers on this blog.)

Telling the story of healthcare in America through the prism of a small town makes sense because that’s where the economic geography has been most upended. The hospital, in almost every town, is the shiniest, prettiest building in the neighborhood.  Moundsville has one, Reynolds Memorial, in Glen Dale, under the auspices of West Virginia University Medicine.

The highest-paid executive in town is usually the hospital CEO, even when the institution is a “non-profit”. Basic middle-class infrastructure relies on doctors and nurses. Without the “healthcare community”, sports fields don’t get built, symphonies don’t make music, and pools can’t open in the summer. Hospitals and their owners and managers are, in effect, holding many small towns hostage. The industry also supplies a big part of America’s working-class job opportunities, from janitors to health aides.

Most medical jobs were in fact low-wage– assistants could expect to make about $33,000 a year, janitors and housekeepers about $26,000, home health aides $24,000, food service workers $22,000, but cities counted on the high prices people paid to the medical economy to help finance billions for new buildings and attract high-paying jobs. 

On a local level, to be sure, hospitals help some communities endure. And they do have redeeming qualities. The Bryan medical community, for example, includes people enriching the community from Iraq, Jordan, Israel, India, Pakistan, Mexico, the Philippines, Jamaica, Egypt and Canada. 

But depending on hospitals as the new job-generating factory is a tragic bargain, because this ecosystem is based on two terrible things: 1. People getting sick, or thinking they need to see a doctor even if they’re not sick. 2. Insane prices hospitals charge because they usually have, in practice, monopolistic pricing power. (TLDR: Nobody negotiates while they’re having a heart attack.)

The aging of middle America and the higher prices have blown up the U.S.’s $4 trillion healthcare industry into one of the juiciest fruits on the market. It is where the money is.

[Private equity] firms may not have known how to run companies, but they weren’t stupid. Like Willie Sutton, the thief who when asked why he robbed banks supposedly replied, “Because that’s where the money is” (words he later denied ever saying), PE investors knew healthcare was the biggest casino in the American economy. 

The upshot: Private equity did $100 billion worth of deals in 2018 alone, taking over “ambulance companies, prison medical care companies, mammography companies, nursing homes, electronic medical records companies, autism treatment and addiction treatment companies, and home health companies.”

The system is generating so much money that the incentives for most people up and down the food chain is to maintain the status quo. The cost for the players in the game of changing the rules is too high.

Piercing this self-protective bubble is a rich journalistic feat. To anchor his narrative, Alexander convinced Phil Ennen, the CEO of Community Hospitals and Wellness Centers, or CHWC, Bryan’s community hospital, to let him embed and report everything he saw, heard and read. It’s to Ennen’s great credit that he saw the wisdom and grace in opening his doors to a diligent journalist. 

Ennen, who’s worked for the hospital his whole life when we meet him, is trying to keep his shop going despite competition from voracious rivals, million-dollar salaries for star doctors, and prices nobody can control. The pressure is intense. All the money sloshing around the system means there are plenty of sharks, helped by ambitious consultants based in places like Columbus, Cleveland and Cincinnati, looking for smaller fish to gobble up. We meet people going through the system he runs, such as Stephanie, a 46-year-old who dies of cancer. 

The last twenty-four hours of her life “produced bills for drugs, supplies, labs, the ER, respiratory care, pulmonary function tests, vascular diagnostics, echocardiology, a CT scan, blood, doctor’s fees, and observation, adding up to over $41,000, but she was still dead.”

The book, of course, is full of these kinds of stories. And so is the news these days, to the point they don’t even shock us that much anymore. How did we get here?  

In the 19th century, asylums were where the poor and mentally infirm went to plant until they died. The revolution in science and technology created a demand for places to receive the benefits of the latest advances in medical technology. The x-ray machine was invented in 1895. Every county in America wanted to have this new kind of building. “Few towns in our class are without a hospital and many smaller ones have this most needed [of] conveniences,” the Bryan Press declared in 1915.

In 1936, along with many other towns, Bryan finally got its hospital. And as the U.S. healthcare economy ballooned into a uncontrollable whale, all the hospitals grew with them.

With the U.S. willing to fund expansion through Medicare and Medicaid, hospitals and doctors are charging and paying themselves more and more. Between 1998 and mid-2019, inflation rose 57.6%, while prices for hospital services increased 200%. In Colorado, for example, hospital profits increased 280% between 2009 and 2018, from $538 per patient to $1,518 per patient. 

Is there any prospect for reform?

Unlikely in the current context, says Alexander. When it comes to wholesale reform, like a move toward a single-payer system

America had gone too far down a bad road and had no choice but to keep going. There was too much money at stake to blow it up. Doctors would make less. So would the drug companies and their shareholders. So would the big hospital systems and the private equity outfits that were beginning to dominate American medicine. The device makers would make less, too, and so would the consultants, the accountants, the medical records software companies, and the ambulance companies. Lots of people in the insurance industry would lose their jobs. Not in a million years, everybody agreed, because nobody wanted to give up their current piece of the pie. 

Attempts at truth-telling within the industry are usually snuffed out, underscoring how valuable The Hospital is. Alexander reports the story of a University of Florida dermatologist named Sailesh Konda, who found that “PE-owned dermatology practices submitted big-number bills to Medicare, performed lots of high-dollar procedures, and tended to open their own pathology labs that could bill for checking skin samples for diseases like cancer.” But Konda’s report got quashed by higher-ups. 

As Alexander points out, Americans like to trumpet their faith in the free market. But when it comes to healthcare, resorting to that argument is absurd. The U.S. has managed the singular feat of marrying the worst of capitalism with the worst of socialism to create a government-enabled system of mass capitalist exploitation.

In places like Bryan and Moundsville, that’s really hurting people. 

John W. Miller

CORRECTION: A previous version of this article misspelled CHWC CEO Phil Ennen’s name as Essen.

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