In early 2007, Tenet Healthcare Corp., the giant, publicly traded hospital conglomerate, was reeling. The previous year, the company had been forced to agree to a $900 million settlement with the Justice Department in a Medicare-fraud scandal. Seeking to improve its reputation, Tenet turned to Jeb Bush, offering the former Florida governor a seat on its board of directors.
In the more than seven years Bush served on Tenet’s board, the company executed a remarkable turnaround, emerging from the scandal into a period of expansion that returned it to the top of the health-care industry. Bush himself benefited handsomely from the growth. Last year alone, he earned $170,000 in stock awards and $188,000 in fees. He earned over $2 million during the seven years he served on the Tenet board and sold $1.1 million worth of stock in 2013, according to the Los Angeles Times.
Support for Obamacare has driven Tenet’s renewed success. “Early on we push hard to be contracted with as many exchange plans as possible,” CEO Trevor Fetter said on an earnings call last summer, referring to the health-care exchanges created by the Affordable Care Act. Tenet also promoted the law’s enrollment drive. “We are confident at least 16,000 people enrolled in exchange-based products and tens of thousands more enrolled in Medicaid as a result of our efforts,” Fetter said.
Bush resigned from his lucrative position at Tenet late in 2014, in anticipation of a presidential run. That puts him in the uncomfortable position of leaving an industry that supports Obamacare in order to seek the nomination of a Republican party committed to the repeal of the law. Bush navigated that conflict during the legislative debate by staying silent in public, while making clear in board meetings that he opposed the law but recognized the difference between “personal views and what is best for the company,” Fetter told the New York Times. If he hopes to dismantle Obamacare as president, he’ll have to show a greater willingness to fight the hospital lobby than he displayed to his former colleagues.
“They [the hospital industry] certainly would prefer this [Obamacare] system of a very, very generous Medicaid and all the incentives to consolidation they have,” National Affairs editor Yuval Levin tells National Review. Bush’s own comments on Obamacare, so far, have been limited to calling it a “monstrosity” that should be repealed and replaced by a system that provides catastrophic coverage to consumers. “The rest of it ought to be shifted back where individuals are empowered to make more decisions themselves,” the former governor said in Iowa last month.
Levin emphasizes that he doesn’t know how the presidential hopeful’s Tenet experience might affect his policy thinking, beyond those statements. “[Bush] doesn’t yet have an agenda out, so it’s not easy to say where he is going to land,” he says.
But over the last several years, Tenet pursued a very different agenda from the one suggested by Bush’s remarks. The health-care provider empowered itself in negotiations with insurance companies by consolidating with other hospitals. “Current No. 1 is the need to get big,” Fetter told D Magazine last year. In October of 2013, Tenet closed a $4.3 billion deal to buy Vanguard Health Systems. “The company, which operates around the country, now employs more than 100,000 people and has 77 acute care hospitals, 173 outpatient centers, five health plans and six accountable care organizations,” according to a Dallas Morning News report. Tenet also attempted to buy five hospitals in Connecticut, only to drop the bid when state regulators tried to put restrictions on the deal. (It is unclear how Bush, as a sitting board member, viewed Tenet’s mergers and acquisitions.)
The magazine explained that such consolidation “puts Tenet in a stronger position to negotiate with insurance carriers,” among other things. Tenet’s gain is the consumer’s loss, though, as the insurance companies have recouped their money by raising premiums.
Obamacare exacerbates the problem by encouraging primary-care physicians and hospitals in the Medicare program to form new networks called Accountable Care Organizations. In theory, these organizations could provide efficient care by lowering administrative costs and allowing doctors to coordinate when they treat patients. “In fact, providers’ main purpose in forming ACOs may not be to achieve cost savings to be shared with Medicare but to strengthen their market power over purchasers in the private sector,” health-care policy experts Clark Havighurst and Barak Richman wrote in a 2011 article published by the Oregon Law Review.
In addition to incentivizing the formation of large hospital conglomerates, Obamacare also protects the companies from competition. “The Affordable Care Act bars the construction of physician-owned hospitals that could, in many circumstances, offer valuable services at lower prices with higher quality,” conservative health-care policy expert Avik Roy wrote in Transcending Obamacare, a monograph outlining his preferred alternative to the legislation.
Between the individual mandate’s requirement that people buy health insurance, the expansion of Medicaid, and the provisions that protect hospitals from competition, Obamacare has been a great boon to the hospital lobby. At the height of the Global Financial Crisis in 2008, Tenet’s stock fell below $1 per share. Over the last month, it has hovered around $49 per share.
Roy favors allowing the construction of physician-owned hospitals and sees antitrust laws as a means of “preventing hospital monopolies from using their market power to extract higher prices from the privately insured.” If Bush were to back such a proposal, he would have to do so in the teeth of opposition from his former colleagues at Tenet.
NR asked Bush’s office for his views on hospital consolidation, both as a matter of future public policy and during his time at Tenet, but did not receive a reply in time for publication. “In his role as director, Mr. Bush made many significant and long-lasting contributions to Tenet and its shareholders and the board benefited greatly from Mr. Bush’s extensive background in government service, his perspectives on public policy and social issues and his experience as a business leader,” Tenet said in a proxy statement to the Securities and Exchange Commission last month.
Whatever Bush’s “significant and long-lasting contributions” to Tenet, the former governor did oppose the company’s interests when he urged Florida lawmakers not to expand Medicaid, which would have profited his then-employer. A Medicaid reform developed during Bush’s time in office also suggests that he might be willing to offset the power of his former friends in the hospital lobby. In 2005, the state began to change how it made Medicaid payments. Rather than set a price to pay hospitals for various services, the new program paid insurance premiums, thereby giving insurance companies a little more power in negotiations with hospitals.
It’s an incremental reform, though, relative to the kind of fundamental policy changes that would be needed to repeal Obamacare and deprive hospitals of the power to form monopolies that function as “the most predatory force in our health-care system,” as Roy puts it.
“Monopoly power in the hands not only of nonprofit hospitals but also of other providers or suppliers of health services or products is more, not just equally, harmful to both consumers and the general welfare than monopolies of other kinds,” Havighurst and Richman wrote.
“The nation will find it far harder — perhaps literally impossible — to afford [Obamacare’s] impending extension of generous health coverage to additional millions of consumers if monopolists of health care services and products can continue to charge not what ‘the market’ but what insurers will bear.”
— Joel Gehrke is a political reporter for National Review.