The Business of Healthcare–Introducing HICUP

business of healthcare feature imageIn America, health care is big business first and an industry dedicated to the well-being of the people it serves second!  Unlike all other industrialized countries of the world, the United States does not have universal health insurance coverage for its citizens and health care is delivered through a loose collection of privately-owned businesses of various size and structure. We are the only industrial country in the world where the business of healthcare takes precedence over the practice of healthcare for the good of its citizens. These private businesses include medical practices, hospitals, medical product manufacturers, pharmaceutical companies, health insurance companies, and various support businesses. Ideally, “market” forces are supposed to keep health costs affordable.

The number one priority of any healthcare business is to generate income and PROFITS for owners and shareholders. There is no defined mission to serve the public good.  The Center for Public Integrity reports that health insurance companies are free to maximize profits by purging” unprofitable accounts where the presence of “sick” people is bad for business (small business accounts). In 2013, the largest 125 US health insurance companies collected $744 billion in premiums according to data from the National Association of Insurance Commissioners. UnitedHealth Group, the largest health insurer, made $10.3 billion in profits in 2014.   BBC News reported that five pharmaceutical companies (Pfizer, Hoffmann-La Roche, AbbVie, GlaxoSmithKline, and Eli Lilly) had profit margins of 20% or more  in 2013.

Incomes in  the healthcare industry are also very generous relative to other industries.  It has been reported that executives at healthcare companies in the United States have the highest median CEO compensation (salary + stock options + other) out of all industries. Government figures show that the wages for physicians and surgeons are also among the highest of all occupations—median annual compensation ranged from $220,942 for primary care physicians to $396,233 for specialists (2012).

It is politically expedient for individual groups within the healthcare industry to blame each other for problems within the system. Doctors blame health insurance companies for interfering in the practice of health care and health insurance companies blame doctors for out-of-control pricing, over-treatment, and even fraudulent billing practices. From the standpoint of the individual American, the various groups that make up the “business of healthcare” act to protect their own goals as opposed to those that are best for the American consumer.  For this blog, I will be calling this “loose” confederation of healthcare organizations “Healthcare Industrial Complex Under Protection” or HICUP for short.

What Groups Are Included in the “Business of Healthcare”?

A list of the members of HICUP as well as their business functions and goals is summarized in the table below.

HICUP Members and Their Business Functions and Goals

HICUP MemberBusiness Function of HICUP Member Business Goals of HICUP Member
Federal and State GovernmentsDirect and “enable” the flow of health care dollars and oversee government-subsidized healthcare programsProtect program integrity and bureaucratic jobs
Health Insurance CompaniesAdminister and manage the flow of health care dollars for the government and private employers to the private medical businessesProtect profits and market shares
Private EmployersProvide health insurance for employees as required by law
Decrease costs of healthcare benefit provided
Private Medical BusinessesReceive health care Receive payment for health care services and productsProtect profits and incomes

The groups making up the “business of healthcare” are illustrated in the block diagram below.

Block Diagram Showing “Business of Healthcare”  

business of healthcare block diagram

In this simple organizational chart, the top layer includes the payers in our healthcare system (i.e., federal and state governments and employers) followed by the intermediary payers (insurance companies).  These two layers control the flow of money to the bottom layer of the HICUP organizational chart.  It is at this bottom layer where we find all businesses that provide healthcare services to individual Americans.  These healthcare businesses include healthcare providers (doctors, dentists, opticians, pharmacists, chiropractors, psychologists, acupuncturists), hospitals, various support staff, etc. Although the healthcare businesses are at the receiving end of healthcare dollars, they still exert considerable control over the flow of dollars during payment contract negotiations with insurance companies.

As you can see, HICUP is composed of all healthcare stakeholders except the patients. While some uninsured patients function outside of the HICUP payment structure, no individual patient wields any real control over the flow of healthcare dollars.

How Is the “Business of Healthcare” Run?

Some of you might be surprised that I have included our federal government as a member of HICUP.  They are, in fact, the head of HICUP!  Our elected officials in Congress enact all healthcare laws and are pivotal in the development of public health policy in the United States.  Federal bureaucrats write and enforce regulations governing all aspects of health care!  The rules and regulations defined for Medicare, the largest government-sponsored healthcare program run, “trickles down” to private sector healthcare costs.  Reductions in Medicare reimbursements could result in higher prices for private sector patients as medical providers scramble to maintain incomes.  Because government bureaucrats are compartmentalized to address individual program integrity, their actions (and inactions) in our healthcare system often work to maintain the status quo over reform that would benefit individual Americans.

The individual members of HICUP are usually uneasy with their fellow “partners” and rarely behave like one big happy family. For example, while universal health insurance coverage (a core goal of Obamacare) has been fabulous for the profits of hospitals and health insurance companies, many state governments view it as a future cost time-bomb (expanded Medicaid). Affordable health care is good for government and private sector employers while threatening the income and profitability of medical providers and insurance companies.

The private employers who must provide employer-sponsored health insurance by law are uneasy members of HICUP.  The healthcare benefit they must provide represents a drain on their core economic activity.  The more they spend on providing this benefit, the less there is for economic growth (and wages for individual employees).  How employers got into the “business of healthcare”  will be outlined in a subsequent blog post.

Every time government introduces new laws or regulations, the tug-of-war for healthcare dollars between medical providers and insurance companies intensifies. Big money is at the core of all HICUP actions.  I have included a visual depiction below showing the various members of HICUP and their places within this “loose” organization.

The House That HICUP Built

business of healthcare House-of-HICUP

While technically not one business entity, members of HICUP each function to maintain their respective business (and profits) within the healthcare system. They communicate with each other but keep the inner workings away from the view of individual Americans whenever possible. When safeguarding their financial interests, they may squabble with each other for a greater share of the healthcare money pot, but they are united in targeting the individual American with increased costs or decreased benefits.

Unfortunately, the business of healthcare has created an environment where healthcare providers are frequently confronted with conflicts of interest between the practice of medicine and the “business” of medicine.  Many physicians choose to work in salaried positions to get around this conflict and better serve their patients.  When a physician is incorporated as a business entity, the physician must often choose between what is best for his businesses and what is ultimately good for the patient. Performing medically unnecessary testing and procedures may be good for the medical provider’s bottom line, but adds nothing to the delivery of quality health care.

The healthcare industry is vital to the function of our society. Medical providers (along with policemen, firefighters, military servicemen, and teachers) deliver necessary services to individual Americans. Drug manufacturers and medical equipment suppliers manufacture items which are necessary for our health and insurance company personnel facilitate payment for these services.  Their services are very important to our nation’s well-being and we could not function without any of them.

The Bottom Line

The business of healthcare is responsible for the fact that we do not have Affordable Health Care and Beyond for ALL Americans. The individual businesses in our health care system work for their respective financial self-interests and our government pretends that market forces work to keep prices competitive. Every time you seek medical attention, the BUSINESS of health care intrudes upon the PRACTICE of health care and makes getting the “best” health care less likely.

We, the individual patients, are kept outside HICUP where health care policy and the laws that govern all health care are generated. We are treated like “cars in an assembly line” where our parts are analyzed and hopefully put together correctly. We are the “trickle” down recipients of whatever health care quality and cost comes down from HICUP.

It should be remembered that “HICUP” is a BB-invented acronym and you will not find it referenced outside this blog.


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