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By: Dave Kingsley Blaming the Elderly for U.S. Economic & Fiscal Problems As the first Baby Boomers hit retirement age in 2011, propaganda and misinformation regarding the impact of older Americans on federal spending began to accelerate. Some of the … Continue reading
By:
Dave Kingsley
Unchecked Bigness is One Factor Threatening our Democracy & Our Health
Big corporations and big unions can be and indeed are in many cases bad for our health. For instance, UnitedHealth, Centene, Cigna, CVS, and other healthcare-related corporations in the top 30 of the Fortune 500 have interjected themselves into our publicly funded medical care system as financial intermediaries and major influencers of government policy.[1] Their motivation is protecting and enhancing shareholder value in the uniquely privatized, taxpayer funded U.S medical delivery structure. They make money from sickness not wellness. Prevention does not add to their bottom line, but treatment is quite lucrative – never mind the public interest.
Big unions, which initially have laudable missions and continue to do much good, sometimes tend to degenerate into self-serving actors without concern for the health and well-being of the public. This is particularly the case when our federal, state, and local governments attempt to protect our health from the dangers of fossil fuel. Public efforts to stop irrational projects such as the Keystone pipeline often fail due to the power of the building trade unions in concert with industrial interests.[2] The United Auto Workers and the big three auto manufacturers have successfully tapped the brakes on the Biden Administration’s planned transition to electric vehicles. Air quality and the threat to humanity from climate system meltdown are secondary to the short-term interests of big unions and gas engine manufacturers.
Indoctrination, Manipulation & Conditioning of the American People
Why are we, the American people, passive and compliant in the face of an assault by special interests on our dignity and well-being? The deterioration of service and quality at excessive prices is not only happening in healthcare. We see it in airline travel, brick and mortar and online retail, technology (computers, software, and apps) – you name it. Predatory economics have become the name of the game, which is simply this: “How can we lower quality and squeeze more out of customers/patients through lying and deceitful propaganda?”
Customers and patients are not at fault. The dystopian part of the U.S. economy did not come about as the result of a revolution. The wealth and political power of investors, owners of vast amount of assets, and corporations have been able to move economic behaviors incrementally and deceitfully from the unthinkable to the normal. Propaganda and duplicity by forces with the resources to falsely convince the public that they are living in the best there is in the best of all possible worlds have been effective. People tend to trust officious and authoritative, i.e. powerful organizations and individuals. So, they hunker down and take it as they get fleeced through small incremental price increases and lower quality of goods and services.
The primary healthcare industry business model can be compared to the air travel industry. They incrementally lower quality and add value to revenue for investors at the expense of patients and consumers of medical goods.
Through dissemination of false advertising and stories promoted by industry PR, the mainstream media – perhaps unwittingly – is helpful to corporate predators. As airlines herd passengers around like cattle and stuff them into increasingly uncomfortable flying tubes at ungodly prices, the media takes up the airlines’ cause by spreading the image of travelers as “unruly.” The poor airlines are forced to put up with all those bad people. Should I believe that or my lying eyes? I have traveled on the airlines extensively over the past 60 years. I used to love it. Now I hate it. Furthermore, mostly what I see are cooperative, well-behaved people trying to adapt and endure the indignities, discomfort, and stresses heaped on them by extremely profitable, oligopolistic, and deregulated airlines.
Industries have leveraged highly sophisticated techniques of mass psychology for the purpose of pacifying the traveler, nursing home patients and their families, customers of health insurance corporations, users of computer applications, and so forth. You probably don’t know that A Place for Mom is owned by private equity, that they don’t choose the best place, rather they choose the place that will pay them. Did you know that the ostensibly pro-retiree-AARP’s deal with UnitedHealth is designed to lead the elderly down a primrose path into the waiting arms of the health insurance industry while the pro-beneficiary-Medicare program is destroyed?
When you don’t see that the fine print included autorenewal, too bad. That’s your problem. You have a serious glitch and need help. That’s been outsourced to the Philippines. Good luck with that. You didn’t know that the 5-minute life flight from Taos to Albuquerque cost $70,000 and was out of network? Now you’re stuck with the bill and will never find out what a reasonable price would be and why it’s not covered by your Medicare Advantage plan. You hear that those unfortunate, underpaid nursing home corporations are not making enough money to treat us and family members humanely. You could check their finances and verify what they are saying but the government allows them to operate behind a veil of secrecy.
Big Government is Not Always Bad
As the bottom ninety percent of Americans in income and wealth make their slow descent into economic serfdom, government agencies that are supposed to protect us have been neutered and checked by the politics of self interest and pseudoscientific economic theory. Nonsense from major university economic departments, indeed from the overwhelming majority of economists, has been adopted as gospel by politicians and the media. Despite of the obvious failure and detriment from this proto-religious canon, it continues unabated and is as strong as ever. The EPA, FTC, and other major government regulators have been reduced to going along to get along. This all while the ecosystem is collapsing, public health is deteriorating, and wealth and power is increasingly concentrated in fewer entities and individuals.
The free-market, trickle down, government-busting theories of faux libertarians such as Hayek and Friedman have proven to be a chimera. But that has become the underpinnings of U.S. government and economics. Political power resides in the so-called center right to center left. The Democratic Party and the Republican Party are both responsible for deregulation of corporations and privatization of government services. It was President Carter that deregulated air travel, trucking, and banking industries. He kicked off a deregulation craze that has left the American people in an extremely vulnerable position. President Reagan was a fanatical government hater and adopted the right-wing worship of corporations along with a cynical view of people that our-constitutional government is designed to serve. The Democrats have made a little noise about the dismantling of government but have for the most part gone along with it and have even participated in it.
What Can the American People Do About Their Economic Plight?
The first step in changing a corrupt system is exposing it. The first step in exposure is to stop believing propaganda. The AARP is not a friend of retirees – they are selling us out with their UnitedHealth partner. A Place for Mom is not interested in your mom – they are looking to turn a quick buck. Prevagen is snake oil. Balance of Nature is a worthless capsule. The FEC is allowing false advertising and consequently you can be robbed of your hard earned money at CVS and Walgreens. All the available evidence we can amass tells us that the nursing home industry is quite lucrative for investors. But the investors’ narrative of financial hardship is dominating the conversation. Let’s put a stop to that.
The second step in systems change is changing the narrative. Government is not bad – it is good. Regulation is important. Not long ago, I confronted some state legislators at a hearing about weak oversight of nursing homes and their finances. That hadn’t been done before in that particular legislative committee. Advocates need to take a strong stand in exposing fraud.
The status quo is not OK. Believe it. Demand change. Pick up the phone. Send emails and get your friends, neighbors and relatives to call and write. Politicians respond to volume. So, learn about an issue and organize people to confront senators, congresspersons, and state legislators. Get people to pressure the media to stop selling lies. Learned helplessness is our enemy. If you think that Medicare Advantage is a good deal, it may be for you, but down the road all Medicare will be controlled by a few insurance conglomerates. They will continue to create financial intermediaries such as pharmacy benefit managers for the purpose of adding value to their revenue at the expense of our care.
Support those think tanks in Washington that you know are on our side. The Committee to Preserve Social Security & Medicare is fighting for us. The Committee for a Responsible Federal Budget and the Concord Coalition are working to reduce Social Security and Medicare benefits. I know these organizations well and have dealt with all of them. The Committee for a Responsible Federal Budget and the Concord Coalition were organized with the backing of the late multi-billionaire Peter G. Petersen who was on a crusade to privatize Social Security & Medicare.[3] If you think that his legacy is not a major negative influence in your life, you would be wrong. Furthermore, politicians and the media are treating the Washington network he left behind with deference and respect it doesn’t deserve. Believe it! Fight it!
[1] In 2000, none of these companies were in the Fortune 500 top 30. Now UnitedHealth is the 5th largest corporation in the U.S. and 10th largest in the world. CVS is the 6th largest U.S. corporation and healthcare related corporations make up one-third of the top 30 U.S. companies in the Fortune 500.
[2] I spent a career in labor relations on management’s side of the table. Most of the unions with which I negotiated were building trades unions such as sheet metal workers, operating engineers, laborers, pipe fitters, boiler makers, and electricians in mining, construction, and heavy manufacturing. I believe that unions are good thing until they aren’t. The companies I worked for believed in good faith bargaining, but we took strikes and work stoppages that were counterproductive for the union members, companies, and the public. At this stage of our economic system, I don’t think that we can leave the plight of workers to the unlikely event that they will organize and improve their standard of living. Politicians need to step up. I do not want to overlook the good that labor unions have contributed to the working classes. They have fought for health & safety, an end to child labor, better pay and benefits so richly deserved by the people without whose labor corporations would not exist. I think that they still fight hard for social justice. We have much more good from the labor movement than bad.
[3] Working with the Committee to Preserves Social Security, the Gray Panthers, and other groups I have spent countless hours over the decades in Washington, D.C. fighting the duplicitous cabal of Peter G. Petersen funded think tanks and other Wall Street back entities trying to grab off the $trillions in tax-funded programs for investors. It’s a tough fight and one that is undermined by organizations that appear to be do-gooders but are really representing the other side.
By:
Dave Kingsley
What’s in a Number?
The major accounting firm of Clifton, Larson, & Allen (CLA) has concluded that CMS proposed nursing home staffing standards will cost the industry $6.8 billion in additional labor costs.[1] Without the proper context, a big number like $6.8 billion has a big impact on legislators, the media, and the public in general. In the proper context, this is not a big number. It is in fact a de minimus increase in overall costs to the industry – mere noise in the data.
By the time the standards are implemented, total spending on Medicaid will have reached $1 trillion. Approximately 20% or $200 billion of total Medicaid dollars will be allocated to long-term care. Medicare will expend an additional $100 billion for skilled nursing care.[2] These are conservative estimates, but even low-ball statistics reduce the impact of $6.8 billion to insignificance. Based on CLA’s estimate, nursing home operating expenses will increase by around 2% of revenue derived from taxpayers. Given waste from overpayment, widespread mismanagement, and weak government oversight in the taxpayer funded nursing home system, there will be little to no impact on providers’ bottom line because of CMS weak standards.
Furthermore, overall industry revenue from reimbursement for direct care is enhanced by a host of tax subsidies for depreciation, interest, and other write downs on taxable income. Money owed and not paid to the government is cash flow – it is money that can be used to make more money or to pass along to investors and executives.
Guns for Hire: How A Major Accounting Firm Serves as a Propaganda Arm of the Nursing Home Industry
One would expect ethical, competent accountants to provide an objective report on returns to nursing home investors. But that is not what CLA is doing for the nursing home industry. Typically, they base their claims about industry hardships on facility cost reports – specifically on net operating income. This is laughable for several reasons.
The practice of separating facility specific net income from parent corporation financial reports, i.e., income statements, cash flow statements, and balance sheets, suggests that CLA is intentionally distorting the financial picture of the industry. Expenses at the facility level include related parties and home office allocations. I suggested to a legislative committee a couple of weeks ago that they look at transfer pricing rather than the usually low or negative net operating income reported by facilities, which lease their property from another subsidiary of their parent corporation. Triple net leases are standard in the industry. Hence, facilities pay maintenance, taxes, and insurance on property they don’t own. This makes the net operating income for the property subsidiary quite robust.
As corporate finance has evolved with tax policy, net income is not a measure of “profitability” or return on investment. This is especially the case in asset intensive industries. The nursing home industry is not merely a healthcare industry. Rather it is primarily a real estate and finance business. With large amounts of write downs for, among other things, depreciation and interest, direct care revenue is greatly enhanced by tax subsidies.
Real estate alone results in huge federal and state tax expenditures. For instance, in 2014, Amazon’s net profit was -$241 million –note: that is negative $241 million. It would appear to nonfinanciers that Amazon was losing a lot of money. Harvard finance professor Mihir Desai pointed out that “Amazon’s EBIT, however, was $178 million, and the difference of $419 million represents taxes, interest, and currency adjustments.” Professor Desai asked, “What about EBITDA?” Amazon had $4.746 billion in depreciation and amortization. Consequently, their EBITDA of $4.924 billion was “a far cry from the net loss of $278 million. So Amazon generated lots of cash, as measured by EBITDA, but had losses according to profitability measures.”[3]
Of course, Amazon is not in the nursing home business. But the same principles apply. Perhaps Amazon is more asset intensive than we find in the LTC/SKN industry, but real property is a major factor in providers’ cash flow.
With the entry a couple of decades ago of limited liability corporations (LLC), real estate investment trusts (REITs) and private equity firms (PE) the ground shifted under the feet of regulators and advocates. The industry has become financialized through ancillary subsidiaries providing labor, insurance, therapy, and other goods and services, which has resulted in increasing extraction of cash without a correlative increase in quality of care. None of this enters the CLA picture of the industry. There appears to be no focus on what facilities are paying related parties for goods and services. Nor do we know how to evaluate the quality of care based on pricing. This is astounding but is nevertheless overlooked by legislatures, government agencies, and many of the largest advocacy organizations such as the AARP, NCOA, NIH, the so-called Moving Forward Coalition.
It is time that advocates step up and demand that we get a thorough, objective, financial analysis of the industry rather than a continued reliance on the AHCA/NCAL and their paid accounting firm. The nursing home lobby has no compunction about putting out ridiculous financial information because they know they can get away with it. That is a shameful, disgraceful situation. It will do us no good to argue about the minutia of reimbursement (think RUGs versus PDPM) and ignore the bigger issue of nonfeasance, misfeasance on the part of CMS, state agencies, and legislatures.
CLA Propaganda Serves as a Barrier to Quality of Care
CLA is paid to support the nursing industry’s hardship claims and to help further a very effective narrative of low net income, financially struggling owners/investors, and stifling over regulation. Legislative hearings attended by industry lobbyists, government representatives, and advocates often seem like a gathering for singing kumbaya and exuding effusive niceness. Legislators and most other speakers and attendees are willing to sit through hours of mind-numbing rate setting minutia, e.g., complex incentives paid to facilities willing to provide a minimal amount of care. Hours pass without anyone addressing highly questionable financial practices and faulty cost report data.
Furthermore, legislators don’t understand that the nursing home industry has been transformed in a mere two decades. The mom-and-pop nursing home is far gone. A few nonprofit facilities that are not part of a chain still exist, but we are uncovering serious grifting in even some of those places. In the for-profit sector, sophisticated financiers are leveraging a variety of legal and financial innovations such as the limited liability corporation (LLC) Umbrella Partnership Real Estate Investment Trust (UPREIT), private equity, and other legal, financial structures to extract optimal cash flow with minimal expenses for care.
The nursing home system is about money. It has become fully financialized. Real estate and finance override healthcare. The only way that the industry can maintain such a disgusting and pathetic system is to hide the truth from “we the people,” and create a propagandistic narrative for protecting the interests of financiers and realtors. The AHCA is very good at deception. But one of their most effective tactics is to hire a large accounting firm to do their dirty work for them.
[1] CLA (2023) “CMS Proposed Staffing Mandate: In-Depth Analysis on Minimum Nurse Staffing Standards.
[2]https://crsreports.congress.gov/product/pdf/IF/IF10343#:~:text=In%202021%2C%20Medicare%20spent%20%2492.6%20billion%20on%20SNF,payments%20attributable%20to%20SNF%20and%20home%20health%20care.
[3] Mihir A. Desai (2019) How Finance Works: The HBR Guide to Thinking Smart about the Numbers.
By:
Dave Kingsley
Dismantling of the Federal Administrative State
President Ronald Reagan said this at a press conference in 1986: “The nine most terrifying words in the English language are ‘I’m from the government and I’m here to help.’” This might have seemed funny at the time but by 2008 when lax federal governmental oversight of the financial services industry led to economic collapse or when in 2020 a deteriorated public health system led to a raging COVID epidemic, the people of America were screaming back to the government these five desperate words: “For God’s sake help us!”
President Reagan’s quip was a continuation and acceleration of devolution of power from the federal government to the states that began during the Nixon administration. Consequently, the far-right dream of dismantling the federal administrative state has led to funneling federal grants to states as block grants rather than grants-in-aid, which meant less federal control over how states regulated federal-state funded programs such as Medicaid and welfare in general.
Some states are more enlightened than other states in how they administer welfare programs. But during the Clinton Administration, the mistaken notion that people needing assistance for their daily needs – including medical care – would benefit from some tough love like denial of any services after a few years of receiving it. Aid to Families with Dependent Children (AFDC a grant-in-aid program) became Temporary Aid for Needy Families (TANF – a block granted program with a much more stigmatizing moniker). By the late 1990s, President Clinton was declaring that “the era of big government is over” – seven very unfortunate words.
The idea that poor people down on their luck needed some federal assistance for survival was warped into a philosophy that help from the government would induce dependency and that administrative barriers to assistance and forcing people off of aid would somehow be character building. As has happened since the era of industrialization began, poor people were more intently looked at as irresponsible and the cause of their own plight. By the turn of the Century, this philosophy had become de rigueur – even in states given to a more empathetic and compassionate approach to the less fortunate (which could be any of us).
How Have States Handled their Increasing Power?
So, how have states done with the power devolved to them? Not well. As an example, consider the prior authorization of Medicaid that I wrote about in my last blog post. The HHS, OIG had this to say in their recently released report: “most State Medicaid agencies reported that they did not routinely review the appropriateness of a sample of MCO denials of prior authorization requests, and many did not collect and monitor data on these decisions.” This seems like very familiar state regulatory behavior to me. Having reviewed thousands of nursing home cost reports, I have yet to see one properly filled out (in accordance with GAAP/FSAB accounting principles and federal regulations). Indeed, they are loaded with deceit, misinformation, and what is either profound ignorance or fraud. And yet auditing at the state level appears to be practically nonexistent.
There is no point in using nursing home cost reports for research except to raise issues of state incompetence, lack of oversight capacity, and corporate ability to game the system. The same can be said about the giant insurance corporations contracting with states as MCOs. Indeed, Anthem’s highest MCO denial rate was 34%. Molina, one of the largest providers had denial rates that ranged from 17% to 41%. Aetna, Centene, and UnitedHealth denial rates were 5% to 29%, 3% to 23%, and 7% to 27% respectively.
The States with the highest rates of denial are Georgia (34%), Michigan (32%), California (29%), Mississippi (27%), New Jersey (27%), Virginia (26%), and Wisconsin (25%). One can only imagine how difficult and frustrating it is for physicians and Medicaid patients in these states to obtain needed medical care. None of these states used denial data for oversight.
There is Nothing Funny about Government Help: We Need it Badly!
My colleagues and I spend our working hours attempting to ferret out information from states regarding Medicaid outcomes data. To quote Warren Buffet, “It’s like getting red meat out of a tiger cage.” But we have been communicating with staff – including auditors – in the OIG’s office and will continue that communication. Our mission is to fight the state/federal barriers to public information.
The Medicaid program is nominally a $900 billion federal/state expenditure. But with tax expenditures (i.e., tax subsidies) for corporations in the business, it is a much larger expenditure in federal and state budgets combined than that. Furthermore, nursing home corporations and the giant insurance corporations contracting as MCOs are extracting immense amount of tax dollars without a correlative investment in a loyal, career-oriented work force, and a medical services infrastructure that welcomes and benefits the people eligible to receive it.
Centene, UnitedHealth, and the other large providers are lavishing obscene compensation packages on executives and board members (CEOs are usually receiving about $20 to $24 million per year); they have billions of dollars sitting on their balance sheets, they are paying robust dividends to their shareholders (most of which are asset managers such as Vanguard, BlackRock, and State Street, handling pension, insurance, and sovereign wealth funds); and they have devoted billions to capturing government through lax lobbying and election financing.
No matter how objective and scientific researchers like to be, this is all about politics. It’s about what goes on inside the D.C. beltway and in state capitols. Anyone who thinks they can be politically neutral, purely professional, and outside of politics is sadly mistaken. Making CMS do its job is a political task and will take political organizing. The same can be said about making state agencies do their job. You cannot work within the system and change it that way.
By: Dave Kingsley
Managed Care for Poor Peoples’ Medicine is a Chimera
According to a report released by the HHS OIG’s Office last week[1], the massive Medicaid program intended for poor Americans is beset with denial of authorization for care and weak state oversight. What that means is this: poor people who are hard scrabble poor enough to qualify for Medicaid and have the moxie and luck in navigating the bureaucracy to the point of approval for the program, are far too often denied the treatment physicians think they need. The gigantic insurance companies contracting with states to run their Medicaid programs are denying care at double the rate of Medicare denials under managed care (i.e., Medicare Advantage).
It is not difficult to understand why an undue administrative burden is placed on poor people for both qualifying for government health care in the first instance and then for receiving needed care once they are admitted to the program. Powerful insurance companies have a financial incentive to deny a large proportion of care medical professionals think Medicaid recipients need. Furthermore, a lobby for poor people is nonexistent; they are powerless; and they can be pushed around and/or ignored by state bureaucrats. Nevertheless, a puzzling and mistaken conventional wisdom proclaims that a corporatized and privatized system is a far more efficient and effective way to deliver taxpayer funded medical services. It is past time that the conventional wisdom undergoes strong pushback from medical professionals, academics, and the media.
Background
During the 2000 aughts (starting about 2010), states relying on the concept of “managed care” in which insurance companies (known as MCOs) are paid a “capitation rate,” i.e., a specific amount per enrollee, turned over their Medicaid programs to insurance corporations. If the insurers keep their costs below the total dollars committed for enrollees, they make money. Patients are, however, required to utilize medical services within “network.” They must use a medical practice or hospital that is part of the contracting MCOs network of physicians and other medical providers. Furthermore, care must be authorized by the MCO.
The size of federal expenditures for Medicaid has resulted in mushrooming revenue for major healthcare insurers such as UnitedHealth, Elevance, Cigna, Centene, and Aetna. In the early 2000s, no health insurers were in the top 30 corporations listed on the Fortune 500. By 2022, nearly one-third of the top 30 Fortune 500 companies were related to healthcare insurance and managed care contracting.
The idea of managed care began with the concept of health maintenance organizations (HMO) such as Kaiser Permanente and Ross Loos. Individuals can join an HMO, pay the premium and expect low deductibles and co-pays. However, the HMO or MCO in the case of Medicaid managed care have a network of physicians and other providers. Enrollees must “stay within network” and receive authorization from an insurer (MCO) for a host of medical services their primary physician thinks they need. This opens the door to tremendous power of insurance behemoths over Americans’ healthcare needs.
Has Privatization & Corporatization Through the Managed Care Concept Been Beneficial to the Health of Americans?
As I mentioned, it is conventional wisdom that private, for-profit corporations can do a better job of administering taxpayer funded healthcare than government agencies. But managed care is not working out in accordance with the widespread belief the government will pay less for healthcare if the profit motive incentivizes better care at a lower price. Medicare Advantage costs fifteen percent more per enrollee than traditional Medicare. Medicaid MCOs are paying robust dividends, buying back billions of dollars worth of their stock, and rewarding executives with exorbitant compensation packages while well baby care, infant mortality, heart disease, diabetes, and access to addiction treatment are not significantly improving across the Medicaid eligible population.
Aetna, UnitedHealth, Centene, and other major insurance companies are reaping huge financial rewards by keeping per capita costs low. That would not in itself be a bad thing if outcomes were improving. Perhaps having some healthcare is better than nothing. No doubt, people receiving Medicaid benefits have better health outcomes than people with nothing. But that is not the point. Comparing poor people with no health insurance to poor people with Medicaid is illogical.
Medicaid is lower tier medicine. So those individuals lucky enough to qualify for it and actually receive it are treated as second class citizens. So, by virtue of carving out a form of medical care for poor people – which is seen as welfare or a “handout” – the system can exploit them for financial gain while denying them the quality of care every other citizen deserves even though every form of healthcare received by Americans is heavily subsidized in some way or other by government.
Follow Us at the Center for Health Care Information & Policy (a newly formed nonprofit at https://chipcenterus.org/) and on this Blog as We Expose the Illogic and Folly of Privatizing U.S. Healthcare
[1] HHS OIG Report: “High Rates of Prior Authorization Denials by Some Plans and Limited State Oversight Raise Concern About Access to Care in Medicaid Managed Care.” https://www.oig.hhs.gov/oei/reports/OEI-09-19-00350.asp#:~:text=Overall%2C%20the%20MCOs%20included%20in%20our%20review%20denied,rates%20greater%20than%2025%20percent-twice%20the%20overall%20rate.
It is estimated that healthcare expenditures in the United States have grown to twenty percent of GDP. In 2022, the Bureau of Economic Analysis indicated that U.S. GDP had grown to $25.46 trillion (https://www.bea.gov/news/2023/gross-domestic-product-fourth-quarter-and-year-2022). Hence, we can assume that in 2022, approximately $5 trillion was expended for U.S. healthcare.
In the taxpayer funded, privatized, medical care system in the United States, the growth of corporations with revenues from Medicare, Medicaid, Obamacare, and other tax subsidized healthcare (e.g., employer provided health insurance) has been astounding. The size and number of healthcare related corporations listed on the Fortune 500 top 30 in 2020 compared to 2000 is a reflection of the dominance and power of companies such as UnitedHealth, CVS, McKesson, Cardinal Health, and others appearing in the 2022 Fortune 500 top 30.
As the table below indicates, absolutely no healthcare related corporation was ranked among the top 30 corporations in revenue in 2000. In a mere two decades, nine of the 30 largest U.S. companies were in some facet of the medical/healthcare sector. Note the following corporations in the table and their Fortune 500 2022 ranking: CVS Health (4), UnitedHealth Group (5), McKesson (9), Amerisource Bergen (10), Cigna (12), Cardinal Health (15), Walgreen/Boots Alliance (18), Elevance Health (20), Centene Corporation (26).
Given the money in politics and decreasing capacity of government agencies to monitor and hold corporate behemoths accountable, the growth of health/medical related enterprises should be alarming. These are not capitalist enterprises. Rather, they are government sponsored enterprises much like Fannie Mae and Freddie Mac and should be regulated as such.
Furthermore, money is power and much of the “inside the Washington, D.C. beltway” activity related to studies, commissions, and general policymaking involving academics and other professionals has been rigged through power politics to insure the perpetuation and preservation of the participants – hence, preservation of the status quo. Let’s take the nonprofit Better Medicare Alliance as an example. This front group has roped in scholars, professional associations, and other duped entities in a cooperative effort to sell Medicare Advantage to the public on behalf of the industry.
Currently, the Biden Administration is attempting to reduce Medicare Advantage billing fraud that will save the Medicare Trust Fund billions. That legitimate and laudable effort on the President’s part was attacked in an ad during the last Super Bowl. The ad was paid for by Better Medicare Alliance. Check out this outfit’s “ally list” and its list of “scholars.” Conflicts of interest involving scholarship, corporate board service, and coopting of scientific institutions by superrich foundations with Wall Street leaning board members should be exposed along with a network of think tanks presenting a charade for the purpose of enhancing revenue from government programs.
| FORTUNE 500 RANKINGS: 2000 & 2022 | |||||
| RANK (2000) | CORPORATION | REVENUE* | RANK (2022) | CORPORATION | REVENUE* |
| 1 | General Motors | 18.9 | 1 | Walmart | 572.8 |
| 2 | Walmart | 16.7 | 2 | Amazon | 469.8 |
| 3 | Exxon Mobile | 16.4 | 3 | Apple | 366.8 |
| 4 | Ford Motor Co | 16.3 | 4 | CVS Health | 292.1 |
| 5 | General Electric | 11.2 | 5 | UnitedHealth Group | 287.6 |
| 6 | IBM | 8.8 | 6 | Exxon-Mobile | 285.6 |
| 7 | Citigroup Inc | 8.2 | 7 | Berkshire Hathaway | 276.1 |
| 8 | AT&T | 6.2 | 8 | Alphabet | 257.6 |
| 9 | Phillip Morris Inc | 6.2 | 9 | McKesson | 238.2 |
| 10 | The Boeing Company | 5.8 | 10 | AmerisourceBergen | 214.0 |
| 11 | Bank of America | 5.1 | 11 | Costco | 195.9 |
| 12 | SBC Communications | 4.9 | 12 | Cigna | 174.1 |
| 13 | ** | 13 | AT&T | 168.9 | |
| 14 | The Kroger Co | 4.5 | 14 | Microsoft | 168.1 |
| 15 | State Farm Insurance | 4.4 | 15 | Cardinal Health | 162.5 |
| 16 | Sears, Roebuck, & Co | 4.1 | 16 | Chevron | 162.5 |
| 17 | AIG | 4.1 | 17 | Home Depot | 151.2 |
| 18 | Enron | 4.0 | 18 | Walgreens/Boots Allian. | 148.6 |
| 19 | Teachers Insurance & Annuity | 3.9 | 19 | Marathon Petroleum | 141.0 |
| 20 | Compaq Computers | 3.8 | 20 | Elevance Health | 138.6 |
| 21 | Home Depot | 3.8 | 21 | Kroger | 137.9 |
| 22 | Lucent | 3.8 | 22 | Ford Motor Co | 136.3 |
| 23 | Procter & Gamble | 3.7 | 23 | Verizon | 133.6 |
| 24 | Hewlett-Packard | 3.7 | 24 | J.P. Morgan Chase | 127.2 |
| 25 | MCI World Com | 3.7 | 25 | General Motors | 127.0 |
| 26 | Fannie Mae | 3.7 | 26 | Centene | 126.0 |
| 27 | K Mart | 3.6 | 27 | Meta | 118.0 |
| 28 | Texaco | 3.6 | 28 | ComCast | 116.4 |
| 29 | Merrill-Lynch | 3.5 | 29 | Phillips 66 | 114.9 |
| 30 | Mogan Stanley Dean Witter | 3.4 | 30 | Valero Energy | 108.3 |
The Basics of UnitedHealth Financial Performance in 2022
With revenues of $324.2 billion in 2022, UnitedHealth (UH) is the fifth largest corporation in the United States (behind Walmart, Amazon, Apple, and CVS Health). Practically all of UH business is related to tax-funded health care such as Medicare and Medicaid. As one of the largest players in the move toward Medicare and Medicaid managed care, this company has had phenomenal growth in the past two decades (as have CVS Health and Centene Corporation).
UH revenue increased by 26% between 2020 and 2022 (from $257.1 billion to $324.2 billion). The company’s 2022 balance sheet notes $23.4 billion in cash and cash equivalents – an increase of $2 billion over 2021.
Capital Resources & Uses of Liquidity: No Indication of Allocation to Employee Wages & Working Conditions, R&D, or Improved Care
The Company’s 10-K states that “Increased cash flows provided by operating activities were primarily driven by changes in working capital accounts and increased net earnings.” (page 28). Given UH’s massive revenues from government expenditures and a robust operating margin of 8.8%, taxpayers, need to be aware of how the company’s surplus capital is allocated. Like any corporation, UH has debt obligations but expects to finance those from current operations. So, accumulated capital is available for other purposes.
On page 78, the 10-K indicates that he board of directors (which includes Washington, D.C. policy maven and healthcare influencer Gail Wilensky – see below) authorized expenditures of $7 billion for common stock repurchases in addition to $5 billion in 2021 and $4.5 billion in 2020. So, the company pumped up its share price during COVID-era by repurchases of stock totaling $16.5 billion.
In addition to a 2022 stock repurchase of $7 billion, UH increased the company’s quarterly cash dividend $5.80 per share to $6.60 per share. With 950 million share outstanding, approximately $6.27 billion in cash was paid to shareholders. Over 20% of the stock is owned by three asset management firms – Vanguard (8.44%), BlackRock (7.4%) and FMR LLC (5.165) – indeed, Institutional investors/asset managers own the bulk of the equities market. Retail investors own less than 10% of the equities traded on U.S. exchanges.
Stock Buy Backs Were Illegal in the U.S. Until 1982. They Should Still be Illegal – Especially When They Are Repurchased With Earnings From Tax Funded Medical Care
Stock repurchases are a thinly veiled form of stock manipulation and insider trading. Furthermore, this form of financialization of corporate activity benefits a small number of very wealthy Americans but is damaging to the overall economy. Earnings passed through to shareholders without retaining cash for employees, R&D, and long term investment puts downward pressure on economic growth and wages and fuels maldistribution of wealth, which has reached crisis proportions in the U.S.
Taxpayers have a right to fairness and equity in the use of capital earned through tax funded healthcare. They must demand that stock repurchases stop. Furthermore, the people of the U.S. have a right to a fair allocation of excess cash earned through healthcare for which they are taxed.
Board Members & Executives Should Be Held Accountable: It’s Not Their Money
Until the early 1980s, executives were compensated mostly in the form of salaries. As executive and board compensation has evolved, salary is now a small part of corporate compensation. Most executives and board members receive pay in the form of stock options and incentive stock awards. Philosophically, executives merit compensation if they enhance shareholder value and corporate financial success. As this philosophy has taken hold in the U.S. over the past 40 years, these rewards have become disconnected from productivity.
The boards and executives of healthcare corporations are focused on earnings and cash flow in the short term – not on reinvestment of excess earnings in long term improvement in the health of the U.S. population. As a matter of fact, life expectancy has been declining in the U.S. Although most states have contracted with these mammoth corporations to improve the cost and output of Medicaid systems, there is no substantial evidence that is happening. Furthermore, Medicaid, the poor peoples’ medicine they are charged with improving, is still stigmatizing and dehumanizing.
Each year, recipients are forced to run an administrative gauntlet of humiliating and frustrating reapplication that is much different than anything higher SES Americans experience in application for entitled health care. It appears that heart disease, poor prenatal care, diabetes, drug addiction, and other major chronic and acute diseases have not been reduced by Medicaid managed care. Nor is there evidence that a massive shift of U.S. healthcare dollars to corporations will lower the outrageous per capita cost of healthcare.
Despite failure to improve the overall healthcare of Americans, corporate boards continue to reward executives with lavish salaries and shareholders with high dividends. They justify that on financial grounds – not on success in improving overall health of the people.
Concentrated Wealth Leads Inevitably to Concentrated Power: Connecting Dots Inside the Washington, D.C. Beltway
Corporations are vying in the Washington, D.C. maze of politics, lobbying, and corruption to capture as much of the trillions in Medicaid, Medicare, Obamacare, and other forms of government healthcare expenditures. They can pay for the influence they need in chasing ever increasing expenditures for healthcare.
I noticed that one Gail Wilensky, PhD is a UH board member. This caught my attention because Dr. Wilensky is a very influential policy maven about town in Washington. She has a very thick resume consisting of scholarly publications, served as a chair of MedPAC, held other high level government positions, and is generally a highly respected healthcare influencer. However, she receives about a half million in compensation per year as a UH board member and has accumulated over 51,000 shares of UH stock, which closed at $481.90 today (3/27/2023). Hence, the stock that she hasn’t sold and is still holding is worth about $24.6 million.
Dr. Wilensky also serves on the board of Quest Diagnostics and a smaller healthcare corporation (ViewRay). The following is her biography appearing on the Quest Diagnostics website:
“Dr. Wilensky, is a Senior Fellow at Project HOPE, an international non-profit health foundation, which she joined in 1993. From 2008 through 2009, Dr. Wilensky served as President of the Defense Health Board, an advisory board in the Department of Defense. From 1997 to 2001, she was the chair of the Medicare Payment Advisory Commission. From 1995 to 1997, she chaired the Physician Payment Review Commission. In 1992 and 1993, Dr. Wilensky served as a deputy assistant to the President of the United States for policy development relating to health and welfare issues. From 1990 to 1992, she was the administrator of the Health Care Financing Administration where she directed the Medicare and Medicaid programs. Dr. Wilensky is a director of UnitedHealthcare Group and ViewRay, Inc. She served as a director of Manor Care Inc. from 1998 until 2009, Gentiva Health Services, Inc. from 2000 until 2009, Cephalon Inc. from 2002 to 2011 and SRA International, Inc. from 2005 to 2011. Dr. Wilensky also served as a Commissioner of the World Health Organization’s Commission on the Social Determinants of Health and as the Non-Department Co-Chair of the Defense Department’s Task Force on the Future of Military Health Care. She has been a director of Quest Diagnostics since January 1997. Dr. Wilensky has extensive experience, including in strategic planning, as a senior advisor to the U.S. government and private enterprises regarding healthcare issues and the operation of the U.S. healthcare system.”
Dr. Wilensky is merely one example, one individual among the ethically challenged thousands, caught up in the government-to-corporation-to government loop. Going from Senate staffer to the Senate Finance committee and on to K Street and a lobbying job for Big Pharma, United Health, or some other powerful Wall Street entity has become normalized. The American people are paying the price for the consequent maldistribution of power and wealth in taxes and poor health. The poor pay more.
The Biggest Player in Poverty Medicine Had a Banner Year in 2022
Among all U.S. corporations, Centene Corporation is ranked 20th in revenue. It is also a major player in the Medicaid Managed Care business. The other leading corporations contracting with states in the $800 billion Medicaid program include United Health, Aetna/CVS, Anthem, and Molina. Most states have moved or will be moving to managed care and contracting with an MCO. The big five have approximately half of that business now. It is likely that the Medicaid MCO market will become increasingly concentrated and oligopolistic over the next few years.
Centene can be said to be solely in the Medicaid managed care business. According to its recently released annual 10-K report to the Securities and Exchange Commission, 97% of Centene 2022 revenues of $144 billion were derived from Medicaid and Medicare contracting – practically all of it from Medicaid. The company’s cash flow statement notes $6.3 billion net cash from operating activities, which is a major indicator of “profitability.” However, that is not the whole story regarding enhancement and protection of shareholder value.
Taking Care of Shareholders by Keeping Stock Price Propped Up
Cash and cash equivalents on Centene’s balance sheet increased from $10.8 billion in 2020 – the early stages of the ongoing COVID pandemic – to $12.7 billion at the end of 2022. Taxpayers need to ask questions about how that hoard of cash is allocated. I have tracked the company’s stock since late November of 2021 when the equities market began to tank. It closed at $73.77 on November 29, 2021 and has been quite resilient despite the market decline since that time – trading in the high $70s and $80s.
The strength of Centene’s stock price is most likely due to a $3 billion stock buyback. In 2022, the company’s board “authorized increases to the Company’s existing stock repurchase program, including $3.0 billion in June 2022 and an additional $2.0 billion in December 2022.” (see page, 34 of 10-K*). With those increases, the Company was authorized to repurchase up to $6.0 billion.
Stock repurchases, which are thinly disguised forms of stock manipulation/insider trading, were unfortunately deregulated during the Clinton Administration. This financial maneuver benefits only shareholders and executives and does nothing for long-term investment in workers, R&D, patient quality, and other productive activities. The benefits for executives and board members who have been awarded generous stock options involve strategies for exercising their right to sell stock based on insider knowledge (of which the public is unaware).
Since the financial deregulation allowing loose rules about stock buybacks a corporate buyback frenzy has been underway. Free money handed out by the Federal Reserve from 2008 until Fed Chair Powell reversed course to quell inflation pumped $trillions into speculative finance, much of which was borrowed for stock repurchase. Consequently, the U.S. economy has been damaged and wealth has become increasingly maldistributed by the diversion of cash to a wealthy few that could be reinvested in long-term growth benefitting employees and overall economic growth. It seems to me to be the height of governmental irresponsibility to not regulate this kind of activity on the part of corporations which are rewarded for managing poor peoples’ health care.
Politically Powerful Board Members & Executive Board Compensation
The revolving door from government to business is starkly obvious on the Centene board, which includes two powerful former congressmen – Tommy Thompson and Richard Gephardt. Mr. Thompson is also a former Secretary of Health and Human Services. The Centene Proxy Statement for 2022 has not been issued to the public yet (we expect to see it within a month). However, the 2021 Proxy Statement indicates that Mr. Thompson’s compensation in cash and stock totaled $403,046. Mr. Gephardt’s compensation totaled $426,923. The fine print below the compensation table states that both Mr. Thompson’s and Mr. Gephardt’s compensation included use of the company aircraft and other perks.
Executive Compensation
The late Michael Neidorff had been Chief Executive and Chairman of the Board in 2019, 2020, and 2021 with compensation for those years of $26.4 million, $24.9 million, and $20.6 million respectively. His replacement, Sarah M. London joined the board in 2021 as vice chairman and received 2021 compensation of $15.2 million. The seven top executives received a total of $80 million in compensation in 2021.
Conclusion
Medicaid expenditures in the U.S. will reach $1 trillion within the next few years. Along with expenditure on military activities, this poverty program will remain one of the two biggest programs funded by U.S. income tax payers. With expansion of Medicaid under the Affordable Care Act, we anticipate that growth of tax-funded poverty medical care will be rapid in the years ahead. This raises the question of evaluation of these expenditures and public discourse about the quality of care.
My initial foray into availability of state and federal data regarding the effectiveness and regulation of MCOs leaves me with considerable doubt about what taxpayers and legislators know about outsourcing medical care for poor people. It is not difficult for me to uncover the inordinate executive compensation packages, stock buyback information, and financial performance metrics reported by major providers. However, medical and ethical, questions arise regarding the justification for cash out to investors and executives given the care provided. I will be sharing my research pertaining to Medicaid expenditures on this blog in the weeks, months, and years ahead.
*The Centene 10-K can be accessed at https://investors.centene.com/all-filings?cat=1.
As I noted a couple of days ago, The Ensign Group (Ensign) was scheduled to release its 4th quarter financial report and hold a conference call. They did that. This blog post will provide a basic overview of their 4th quarter and annual results.[1] I will be reporting on the Centene Corporation and the real estate investment trusts in the weeks ahead.
It is important to note that the late Roy Christensen, Ensign founder, and current/past Ensign executives were and are very sophisticated financiers. Christensen founded Beverly Enterprises in the 1960s, sold it, and taught business at Brigham Young University until he founded the Ensign Group in 1999. Most Ensign executives and board members have an association with the Marriot School of Business at BYU. There is no other nursing home corporation like the complexly organized Ensign. It is becoming increasingly complex to the advantage of shareholders and executives but apparently not to taxpayers, patients, and employees (as I will demonstrate below).
Highlights of Ensign 4th Quarter Results
It’s All About the Real Estate
Quarterly reports, annual reports, and proxy statements can become eye glazing for the public. The way we need to look at Ensign and the rest of the nursing home industry is this: Medicaid and Medicare (mostly Medicaid) provide revenue that sustains a real estate industry. Hence, direct care services are robbed for the sake of shareholder interests.
In the past couple of decades, tax code adjustments have resulted in a financial transformation of long-term and skilled nursing business. Limited liability entities, private equity firms, real estate investment trusts, and individual/family trusts have blossomed like tulips in Springtime. Ensign is a cutting-edge bellwether of financialization, and the tax arbitrage associated with it. Let’s take the separation of property from operations (OPCO/PROPCO).[2] Property has been increasingly separated into separate subsidiaries of parent corporations or sold to REITs and leased back. However, Ensign has upped that game. The following indicates the segmentation of the company into separate entities – most of which were not discussed in the quarterly report.
The above graphic does not include a couple of later entities – Standard Bearer (a captive[3] REIT) and a captive insurance company.[4] A spinoff has tax advantages for shareholders. Added advantages for Ensign in its spinoff of property into CareTrust REIT include avoidance of capital gains taxes and increased corporate assets/value. CareTrust is an “umbrella partnership real estate investment trust,” otherwise known as an UPREIT. By transferring property to an UPREIT, rather than selling it, capital gains taxes are avoided, the transferee receives “operating units” (OPUs), and receives returns from the triple net leases to other nursing homes (under triple net leases, leasees pay insurance, maintenance, and taxes – what a deal!).
As the above diagram indicates, Ensign undertook a spinoff in 2016 by spinning out its assisted living facilities into the Pennant Group – an Ensign spinoff. Ensign leases property to the Pennant Group and retains a major share of the stock. This model illustrates the OPCO/PROPCO set up in which property becomes a tradable commodity rather than a necessary tool for producing care. Finance dominates production.
Financialization
Financialization throughout the U.S. economy has dampened economic growth. Furthermore, stagnant wages, a diminishing upwardly mobile middle-income class, wealth transfer to super-rich individuals and corporations, and a low-wage underclass are due to the separation of finance from productivity.[5] Nowhere is that phenomenon more apparent than in the U.S. government-funded healthcare system. The massive real estate substrate of industrialized medical care is draining resources from care. There is no rational justification for exceedingly low pay, and poor care when so few are making so much from the trillions of dollars poured by Americans into the health care system.
Summary
From a financial and technical perspective, this post has been somewhat superficial. Nevertheless, we need to outline the overall financialized, industrialized, government-funded U.S. healthcare system and have a very serious public conversation about how the hardworking and patriotic people of the U.S. are being fleeced. I will be clarifying and filling in the concepts that I have introduced in this post. In the future you will see more regarding UPREITs and OPUs, shell companies (Ensign has over 400 subsidiaries, all are LLCs, all incorporated in Nevada), and other financial machinations that are robbing American taxpayers.
[1] You can listen to the conference call and download the text of the call here: https://investor.ensigngroup.net/news-releases/news-release-details/ensign-group-reports-fourth-quarter-and-fiscal-year-2022-results
[2] For a very good discussion of REITs, Financialization, and nursing homes, see Rosemary Batt & Eileen Applebaum (July 9th, 2022), “The Role of Public REITs in Financialization and Industry Restructuring.” Working Paper No. 189. Washington, D.C.: Institute for New Economic Thinking.
[3] A REIT with the property of only one corporation – The Ensign Group in this case.
[4] An insurance company that underwrites only the entity that incorporates it.
[5] For a very good discussion of financialization, see: Rana Foroohar (2017), Makers and Takers: How Wall Street Destroyed Main Street. New York: Crown Publishing.
The Ensign Group and Centene Corporation have announced dates for presentation of 4th quarter, 2022 results – February 3rd and February 7th respectively. Ensign and Centene are the two largest and the only publicly listed corporations earning the bulk of their revenue from Medicaid. The Ensign Group is engaged exclusively in long-term and skilled nursing care. Centene primarily provides Medicaid managed care services to states.
Given that Medicaid is means-tested and lower tier poverty medicine, it is notable that these two corporations have experienced rapid revenue growth and high earnings while lavishing executives with generous compensation packages.
In this post, I will review Ensign Group’s 3rd Quarter, 2022, results, which will be a point of comparison for the upcoming 4th Quarter results and cover more of Centene’s financial performance and executive pay in a later post. The purpose of this post is to focus attention on the dissonance between claims of industry-wide low earnings made by American Health Care Association – the nursing home industry’s propaganda organ – and public information available through the Securities and Exchange Commission. The AHCA’s claims are not verifiable because closely held corporations aren’t required to make their consolidated financial statements public.
Selected Ensign Group 3rd Quarter, 2022 Results
Executive Compensation
We will not know Ensign executive compensation until the company releases its proxy statement in April. The following are 2021 compensation data for executives:
Ensign Stock Has Been Increasing During Stock Market Down Year:
Between late 2021 and the end of 2022, the NASDAQ had declined by 30%. It was a bad year. However, Ensign stock was trading at $77.20 on November 29, 2021. It closed at $94.00 yesterday (February 1, 2023) – a 22% increase.
Christopher Christensen, CEO Emeritus owns $1,478,499 shares of Ensign stock). The value of Mr. Christensen’s stock increased in value by $24,838,783.
The three beneficial owners: BlackRock (15.1% or 8,340,870 shares), Wasatch Advisors (11.1% or 6,121,470 shares) and Vanguard (11% or 6,104,354 shares).
We must insist on truthful information from the industry receiving taxpayer funds for providing medical care to Americans experiencing poverty. As the only public information we are receiving suggests, investors and executives are excessively rewarded while wages and salaries for direct care workers remain seriously low. If the bulk of financial information is hidden behind a veil of secrecy, taxpayers and their representatives do not have a voice in determining what we should be receiving for what we are paying.