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Exposing The Big Fail: How COVID-19 Revealed America’s Health Divide

Investigative journalist and author Bethany McLean dissects the nation’s disjointed pandemic response.

When COVID-19 first emerged in late 2019, most people had little idea of the profound impact it would have on the world. The pandemic closed borders, restricted travel, disrupted supply chains, and upended the world economy. In the nearly four years since, there have been more than 700 million confirmed cases and nearly 7 million deaths worldwide. In the US, more than 1.1 million lives were lost. Hundreds of Americans are still dying from the effects of the virus every day.

The nation’s response to the COVID pandemic faced several unique challenges, contributing to its relatively worse outcomes compared to other advanced countries. Factors like fragmented leadership, delayed and inconsistent messaging, underinvestment in public health infrastructure, and political polarization all played pivotal roles. 

On November 3, investigative reporter and author Bethany McLean was guest speaker at an event hosted by the Corporations and Society Initiative (CASI) at Stanford Graduate School of Business.  She came to talk about her latest book, The Big Fail: What the Pandemic Revealed About Who America Protects and Who It Leaves Behind.

McLean co-authored the book with Joe Nocera, her longtime editor at Fortune magazine. He served as editor on her first book, The Smartest Guys in the Room, about the Enron accounting scandal, and together, they co-authored her second book, All the Devils are Here, The Hidden History of the Financial Crisis.  Their work consistently aims to dig beyond surface-level headlines and provide readers with a deeper understanding of the underlying factors that played a role in the outcomes. The Big Fail follows this tradition, offering an in-depth analysis of the U.S. response to the COVID-19 pandemic.

CASI student leader and moderator Thomas Newcomb opened the discussion by pointing to COVID’s remarkably high death rate in the U.S. and asked what went wrong.

“The numbers are staggering,” McLean declared. “Part of that is a story of an incompetent and fragmented response by the President at the time, but I think it is magical thinking to believe that that was the entire problem.”

McLean pointed out that one of the biggest issues for the failed response is the nation’s two-tiered healthcare system, which resulted in dramatically different health outcomes based on geographic location, neighborhood, and income level.  She said that compelling evidence for huge inequities in healthcare is found in The Death Gap, a book by David Ansel who is a physician at Rush University Hospital in Chicago. She said that “when Ansel compared death rates in Chicago, he found that white wealthy Chicagoans were living about 25 years longer than poor African American Chicagoans and he tried to explore the reasons why.”

“There was this chilling statistic in his book that during all the years he worked in safety net hospitals, all of his patients were organ donors for the wealthy people who needed them and never once did an organ come from the other direction.”

McLean drew parallels in this story with what happened during COVID. “COVID preyed on people with pre-existing illnesses, and we have a health care system that doesn't keep people healthy.” 

During the pandemic, many hospitals were faced with the threat of bankruptcy and had to be rescued with government financial support.  At the very time that the hospitals were needed the most and were the busiest, she said, they were going bankrupt.  

“They're paid for elective surgeries, and I think the pandemic just laid bare how screwed up our healthcare system is and how it leaves people without access to healthcare.”

McLean said one of the things that struck her the most in the early stages of the pandemic was seeing that the terrible scenes from overcrowded hospitals were all from poor hospitals.

“You weren't seeing or hearing this from wealthy hospitals and wealthy parts of the country, and I thought, wait, what is this? What's happening here? So, I think that's one part of the story we tell.”

McLean explained that another angle of the story that she and Nocera examined was the constant pressure for greater profits.

“If you are pushing to make everything as profitable as possible, you're also making it more and more fragile. We saw that supply chains broke in COVID, starting with PPE (personal protective equipment), but that extended through the course of the pandemic even to semiconductor chips. We've had this realization that we have let go of a lot of capacity here.”

Her analysis was in line with the discussion CASI offered in its Spring 2020 event on the dire situation of the US healthcare system at the onset of the pandemic.

McLean then turned to the story of Operation Warp Speed (OWS) which she called a “tremendous triumph” and a powerful example of how business and government can work together. Specifically, she mentioned Alex Azar, the then-Secretary of Health and Human Services who understood that the vaccine companies on their own were never going to make a vaccine.

“That's just not the way the market is, the way market incentives work today. Vaccines aren't rewarded by shareholders. There have been too many cases where companies have made vaccines in response to a pandemic only to see the demand for their products go away and they get penalized by shareholders.”

To create and distribute a successful COVID vaccine, McLean said, “we needed government incentives. And, because very little vaccine manufacturing was done in the US anymore, we also needed the government to get involved in order to mobilize industrially.” 

This rare, public-private partnership revealed a deeper truth. “You have to set the right ground rules.  There isn't really any such thing as a free market. It's all in how the ground rules are set.”

Newcomb shifted the focus of the discussion to the way huge amounts of money were doled out in the pandemic response. Congress allocated $175 billion in federal relief funds for hospitals and healthcare organizations. Newcomb quoted Yale economist Zach Cooper, who criticized the distribution as "the dumbest way you could have designed it," because it was based on revenues.

McLean agreed and said to make matters worse, the hospitals with the highest revenues did not have the highest number of COVID patients. She said the program turned into a handout to the wealthiest of hospitals who didn’t necessarily need the funding while hospitals that were caring for the most severe and highest number of COVID patients didn’t have the revenues and, therefore, received less money.

McLean was quick to admit she has sympathy for some of the mistakes that policymakers made in trying to get money out the door quickly. But she said it also points to a deeper issue at the heart of our healthcare system.

“We have this system set up where hospital survival is dependent on their ability to make money, yet the entire ability to make money is societally constructed by the level of government reimbursement. The whole system by its very setup is screwed up.”

McLean talked about a Johns Hopkins study she discovered during her investigative reporting for the book. It looked at the most expensive hospitals in the US based on the amount of their mark up over Medicare prices. The majority of hospitals in the top 10 belonged to Hospital Corporation of America, (HCA) which, according to McLean is “the wealthiest, most profitable hospital chain in the country.”

“They succeed because they're able to mark up their prices [and] because they play games with insurance and basically have a monopoly.”

“It's a mockery, or a facsimile of capitalism at its worst, where the game is rigged.”

Newcomb circled back to Operation Warp Speed, asking what we could learn from its success and how those lessons could be applied in the future.

McLean said despite the highly polarized and contentious political environment at the time, people like Moncef Slaoui, who led Operation Warp Speed, stepped up to the plate to help the nation because it was “the right thing to do.”

Slaoui worked at GlaxoSmithKline for 30 years and retired in 2017. In May 2020, then-President Donald Trump named him to head Operation Warp Speed, the government effort to develop, produce and deliver vaccines in the wake of COVID.  McLean explained that Slaoui was an immigrant who was a socialist growing up in Morocco and is also a registered Democrat. McLean told the audience that to avoid any conflict of interest, he resigned from the board at Moderna, one of the companies the government had chosen to develop the vaccine. This meant he had to divest a sizeable number of shares to take the job. “He did the right thing for his country instead of saying, oh, no, this is being run by the Trump administration. I'm not doing this,” she said.  “The people who ran Operation Warp Speed likened it to the Manhattan Project.” She also praised Army General Gustav Perna, who served as Chief Operating Officer of OWS. He and his team worked closely with the Department of Defense and Health and Human Services to set up a network of 70,000 sites across 64 jurisdictions around the country to provide millions of vaccine doses to Americans.

“Even as Warp Speed was a cooperation between the government and the private sector, it was a cooperation between the Army and people who'd come from the private sector.  And one of the surprising things to everybody was how great a work experience it was and how much they had to learn from each other.”

During the Q-and-A session, McLean spoke to the issue of income inequality and its impact during the pandemic. As her reporting showed, companies were quick to applaud the nation’s frontline, essential workers for keeping stores open and putting their lives at risk, yet they still earned below average wages.

“Brookings had an interesting study on this and basically shareholders of these companies made tons of money in the form of dividends, while the frontline workers got a fraction of the profits that were made.”

McLean worried openly that actions needed to solve the problems that emerged during the pandemic would become another missed opportunity.

“I used to think that every crisis would have a silver lining and that it would showcase a problem and then obviously we would fix it, right?”

“When Enron went bankrupt, everybody started talking about how short-term American business was,” she said.  “Twenty-plus years later, we're still talking about American business being too short term and if anything, it's gotten even more short term.”

She went on to explain how she thought the financial crisis would force regulators to look at how banks were capitalized, and how they could create a more stable banking system, but over a decade later, “we have done very little of that. I'd like to believe that out of this crisis, they are going to be lessons learned and people are going to take action, but I'm not sure that's true.”

McLean also spoke about the role private equity played in the healthcare industry. She referenced research from Eileen Appelbaum and Rosemary Batt  that looked at how private equity investors undermine the financial stability of hospitals. In 2011, she noted, seven of the biggest hospital chains in the country were owned by private equity firms.

“Private equity is almost entirely gone from the hospital industry,” she said. “But they didn't leave behind an improved industry that was functioning more efficiently. They left behind a debt-ridden mess, in essence, and yet they managed to make their money anyway.”

As McLean explained, investors made their money, in part, by selling the underlying real estate to an Alabama Real Estate Investment Trust (REIT) called Medical Properties Trust.

“It does beg this larger question of, do you want somebody who, by law, has as their only goal making money for investors to be involved in healthcare? Shouldn't some other values be at play?”

She went on to argue that government has a responsibility to be very clear about what rules are being set and yet, it doesn’t seem to do that well.

“I think it is inevitable that private business will always be one step ahead of regulators.

That is why ground rules are so important. If you set the right ground rules, then you don't have to be involved in the micro details of how this thing works.”

McLean pointed to executive compensation and wage structures as some of the issues that need better ground rules. But she stopped short of offering any concrete solutions.

“One of the great things about being a journalist is I get to talk about all the problems in the world and diagnose them and have no idea how to fix them.

“So that's up to you, in this room, to figure out how to fix them.”

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