When one of us, Manav, entered a Manhattan emergency department as a medical student for the first time, he was stunned by what he saw. Hallways were lined with beds filled by patients—some in their 90s—waiting as much as 10-plus hours for a room to become available. It’s a troubling scene that’s become increasingly common in emergency departments and contributes to delays in care, worse patient outcomes and provider burnout. And the situation will likely worsen.
Significant cuts to Medicaid and other health programs in the new One Big Beautiful Bill Act are projected to leave nearly 12 million more people uninsured over the next decade. That means more patients relying on emergency departments for care, putting greater financial pressure on health systems already stretched thin, especially those with large low-income patient populations.
For some hospitals also serving wealthier patients, an alternative funding mechanism may prove attractive: luxury units. For instance, here’s how New York-Presbyterian (NYP)/Weill Cornell markets its “Greenberg 14 South” unit, which the system describes as its “ultimate luxury” offering for VIPs:
- “Luxury marble bathroom, with euro-style walk-in shower; elegant furnishings, inclusive of dining table and chairs; a dedicated chef, with a team of experienced culinary professionals; state of the art kitchen.”
- “Two large corner suites, three junior suites, nine river view rooms, six standard suites, all with incredible views.”
NYP is hardly alone among its Manhattan competitors. Mount Sinai advertises its “11 West” unit with “private patient suites, a gourmet kitchen, daily afternoon tea, and soaring views of Central Park.” NYU’s infamous “Room 20” was the subject of a major 2022 New York Times exposé describing preferential treatment for rich patients. And yes, each of these health systems is a nonprofit.
Witnessing such stark disparities in care—sometimes within the same building—can make even the most ardent free-marketer uncomfortable. Yet, while luxury healthcare offerings and services like concierge medicine may appear to be perks benefitting only the wealthy, they may in fact help most patients. Understanding this, however, requires a recognition of the delicate, Robin Hood-style balance our health care system is built on.
People are often surprised to learn that the typical nonprofit health system operates on a 1-2% margin in a good year. (As a point of comparison, Pfizer’s most recently reported operating margin was 33%.)
Much of health systems’ struggles are not accidental: They are deliberately baked into policy design, with low reimbursements in government coverage programs. Hospitals had a -12.7% profit margin on Medicare fee-for-service patients in 2022, according to the Medicare Payment Advisory Commission. Medicaid pays 28% lower than Medicare for 27 common services (including primary care and obstetrics), a 2019 Health Affairs study found.
An even bigger issue, though, is uncompensated care, a category that includes unpaid patient bills, underpayments from insurers and denied claims. Nonprofit hospitals are especially challenged by this. Many operate in impoverished communities, provide charity care, offer free clinics, partner with safety-net health systems and invest in population health. The success of nonprofits is vital to the healthcare system as a whole because they provide far more low-margin services than for-profit peers, including in emergency departments, burn units, high-level trauma and obstetrics.
Nonprofit hospitals rely on a patchwork of financial instruments to fund this charity care: commercial insurance, donations, investment portfolios and, yes, specialized luxury offerings for cash-paying VIPs. While there’s little public data on the financial performance of these luxury units, it’s reasonable to expect they are extremely profitable. Yet, for a nonprofit health system, the profit from one division by nature funds the losses of another—charity care, for instance.
Premium offerings at health systems function much like those at other institutions that cross-subsidize: some offerings pay for others, in service of the organization’s broader mission. John, an associate professor of public policy at USC, notes this is similar to the financial model of most universities, where tuition from undergraduate and master’s degree students helps fund the education of PhD candidates.
If Medicaid cuts push more patients into uninsurance or underinsurance and hospitals are hit with deeper losses on safety-net care, luxury offerings may become not just strategic advantages but financial necessities. VIP wings and concierge tiers may provide some insulation as critical revenue streams that allow nonprofit hospitals to continue subsidizing care for the most vulnerable, especially in affluent areas like Manhattan but also likely in many middle-class areas.
Luxury offerings may also provide other benefits. Physician and nurse burnout is a serious challenge, with survey evidence suggesting that high patient-to-clinician ratios are a major driver. Perhaps a month-long rotation in well-resourced luxury units, where clinicians can focus on just a few patients at a time, can offer a much-needed reprieve from their usual hurried, stressful work environments. Additionally, the innovations of luxury units may ultimately diffuse to the rest of the hospital—consider that many technologies, such as smartphones, were initially accessible primarily to the wealthy before becoming broadly available.
It can be difficult to reconcile financial realities with the visceral scenes of people suffering while seeking care. We regularly struggle with this in our respective roles. Yet, it’s helpful to take a step back and consider the bigger picture as we work towards a healthcare system that will ultimately serve everyone better.
Manav Midha is a predoctoral researcher at the USC Schaeffer Center for Health Policy & Economics, an MD candidate at the Icahn School of Medicine at Mount Sinai, and a former health care consultant with McKinsey & Company. John Romley is a senior scholar at the USC Schaeffer Institute and an associate professor in the USC Price School of Public Policy and the USC Mann School of Pharmacy and Pharmaceutical Sciences.
