Hospitals, Aviation and Business

Boeing’s recent troubles remind us that in many ways, healthcare is like aviation:

1. They are both highly technical endeavors, guided by highly educated and trained personnel such as physicians and pilots.
2. Even small mistakes can be devastating.
3. Operating margins (operating income/revenue) are very low.
4. Both are led by businessmen not trained in the industry.
5. Some have put profit ahead of safety.

The cockpit of the typical airliner or the multitude of instruments in the typical intensive care unit demonstrates that aviation and medicine are both highly technical. Airline pilots have a minimum of 1,500 hours of flight time. This includes time spent obtaining a private pilot’s license, commercial license, instrument rating, multiengine rating, and airline transport pilot (ATP) certificate. Pilots often have additional in type ratings for turboprop or jet engines. Many have spent time as flight instructors and normally have at least 5 years of experience. A pilot must be over the age of 23 and be able to pass a 1st class medical exam. The military also trains pilots and brings them along faster, usually requiring some time commitment for the training they receive. In addition, they have recurring requirements to train in simulators to practice emergency procedures or when they begin flying new aircraft.

Physicians have four years of medical school after college. After medical school they become residents, a term from the past when the young physician resided in the hospitals. Residency lasts 3-5 years and is often followed by additional training called fellowship. For example, the typical cardiologist spends 3 years in an internal medicine resident, then an additional 3 years as a cardiology fellow. After fellowship, additional training may occur. For example, in cardiology this could be in interventional cardiology, nuclear cardiology, electrophysiology, etc. which are 1-2 years in length. In many cases additional time is spent doing research to become competitive for grants. Many have PhD’s and some have administrative or business degrees such as master of public health (MPH) or business (MBA). Like pilots, recertification is required. Nurses and physician’s assistants are also highly educated. Some have PhD’s and many have master’s degrees. Like physicians, administrative or business degrees are becoming increasingly common. 

Small mistakes can be devastating. Overshooting or undershooting a runway leading to a crash can kill not only the pilot but passengers on board. Poor handling of an emergency such as an engine failure, a door plug dislodging in flight or poor programming of the complex flight computers, such as occurred with the Boeing 737 Max, can be lethal. Similarly, mistakes in care for a sick patient can be deadly. The popular literature is rife with reports of physicians or nurses overlooking a laboratory or x-ray abnormality, giving the wrong medication, falls, or the wrong surgery on the wrong patient.

Although the high education and need for care are well appreciated, what is not so well known is that profit margins are narrow for both aviation and medicine.  Airlines are expected to have a 2.7% net profit margin in 2024 which is a slight improvement from the 2.6% in 2023 (1). Boeing’s net profit margin as of September 30, 2023 was -2.86%. (2). Hospitals began 2023 with a median operating margin of -0.9% and currently have a margin of -10.6% to 11.1% (3). For the three months ending Sept 30, the Mayo Clinic (Rochester, MN) had a relatively healthy 6.7% profit margin. In contrast, Banner Health was only 1.5%. Hospitals and health systems are estimated to finally break even after several years of losses secondary to the COVID-19 pandemic and higher than expected contract labor costs. The recent median margin data show that essentially half of hospitals and health systems are still operating at a financial loss, with many more just barely covering their costs (3). This means little to no discretionary money. Hospital executives who receive high compensation packages can consume much of this discretionary money. Many would argue that it could be better spent on patient care. 

Both aviation and hospitals are usually led by businessmen. This was not always so. Early airlines and hospitals were usually led by pilots and doctors. Only in the past 50 years have businessmen become involved. The rationale has nearly always been financial. Early aviators cared a great deal about demonstrating that aviation was safe. For example, Boeing Aircraft, founded in 1916 by William Boeing, was considered first and foremost an engineering firm where production of reliable aircraft was most important (4). The emphasis on quality and safety spawned the quote, “If it isn’t Boeing, we aren’t going”. In 1997 Boeing merged with its longtime rival McDonnell Douglas. The new CEO of the merged companies from McDonnell Douglas, Harry Stonecipher, brought a different attitude to the merged companies.

Figure 1. Harry Stonecipher. CEO of Boeing 2001-2, 2003-5.

Stonecipher said, “When people say I changed the culture of Boeing, that was the intent, so that it’s run like a business rather than a great engineering firm. It is a great engineering firm but people invest in a company because they want to make money” (5).  The company became fixated on stock market value and lost sight of the core value of manufacturing reliable, safe airplanes. Boeing is now reaping the decline in quality that was sown by Stonecipher years ago. The Federal Aviation Administration (FAA) which is supposed to  oversee airplane manufactures has also apparently become slack, allowing Boeing to have major declines in quality (6).

In hospitals we have seen a similar progression. Doctors or nurses were replaced as hospital heads in the later part of the twentieth century by businessmen who often did not understand, and in some instances did not care to understand, the core value of quality patient care. Recently, private equity firms have been acquiring hospitals or portions of hospitals such as emergency rooms or radiology practices. Data on the quality of care has been scant but there have been a multitude of complaints from doctors and nurses. Now, a recent systematic review that included 55 studies from 8 countries concluded that not only has private equity ownership increased over time across many health care sectors, but it has also been linked with higher costs to patients or payers (7). Although results for the 27 studies that looked at health care quality were mixed, the researchers found evidence that private equity ownership was tied to worse quality in 21 (7). This suggests a poorer quality of care. The lack of oversight by a variety of healthcare organizations such as the Joint Commission, Centers for Medicare and Medicaid Services (CMS), state departments of health, etc. may be following the FAA example in becoming lax at their jobs.

Hospitals and aviation companies do have one major difference. Hospitals are generally not-for-profit entities that should operate for the public good. Profit is secondary which does not mean that losses can be long tolerated. Aviation companies are for-profit entities where revenue is primary. However, as demonstrated by Boeing, quality is still very important. As more hospitals are acquired by private equity companies, many remain concerned that quality will suffer for the sake of profit. Perhaps in 20 years we will be shaking our heads and lamenting about the decline in the quality of US healthcare the way many are viewing Boeing today.

Richard A. Robbins MD

Editor, SWJPCCS

References

1. https://www.iata.org/en/pressroom/2023-releases/2023-12-06-01/#:~:text=Airline%20industry%20net%20profits%20are,2.6%25%20net%20profit%20margin)
2. Boeing Profit Margin 2010-2023. Macrotrends. Available at: https://www.macrotrends.net/stocks/charts/BA/boeing/profit-margins#:~:text=Current%20and%20historical%20gross%20margin,%2C%202023%20is%20%2D2.86%25 (accessed 2/9/24).
3. Condon A, Ashley M. From -10.6% to 11.1%: 34 systems ranked by operating margins. Becker’s Hospital Review. December 29, 2023. Available at: https://www.beckershospitalreview.com/finance/from-10-6-to-11-1-34-systems-ranked-by-operating-margins.html (accessed 2/9/24).
4. Boeing. Wikipedia. Available at: https://en.wikipedia.org/wiki/Boeing (accessed 2/9/24).
5. Surowiecki J. What’s Gone Wrong at Boeing. The Atlantic. January 15, 2024. Available at:  https://www.theatlantic.com/ideas/archive/2024/01/boeing-737-max-corporate-culture/677120/ (accessed 2/9/24).
6. Rose J. The FAA is tightening oversight of Boeing and will audit production of the 737 Max 9. January 12, 2024. NPR. Available at: https://www.npr.org/2024/01/12/1224444590/boeing-faa-737-max-9-alaska-airlines-door-plug (accessed 2/9/24).
7. Harris E. Private Equity Ownership in Health Care Linked to Higher Costs, Worse Quality. JAMA. 2023 Aug 22;330(8):685-686. [CrossRef] [PubMed]

Cite as: Robbins RA. Hospitals, Aviation and Business. Southwest J Pulm Crit Care Sleep. 2024;28:20-23. doi: https://doi.org/10.13175/swjpccs009-24 PDF

Medical School Faculty Have Been Propping Up Academic Medical Centers, But Now Its Squeezing Their Education and Research Bottom Lines

One of my former fellows emailed me an article from Stat+ titled “Hospitals Have Been Financially Propping Up Medical Schools, But Now It’s Squeezing Their Bottom Lines”. The article reports that hospitals have been financially supporting medical schools and are feeling their bottom line squeezed (1). An example cited is the purchase of the University of Arizona Medical Center in Tucson by Banner Health and an agreement by Banner to help both of Arizona’s financially struggling medical schools. Financial statements show that Banner has dedicated roughly $2 billion to the schools and a faculty medical group it bought as part of the 2015 deal. Banner is blaming these expenses for shrinking its operating margin from 5% before the deal to 1% today (1). The businessmen who purchased the academic medical centers initially embraced these mergers but now are facing the financial reality of managing a medical school (1). It seems likely that there will be increasing friction between hospitals and their affiliated medical schools competing for funds. These editorial points out the other side of coin, i.e., that the medical schools are financially shoring up academic medical centers.

Count me as one who is not overly sympathetic to businessmen in charge of academic medical centers. They now collect the pro fees from physicians, paying themselves first. Banner is a good example where the CEO made in excess of $25 million in 2017 compared to the average $155,212 earned by physicians (2). This means the CEO earned more in 2 days than the average physician earned in a year or about $164 for every $1 earned by a physician. As medical education has become more expensive, medical schools now find themselves increasingly reliant on the money they get from their faculty seeing patients and less able to count on other revenue sources, like federal research funding or tuition (Figure 1).

Figure 1. Source of medical school income (1). Click here to view Figure 1 in a new enlarged window.

Furthermore, many physicians, especially pulmonary and critical care physicians, worked above and beyond during the COVID-19 pandemic (3). The pandemic’s resulting disruptions affected academic and educational pursuits such as research productivity, access to mentoring, professional development and networking and personal wellness (3). These disruptions were compounded for faculty at high COVID-19–volume medical centers where clinical responsibilities were necessarily prioritized. Many recognize that it is important to prepare for a postpandemic accelerated burnout syndrome that disproportionately affects early-career physician-scientists at high-volume centers. However, rewards for service have largely been unfulfilled (3).

One quick comment on the validity of hospital ledgers. Physicians are usually shown the finances that businessmen want them to see. The accounting can be prepared to justify further physicians sacrifice of even more time and money. Hospitals tend to see the money generated by physicians, nurses and other healthcare providers as “their” money (1). They see a revenue stream going to a medical school as robbing them of “their” profit and want to know what they get for it (1).

All the above stems from the “hyperfinancialization” of medicine and applying a corporate structure to institutions which should be not-for-profit other than in name only. It is hard to pinpoint an inflection point in medicine, the point in which the direction changed and the mission changed. Maybe it is because in reality the inflection point is not a point but a large blotch, a series of smaller dots in coalesce into a bigger stain brought on by greed. I worry that the core of medicine has been forever damaged; that the doctor patient bond has been replaced with institute/provider - patient service. This model has proven to be more costly, less rewarding and associated with higher burnout. Yet, we continue to move forward with this model. Mergers between community-based physicians and hospitals which are supposed to bridge the gap between evidenced-based care and practice-based care has only served to devalue the intangibles in medicine further, always looking for what can be standardized and more importantly… billable. A corporate structure with a board, CEO, and a variety of vice presidents and other corporate titles has not served the public well. Physicians make less, administrators make more and hospital services have declined or not improved (4). One needs to only look at outcomes such as life expectancy and costs as a percent of GNP (gross National product) to recognize there is a problem (5).

Many, including myself, remain skeptical of the intrusion of business interests into medical education. The oversight of academic medical centers provided by organizations such as the Accreditation Council for Graduate Medical Education (ACGME) that protects the public’s interests remain inadequate. Presently only a written statement must be provided every 5 years that “documents the Sponsoring Institution’s commitment to education by providing the necessary financial support for administrative, educational, and clinical resources, including personnel.” This is to be reviewed, dated, and signed by the designated institutional official (DIO), a representative of the Sponsoring Institution’s senior administration, and a representative of the Governing Body (6). It seems unlikely that review every 5 years by a DIO and other officials employed and dependent on medical center support is likely sufficient.

To provide oversight I recommend that a system be developed to hold medical center administrators accountable for decisions that lead to a decline in efficiency at both in the medical center and their affiliated medical schools (4). If they are in charge of medical care as they seem to think they are, then deficiencies need to be laid at their feet - the same for medical education and research. After all they now credential the healthcare providers and any deficiencies would seem to have resulted from a poor work environment or  poor administrative judgment in credentialing. It is time that administrators are held to the same standard. Physicians are required to have continued medical education, board certifications, etc. for credentialling. Present hospital systems where a board elects its own members with the nomination and blessing by the hospital CEO need to end. The chief of staff should be elected by the hospital staff and the majority of members of a hospital board need to be independent of the CEO and knowledgeable about the practice of medicine at that medical center (7). If administrators are not acting in a manner that promotes the doctor patient bond, increases the access to care, promoting cost containment in a transparent manner, and promote physician well-being, then it is time for them to go. 

Richard A. Robbins MD

Editor, SWJPCCS

References

1. Bannow T. Hospitals have been financially propping up medical schools, but now it’s squeezing their bottom lines. Stat+. April 14, 2022. Available at: https://www.statnews.com/2022/04/14/hospitals-medical-schools-financial-relationship-tension-squeezing-bottom-line/ (requires subscription).
2. Robbins RA. CEO compensation-one reason healthcare costs so much. Southwest J Pulm Crit Care. 2019;19(2):76-8. [CrossRef]
3. Kliment CR, Barbash IJ, Brenner JS, Chandra D, Courtright K, Gauthier MC, Robinson KM, Scheunemann LP, Shah FA, Christie JD, Morris A. COVID-19 and the Early-Career Physician-Scientist. Fostering Resilience beyond the Pandemic. ATS Sch. 2020 Oct 23;2(1):19-28. [CrossRef] [PubMed]
4. Jeurissen PPT, Kruse FM, Busse R, Himmelstein DU, Mossialos E, Woolhandler S. For-Profit Hospitals Have Thrived Because of Generous Public Reimbursement Schemes, Not Greater Efficiency: A Multi-Country Case Study. Int J Health Serv. 2021 Jan;51(1):67-89. [CrossRef] [PubMed]
5. Cohen J. Dismal U.S. Life Expectancy Trend Reflects Disconnect Between Dollars Spent On Healthcare And Value Produced. Forbes. Nov 1, 2020. Available at: https://www.forbes.com/sites/joshuacohen/2020/11/01/dismal-us-life-expectancy-trend-reflects-disconnect-between-dollars-spent-on-healthcare-and-value-produced/?sh=3657f353847e (accessed 5/2/22).
6. Accreditation Council for Graduate Medical Education. Institutional Requirements. Available at: https://www.acgme.org/globalassets/pfassets/programrequirements/800_institutionalrequirements2022.pdf (accessed 5/2/22).
7. Robbins RA. Time for a Change in Hospital Governance. Southwest J Pulm Crit Care Sleep. 2022;24(3):43-5. [CrossRef]

Cite as: Robbins RA. Medical School Faculty Have Been Propping Up Academic Medical Centers, But Now Its Squeezing Their Education and Research Bottom Lines. Southwest J Pulm Crit Care Sleep. 2022;24(5):78-80. doi: https://doi.org/10.13175/swjpccs023-22 PDF