The Big Fail – Joe Nocera and Bethany McLean – 423 pages

The Big Fail provides useful insights into how the same "financialization" scams that melted down the actual financial industry are proving to have the same devastating effects in the hospital and healthcare industries, for identical reasons. A key component of the analysis provided by authors Joe Nocera and Bethany McLean involves a detailed review of how America's response to the COVID-19 pandemic was uniquely flawed among supposedly sophisticated, modern, industrial democracies and how those unique flaws stemmed directly from the structure of our healthcare systems.

Whether leveraged buyout, private equity investing or some other term is used, the core point of The Big Fail is that a business model fixated on scaling up via borrowed money, squeezing labor costs and extracting management consulting fees may be highly profitable for the private equity firms but it is antithetical to providing quality care and is bankrupting the United States by delivering drastically sub-par care at drastically inflated costs. The book cements its point by focusing on five areas: the financialization of hospitals and nursing homes, pandemics and free market failures, rewarding flawed reimbursement policies, the hazards of mixing science / policy communication and social media and the spread of financialization to new schemes.

The Financialization of Hospitals

As the authors use the term, financialization involves the use of balance sheet manipulations such as selling off long-lived assets to "free up" cash to "reinvest" in modernizing the business and improving efficiency. According to Private Equity (PE) investors, this frees up "trapped" money in the entity, allows mundane tasks like building operations to be outsourced to low-cost providers and allows the cash to be "re-invested" in new equipment, etc. that makes the entity more efficient. Uh huh... In reality, such manipulations are performed to

  • sell assets to a favored real estate investment trust (REIT)
  • create revenue for that favored REIT and boost their performance numbers
  • create a short term pile of cash
  • extract exorbitant one-time management fees from that pile of cash for the PE owners
  • saddle the entity with new lease expenses not previously required and far less cash to "re-invest"

As part of this analysis, the book goes back to the beginning of this process, with the formation of Health Care of America in 1967, which later renamed itself HCA. That name should ring a bell because it has been associated with billions of dollars in fraud charges over decades that weren't mere accounting flukes but the result of its core strategy for operations and growth. If you are interested in a brief thirteen minute YouTube documentary on the history of HCA, this video is highly recommended:

How KFC’s War on Arby’s Ruined American Healthcare. No, Seriously.

The book does a good job of explaining the underlying process and the damage it inflicts on patient care and public costs. More importantly, it revisits the theme throughout the book, making the point that the original strategy was first applied to hospitals, then to HMO and doctors consortiums (as a means of steering referrals for more profitable hospital care to member hospitals) then to nursing homes. The theme is visited again at the end of the book to point out that the next two areas of "care" now being targeted for the same model are mental health treatment centers and autism care facilities.

Pandemics and Free Market Failures

Healthcare related matters are only one area of many in which the rabid fixation on market "efficiency" as defined by narrow interests creates outcomes which benefit exclusively those same narrow interests. The core flaw with such fixations are that they distort the operation of a complex system with dozens of crucial variables by purposely controlling that system with a feedback loop driven by a SINGLE financial variable – profit. In doing so, the impact of other variables controlling equally important but unmeasured outcomes are ignored. This rigged feedback cycle even ignores other variables which can affect the almighty profitability but over a longer term ignored by the short-term biased feedback used. The Big Fail provides examples in two key areas of public health that were impacted during the pandemic by these failures of free markets.

The world was fortunate enough that research for over thirty five years prior to 2019 had led to a thorough understanding of messenger RNA (mRNA) and CRISPR chains within mRNA that act as "blank spaces" mRNA uses to incorporate new molecule chains when triggering T-cell immune responses for novel viruses. The rest of the world didn't know it but by late 2019, the perfect technology already existed for rapidly creating a vaccine to target a novel coronavirus to minimize deaths in a global pandemic. In fact, in Walter Issacson's book Codebreaker (see here for a review), he wrote that Moderna had the RNA pattern identified and sequenced within TWO DAYS of obtaining a sample in February of 2020 and had sample doses ready for clinical testing in THIRTY EIGHT DAYS.

Unfortunately, the biochemical knowhow alone was not sufficient for use in a pandemic. As The Big Fail points out, the vaccine business and larger pharmaceutical industry is not optimized for rapid delivery at world-wide scale of low-cost treatments for conditions that vanish instantly if the drug works. That mode of delivery requires vast infrastructure for manufacturing the doses, manufacturing hundreds of millions of sterile containers, performing the packaging then distributing the doses while honoring temperature limits and expiration dates that apply. The pharmaceutical industry is optimized for designing, manufacturing and dispensing medicines for a drastically simpler and vastly more profitable niche. A market for expensive drugs with high margins for low volumes of customers who need the drug for extended periods or preferably (for drug makers) for life. Doing so provides a consistent profit stream over at least seventeen years (until patents expire) to boost stock prices, doesn't require outlandish capacity and the product doesn't become instantly worthless after it solves a problem.

This fatal flaw in the pharmaceutical business model has been understood for decades yet attempts to mitigate it are continually hampered by short sightedness by elected officials when prioritizing funding in the healthcare realm. Despite having a sequenced vaccine within DAYS of obtaining a COVID-19 sample, the United States government had to chip in vast sums of money to assist drug makers in establishing manufacturing, packaging and distribution networks for the vaccines. Luckily, most of those logistical hurdles were solved – at least temporarily – during the timeframe that was required for clinical trials and evaluation of safety and efficacy. However, the US government spent over $31 billion dollars between April 2020 and 2023 assisting with prioritization of gear required for manufacturing, delivery logistics and guaranteed purchases of doses to guarantee profits for the makers. From that perspective, the intervention in the pharmaceutical market was similar to the need for government intervention during the 2008 meltdown. The federal government and Federal Reserve had to intervene to provide the liquidity needed by the economy so the key players could survive and continue to make money. In the vaccine economy, the government had to guarantee a market because corporations were unwilling to bet billions of their own to deliver a solution protecting the lives of their future customers.

And it isn't just large but critical investments that get starved because of a narrow focus on margins and profitability. The exact same factors triggered the massive shortages in so-called personal protection equipment (PPE) such as N95 masks, gloves and gowns required by front-line hospital workers and the larger public. The book cites the example of an American firm which attempted to step up and meet domestic demand for gloves with American plants during the MERS epidemic of 2012. The minute the crunch ended, all of the hospitals and healthcare firms BEGGING for masks at ten times the normal price resumed their volume deals with Chinese suppliers, leading the American firm to close its doors. The same thing happened during COVID. DOZENS of companies jumped into mask making hoping American hospitals would wise up and continue buying domestically. Nope. As soon as supply and demand balanced out in late 2020, hospitals began purchasing in volume from the cheapest suppliers, all in China, putting these same firms immediately out of business again. This is optimizing a variable that might mean PENNIES per mask but optimizing it in a way that maintains a dependency on predictable shipping ocean intervals and predictable behavior of a major US adversary. All factors that proved to be nearly insurmountable issues during the pandemic.

The book also delves into the black market behavior that overtook the market for nitrile surgical gloves. Raw materials required for nitrile gloves are not as universally available so manufacturing remained overseas. Hospitals lost millions of dollars attempting to buy "warehouses" of gloves at hefty premiums that turned out to be non-existent or (worse) consisting of USED gloves stuffed back into boxes. One anecdote related to this involved a special "task force" created by Trump's one-time point man, Jared Kushner, to identify sources and procure shipments. Kushner brought in a mate from college, they created a "war room" consisting of some phones, a few tables and a big screen TV tuned to Fox News and proceeded to secure exactly ZERO actual shipments of gloves over a two month period before the effort was abandoned.

The key lesson is that the fantasy that "Mr. Market" will help ensure supply meets demand is exactly that – fantasy. In a decentralized, worldwide market operating at zero margins and zero excess capacity, a lack of supply is more likely to drive widespread fraud than rapid supply corrections. It's easier to cheat someone in another country than ramp up production.

Rewarding Flawed Reimbursement Policies

A key point conveyed in The Big Fail is that even good-faith attempts to correct for past flaws in health care funding of hospitals and treatment are often worsening results for patients and communities while further enriching the corporations taking over vast portions of the healthcare ecosystem. Legislators and regulators fail to understand that prior decisions about rules for reimbursing medical care and measuring "efficiency" of delivery systems have been thoroughly gamed by healthcare companies. Any existing metric of efficiency or "health delivered" is already rigged to ensure maximum profits for owners, not value delivered to patients. Adopting new policies or attempting to correct for past flaws assuming these existing metrics reflect "value" only worsens the problem by rewarding the corporations who already rigged the game for profit.

Perhaps the cruelest example of the phenomena Nocera and McLean described involves the battle between so-called safety net hospitals and hospitals serving affluent areas. If a large corporation gains control of a collection of hospitals in an area, it self-imposes pressure to reduce costs by reducing hospital beds. Which hospital beds should be eliminated? The humane answer would be the beds that are vacant. The business answer is the beds producing the least revenue. Those are not the same answer. The actual decisions made invariably correspond to racial demographics in the hospitals' serving areas.

Beds in safety net hospitals are often near capacity but serving patients on Medicaid or unable to pay at all. Beds in affluent areas typically support expensive treatments for cancer, heart disease, organ transplants, etc. that are HIGHLY profitable. In the case of New York State, efforts to consolidate hospitals and reduce bed counts to safe state Medicaid costs backfired, spectacularly. The safety net hospitals left remaining after consolidation serve an even higher percentage of Medicare / Medicaid patients but do so at higher cost because waits for beds delay treatment and treatment when finally provided is delivered via overloaded staffs who are LESS efficient than a properly staffed hospital.

The authors and those they interviewed for the book call this process for what it is. Structural racism. The cruelest outcome was stated by one doctor in the Chicago area interviewed by the authors:

The safety net hospitals where Ansell worked have busy trauma units, and the patients who die there often have their organs donated to save patients in the wealthy transplant centers across the city. "Yet," he noted, "in my twenty-seven years at those institutions, not one of my patients – or those of my colleagues – ever received a lifesaving organ transplant."

Another example. The CARES act passed in March 2020 threw $2.2 trillion dollars into the economy in the form of various injections of cash into different segments of the economy. That $2.2 trillion included $175 billion for hospitals but the formula to allocate those funds was based on REVENUE, not actual needs associated with actual COVID patients. Those crafting the legislation might have assumed REVENUE was a s good a proxy as any to efficiently prorate out the $175 billion quicky based on public information and "do something." The result of this formulaic distribution was that the bulk of the money went to hospitals with higher shares of patients with private insurance which were FAR less likely to be exposed to COVID at that point. In contrast, safety net hospitals in urban areas got relatively little funding despite handling the brunt of patient counts at that point. The authors cite a New York Times story that found the sixty largest hospital chains in the country received $15 billion in benefits yet actually laid off staff during that period since virtually all elective procedures were curtailed.

The net result of this flawed fixation on "efficiency" is that Americans are getting the worst of all worlds. The lack of understanding of the current flaws in the system coupled with attempts to "optimize" the efficiency of new programs based on metrics that seem logical are in fact magnifying inequities in the delivery of care. These inequities are reducing the availability of care, driving up the cost of care and preventing the most effective types of care from being delivered to yield increases in actual health.

The Hazards of Mixing Science / Policy Communication and Social Media

The Big Fail devotes a significant portion of the book recounting the chaos injected into the pandemic response by elected officials and public health institutions. And for those concerned about any potential bias on the part of the authors, their analysis is withering for both Democratic and Republican politicians at the local, state and federal levels. Perhaps the best illustration the authors covered about how ultimately non-sensical public policy became about masks, mandatory vaccinations, public events and actual public safety, they cite the case of Brookly Nets basketball player Kyrie Irving. Irving was coy about whether he had been vaccinated, the NBA did not require vaccinations but required its teams comply with local regulations. In Brooklyn, New York State law required pro sports players to be vaccinated but at that time did not require fans to be vaccinated. The book quotes writer Ross Barkan summarizing the insanity of the resulting situation: What is the science behind the unvaccinated Irving sitting in the stands to watch unvaccinated players from the 76ers or Heat shoot baskets while he's barred from playing? There is none."

In hindsight, there were many aspects of the pandemic response that had nothing to do with science. Here are a few of the more surprising findings in the book.

By the summer of 2020 when schools were agonizing over decisions to revert to in-school classes or continue remotely, only sixteen of the 142,000 Americans that had died at that point were under the age of sixteen. At that point, it wasn't known if the virus might have some delayed effect on children months or years later resulting in understandable concern but in terms of death and cases requiring hospitalization, children were a tiny fraction of the impacted population. At that point, more children were being killed in mass shootings than COVID. Yet many schools continued remote classes in the Fall of 2020, despite mounting evidence of different but far more concrete problems involving hunger, violence at home and tanking performance levels as at-risk children just drifted away from classes.

When clinical testing of the vaccines was extended to children, test results did not show any safety problem with the drug. Test results also didn't identify any worsening of severe symptoms requiring hospitalization or extended care. However, the test results also didn't show any reduction in TRANSMISSION of the disease. Kids might not get critically ill or die but the vaccines didn't reduce their ability to contract and transmit the disease to more vulnerable populations. Yet the drug makers and the government – the Biden Administration by that point – pushed a rollout of the vaccine to all children in that age bracket when those doses could have avoided more deaths and possibly more mutation of the virus had they been distributed abroad in poor countries.

The launch of the so-called bivalent booster in the Fall of 2022 might be the biggest shock. At the time of its approval by the FDA, the Moderna booster had only undergone a limited human trial among patients who only had "classic covid" or delta variants but it was confirmed to have produced antibodies. It had not been tested among a large contingent of patients with the omicron variant that became prevalent in Summer 2022. Approval for the Pfizer bivalent booster had been granted with no proof of antibody production in humans at all. Only eight mice.

As these themes are reiterated throughout the book's eighteen chapters, the key point made by the authors is that the following communication goals are mutually incompatible in a world driven by social media:

  • communicating a simple, memorable message
  • providing information that conveys appropriate nuance and uncertainty in a rapidly evolving "fact space"
  • inspiring confidence through simplicity and consistency with a public that is objectively, grossly ignorant about basic statistics much less advanced topics in biology and economics

At one level, that's a giant smack on the nose to the ignorant public for demanding complex information be delivered in 256-byte epigrams and late night show punch lines. It's also a smack on the nose to elected politicians and leaders in the scientific and health communities. By treating the public as being unable to ever comprehend truth rather than merely being temporarily ignorant of it, officials consistently over-simplified reality, established sometimes-understandable flawed policies according to those over-simplified realities then clung to those flawed policies far longer than supported by new facts. Leaders were more interested in being perceived as decisive, consistent and confident rather than adaptive and responsive. That populist bravado led to tens of thousands of additional needless deaths, life-altering illness for more patients and drastically worsened prospects for millions of students whose academic progress was drastically, perhaps permanently, stunted.


The Big Fail is highly recommended reading. Whether you're interested in some of the hidden mechanics and decisions during the pandemic phase of the covid era or interested in larger economic forces at work in healthcare that are impairing the larger US economy, useful insights abound through this book.




thank you! A superb informative post,

I hope you are not sued for copyright violation as your summary was wonderfully full.

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@WatchingTheHerd please let us know if your long, informative post was your own original writing. If it was copied and pasted, please credit the source with a link. TMF only allows very short snips because long copied passages violate copyright rules.

I assume the post was your original writing as usual.


@flyerboys a summary which is original writing is not a copyright violation. It’s only a copyright violation if it is copied and pasted.


1 Like

I’m pretty sure flyerboys’ comment was good natured kidding at the length.

The only quotes are shown explicitly as block quotes or italics. The rest is my analysis and summarization of the points made by the authors as I noted them during the read or as they struck me after reading the whole book. There are times when authors may have a thematic outline that may be clear in their mind but gets lost a bit in their narrative. I try to resummarize those high points even if the narrative didn’t get there in straight linear A-B-C-D fashion. Especially when those points are vital for understanding crucial, systemic problems.



Wendy is right. I wish people better understood copyright law. What is copyrighted is the actual output. Say the same thing in other words, derivatives, are not violations of the copyright, they are new stuff that can and are protected in their own right. Content can be protected in other ways, trademarks, patents, and trade secrets.

Forums can take proactive or reactive action regarding copyright. TMF, in principal, is proactive, they take down violations. Yahoo is (or was 20 yeas ago) reactive, they will take action if and when the copyright owner requests it. Usually the request is just to take down the infringing piece. It only gets serious if the request is not complied with. I got this information from Yahoo!

The Captain

YES! and were meant to be thankful… I sent links to it to some of my godchildren as an example of how to think.

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