Warning: This post is déjà vu all over again. Hospitals are growing. There used to be hospitals in every town. Now there are two or three major health care systems that dominate every region. As hospitals grow bigger in size so do their prices. The Wall Street Journal summed this phenomenon saying, “As Hospitals Grow, So Does Your Bill.”
Hospital executives argue that mergers lead to improved efficiency and better outcomes for patients. But, after years of rampant consolidation between hospitals, most regions in the U.S. are now dominated by a few large players. That has led to higher prices and no significant improvements in patient care.
Hospitals do not compete on price or quality. Hospital gains in efficiencies of scale do not translate into lower prices. Quite the opposite. Hospitals compete for insured patients by building facilities in the suburbs, with nice rooms that look more like a hotel than a clinical setting. These features do nothing to lower cost or boost quality.
Over the past two decades, there have been more than 1,000 mergers among the country’s approximately 5,000 hospitals, according to a forthcoming paper in American Economic Review: Insights. During that period, the Federal Trade Commission took action against only 13 transactions, even though more than 200 of the deals would have met the FTC’s bar for lessening competition.
The Federal Trade Commission is belatedly taking action against hospital consolidation.
Earlier this year, the FTC had challenged North Carolina-based Novant Health’s acquisition of two other hospitals in the state from Community Health Systems, arguing that it would give Novant an “eye-popping 64% share of the market” in the Eastern Lake Norman area. On Wednesday, a federal court judge denied the FTC’s bid for a preliminary injunction, arguing that the benefits of Novant acquiring struggling hospitals outweigh concerns about competition.
The judge apparently assumed that Novant is willing to subsidize struggling hospitals in far flung areas with cash from the more lucrative metropolitan hospitals. This is unlikely. A more likely scenario is that Novant believes it can raise prices in small town hospitals using its market power.
But tougher scrutiny on mergers between hospitals in the same geographic area has done nothing to slow down another approach to expansion: Hospitals buying up doctor’s practices.To bring costs down, those paying for care with your money—insurers, the government and employers—have sought to move some of that spending into places like ambulatory surgery centers.In response, hospitals have snapped up or partnered with surgery centers and medical practices, too.
Hospitals now employ more than half of the nation’s doctors. If there was ever an example of the fox guarding the henhouse this is probably it. Only doctors can perform surgery, prescribe drugs or order care of any sort. Thus, by employing doctors directly hospitals gain access to doctors’ prescribing authority and control what doctors recommend. I always discuss my care with my doctors, with cost as an important consideration. My doctors have all been considerate of my concerns. A physician once told me he was 85% to 90% sure my health complaint was minor. If I wanted to be 100% sure there were two tests he could order. He had no problem when I decided not to do the tests.
“Once a physician shifts from being at an independent practice to being employed or affiliated with a vertically integrated health system, they change their referral patterns and direct traffic to places like the hospital outpatient department,” she says.
Consider this: If my aforementioned doctor had worked for a hospital my care would probably have been more aggressive. My doctor’s supervisors at the hospital could penalize him if he didn’t follow aggressive protocols recommended by the electronic medical record (EMR) system that tracked and billed for his work. Failing to follow aggressive care recommendations might require justifying any deviation to his superiors. Furthermore, his employer would probably require the two tests be performed at the hospital rather than an independent outpatient setting. I could have gotten the two tests for about $700 but at a hospital they would likely have cost five, seven or times that amount – possibly more with facility fees.
When Americans need medical care at least initially they mostly use over-the-counter drugs. When health needs rise consumers see their doctors, who prescribe drugs. About 90% of drugs used are low-cost generic drugs. Most families rarely need hospital care. Perhaps the birth of their children occurred at a hospital. Maybe they have minor surgery sometime in their life. Hospitals are the last place patients want to be and are used sparingly for all but the most serious health complains. Yet, the hospital industry consumes around 8% of gross domestic product (GDP). This figure is growing at three times the rates of consumer inflation. We all have a stake in slowing this attack on our wallets.
This Wall Street Journal article is the second in a 3-part series: As Hospitals Grow, So Does Your Bill