That's what lawyers and accountants are for. A transaction between a sufficiently complex web of inter-related legal entities is indistinguishable from arms-length transactions.
You do not buy a syringe for a 1000x markup. You stand up a group purchasing organization (GPO) as a subsidiary and spin off your entire procurement department to it. You have your negotiating team accept nominal trade discounts off catalog prices, and instead prioritize lump-sum off invoice rebates at various spending thresholds. So while you previously got a $50 syringe discounted to $25 from a supplier, now your group purchasing subsidiary is paying nominally less than ~$50 per syringe but recieving a lump sum rebate against accounts payable from a supplier equivalent to $25 per syringe based on your primary client's expected spending volume (which is pretty predictable considering your former procurement department turned subsidiary has been working with this supplier for ages).
The group purchasing subsidiary then adds a nominal markup of their supply catalog, say 20% or so. So that $50 syringe is sold to the hospital for $60. A 20% markup is considered fair and reasonable so your auditors give it their blessing. Suddenly the hosital is paying $35 more per syringe but the supplier is still getting the same $25 they always have. You also sign up another local hospital to join the GPO and negotiate even higher rebate thresholds. Both hospitals auditors and lawyers point to the industry wide practice of GPOs and their perceived benefits, making plausible enough defenses against both criminal and civil complaints. The executive team of the GPO that came over from their parent orgs and orchestrated this whole thing get generous (but fair market rate) employment contracts and benefits that just happen to absorb the maojrity of that $35 per syringe profit so very little ends up bubbling back up to the non-profit parent entities.
Do the same thing with selling your real estate to a real estate holding company, which leases it back to you at market rates (that just keep going up and up). Do the same with your nurses – spin up a nursing staffing company and contract all your nurse staffing through it. Same with physicians – spin off any directly employed physicians into a physician staffing company and conmtract with them for services.
As long as you follow the appropriate corporate formalities, you suddenly have a ton of knobs you can turn to engineer any particular operating margin you want your healthcare system to be perceived as having. This isn't limited to hospital systems, but with the prevalent level of inefficient middlemen entities that already exist in the US healthcare system and contribute to runaway costs, it's pretty damn easy to throw a few of your own into the mix in a manner that passes legal scrutinty around self-dealing. There are also plenty of liability-related reasons to justify such setups as well, so it's not purely a shift around profits from your tax-exempt non-profit entity.
And insurers don't actually care much at all about any of this. As they're required to pay out 80% of premiums as claims and only allowed 20% for administrative expenses and profits, the easiest way to increase profits is for claims to increase (and subsequently allowing the absolute value of that 20% piece to grow). If hospital charges go up across the board because of these sorts of shenanigans, that's as much a boon to the insurers paying out as it is to whatever lucky winners are siphoning off the profits from those related entity subsidiaries.
You do not buy a syringe for a 1000x markup. You stand up a group purchasing organization (GPO) as a subsidiary and spin off your entire procurement department to it. You have your negotiating team accept nominal trade discounts off catalog prices, and instead prioritize lump-sum off invoice rebates at various spending thresholds. So while you previously got a $50 syringe discounted to $25 from a supplier, now your group purchasing subsidiary is paying nominally less than ~$50 per syringe but recieving a lump sum rebate against accounts payable from a supplier equivalent to $25 per syringe based on your primary client's expected spending volume (which is pretty predictable considering your former procurement department turned subsidiary has been working with this supplier for ages).
The group purchasing subsidiary then adds a nominal markup of their supply catalog, say 20% or so. So that $50 syringe is sold to the hospital for $60. A 20% markup is considered fair and reasonable so your auditors give it their blessing. Suddenly the hosital is paying $35 more per syringe but the supplier is still getting the same $25 they always have. You also sign up another local hospital to join the GPO and negotiate even higher rebate thresholds. Both hospitals auditors and lawyers point to the industry wide practice of GPOs and their perceived benefits, making plausible enough defenses against both criminal and civil complaints. The executive team of the GPO that came over from their parent orgs and orchestrated this whole thing get generous (but fair market rate) employment contracts and benefits that just happen to absorb the maojrity of that $35 per syringe profit so very little ends up bubbling back up to the non-profit parent entities.
Do the same thing with selling your real estate to a real estate holding company, which leases it back to you at market rates (that just keep going up and up). Do the same with your nurses – spin up a nursing staffing company and contract all your nurse staffing through it. Same with physicians – spin off any directly employed physicians into a physician staffing company and conmtract with them for services.
As long as you follow the appropriate corporate formalities, you suddenly have a ton of knobs you can turn to engineer any particular operating margin you want your healthcare system to be perceived as having. This isn't limited to hospital systems, but with the prevalent level of inefficient middlemen entities that already exist in the US healthcare system and contribute to runaway costs, it's pretty damn easy to throw a few of your own into the mix in a manner that passes legal scrutinty around self-dealing. There are also plenty of liability-related reasons to justify such setups as well, so it's not purely a shift around profits from your tax-exempt non-profit entity.
And insurers don't actually care much at all about any of this. As they're required to pay out 80% of premiums as claims and only allowed 20% for administrative expenses and profits, the easiest way to increase profits is for claims to increase (and subsequently allowing the absolute value of that 20% piece to grow). If hospital charges go up across the board because of these sorts of shenanigans, that's as much a boon to the insurers paying out as it is to whatever lucky winners are siphoning off the profits from those related entity subsidiaries.
[1] https://www.aeaweb.org/research/regulating-health-insurers-a...