Thought Leadership

We love the Wall Street Journal.  How did they get the story so wrong?

By Revive
posted May 24, 2022

Earlier this month, the Wall Street Journal did its first article about the state of relations between payors and providers in quite some time.  I have spent the last several weeks wondering how the venerable gold standard of journalism managed to get this issue so wrong.

After debating whether to weigh in and share my view of their coverage, I thought it was important to set the record straight.

First, let’s look at the underlying costs cited in the article. Hospital labor costs make up more than half of their total cost structure, on average.  If, as the article states, “the average yearly base pay for hospital nurses has increased 9% since June of 2021,” then the average hospital’s cost structure has grown about 5% because of wage inflation alone.  This is hugely significant as most hospitals operate on a margin of 2% or less.

Second, the article ignores the impact of rising supply costs on hospitals.  These costs are impacted by the same inflation that the rest of the economy is experiencing.  That means they’re up 8 to 10%, adding another 4 to 5% to the cost structure.  When you add it all up, the average hospital’s costs will increase nearly 10% this year alone.

Third, the article states that “some negotiations won’t open until 2024.”  A single conversation with a single hospital would have disproven this wildly inaccurate assumption.  Hospitals and provider groups negotiate contracts with payors all the time, and most organizations have contracts that come up every year for renegotiation.  Unfortunately, this assumption (stated as a fact) makes it clear the article was not based in the realities of our industry.

Fourth, the article cites payor and employer sources in a way that suggests their interests are totally aligned.  In fact, the article chooses to ignore the massive and usurious profits that payors generate from the PBMs they own, often at the expense of self-insured employers and always at the expense of consumers. This will be the topic of future legislative and regulatory action, and it cannot be ignored any longer.

And finally, my favorite quote. “Centene Corp. hasn’t yet seen an impact from inflation in healthcare labor cost but is ‘aware of the potential future impact.’” I’m not even sure what to say. If payors deny that the problem exists, perhaps they feel this obviates their obligation to help doing something about it. If I close my eyes, you’re not there.

We must accept the reality that in the short term, healthcare will be more expensive for employers and consumers. Everything we buy right now costs more, and inflation is showing no signs of letting up. For the last few years, hospitals have been able to survive because of the non-operating income generated by their investments. With the market turning bearish, their survival strategy has likely run its course.  Hospitals simply cannot absorb cost increases without commensurate increases in revenue. The only viable source of that revenue is commercially insured patients.  This may feel dysfunctional to people outside the healthcare industry, but this is the way our country’s healthcare system is designed.

The hospital industry doesn’t need grossly uninformed commentary from the Wall Street Journal.  It needs our support. We owe hospitals a debt of gratitude.  And the press can help by focusing on the obligation that payors have in making sure our hospitals are sustainable.  That is the outcome we should all strive for, because it’s in our best interest, whether we’re physicians, employers, or consumers.