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Wednesday, May 17, 2023

In Search of an Ethical Constraint on Hospital Revenue

Lauren Taylor
The Hastings Center
Originally published 14 APR 23

Here are two excerpts:

A physician whistleblower came forward alleging that Detroit Medical Center, owned by for-profit Tenet Healthcare, refused to halt elective procedures in early days of the pandemic, even after dozens of patients and staff were exposed to a COVID-positive patient undergoing an organ transplant. According to the physician, Tenet persisted on account of the margin it stood to generate. “Continuing to do this [was] truly a crime against patients,” recalled Dr. Shakir Hussein, who was fired shortly thereafter.

Earlier in 2022, nonprofit Bon Secours health system was investigated for its strategic downsizing of a community hospital in Richmond, Va., which left a predominantly Black community lacking access to standard medical services such as MRIs and maternity care. Still, the hospital managed to turn a $100 million margin, which buoyed the system’s $1 billion net revenue in 2021. “Bon Secours was basically laundering money through this poor hospital to its wealthy outposts,” said one emergency department physician who had worked at Richmond Community Hospital. “It was all about profits.”  

The academic literature further substantiates concerns about hospital margin maximization. One paper examining the use of municipal, tax-exempt debt among nonprofit hospitals found evidence of arbitrage behavior, where hospitals issued debt not to invest in new capital (the stated purpose of most municipal debt issuances) but to invest the proceeds of the issuance in securities and other endowment accounts. A more recent paper, focused on private equity-owned hospitals, found that facilities acquired by private equity were more likely to “add specific, profitable hospital-based services and less likely to add or continue those with unreliable revenue streams.” These and other findings led Donald Berwick to write that greed poses an existential threat to U.S. health care.

None of the hospital actions described above are necessarily illegal but they certainly bring long-lurking issues within bioethics to the fore. Recognizing that hospitals are resource-dependent organizations, what normative, ethical responsibilities–or constraints–do they face with regard to revenue-generation? A review of the health services and bioethics literature to date turns up three general answers to this question, all of which are unsatisfactory.


In sum, we cannot rely on laws alone to provide an effective check on hospital revenue generation due to the law’s inevitably limited scope. We therefore must identify an internalized ethic to guide hospital revenue generation. The concept of an organizational mission is a weak check on nonprofit hospitals and virtually meaningless among for-profit hospitals, and reliance on professionalism is incongruous with the empirical data about who has final decision-making authority over hospitals today. We need a new way to conceptualize hospital responsibilities.

Two critiques of this idea merit confrontation. The first is that there is no urgent need for an internalized constraint on revenue generation because more than half of hospitals are currently operating in the red; seeking to curb their revenue further is counterproductive. But just because a proportion of this sector is in the red does not undercut the egregiousness of the hospital actions described earlier. Moreover, if hospitals are running a deficit in part because they choose not to undertake unethical action to generate revenue, then any rule developed saying they can’t undertake ethical actions to generate revenue won’t apply to them. The second critique is that the current revenues that hospitals generate are legitimate because they bolster institutional “rainy day funds” of sorts, which can be deployed to help people and communities in need at a future date. But with a declining national life expectancy, a Black maternal mortality rate hovering at roughly that of Tajikistan, and medical debt the leading cause of personal bankruptcy in the U.S. – it is already raining. Increasing reserves, by any means, can no longer be defended with this logic.