The American Enterprise Institute didn’t plan its panel last week on hospital consolidation to聽coincide with Steve Brill’s much-talked-about Time magazine article on hospital prices. But the Friday session聽could have taken the piece, , as its text. Participants mentioned it several times.
The basic message, , is that the hospital market is broken and may not be fixable聽by the health law or聽other attempts at reform. They blamed much of the high price of health care on聽mergers over the past 30 years that have given hospitals “oligopoly” power to charge prices far higher than what would exist with more聽competition.
“Finally the evidence is catching up with the reality that we have a humongous monopoly problem in health care,” said Robert Murray, a consultant and former director of Maryland’s unique hospital rate-setting commission. Quoting former Medicare administrator Bruce Vladeck,聽he described the current system聽as “a massive environment for the reallocation of income” from households and employers to health care providers.
Barak Richman, law professor at Duke University, was even harsher: “We are in a real disaster,” he told the audience. “The house indeed is on fire. It’s been on fire for a long time.”
Judges聽got much of the blame. Thinking that monopolistic mergers of nonprofit hospitals would prove less聽harmful than聽combinations of for-profit companies in other industries,聽the courts approved聽deals聽that聽never would have been allowed in, say, the supermarket business. The judges聽were wrong,聽. Health care’s unique聽financing聽system — in which employers pay most聽expenses and demand rarely聽slackens no matter how high prices go — gives consolidated hospitals even more power than conventional oligopolists, said Richman.
What to do? The Federal Trade Commission, the聽antitrust watchdog, has been聽winning cases opposing hospital mergers. A big victory came last month when the Supreme Court to challenge a Georgia hospital deal聽that the agency argued would create a monopoly. But the FTC’s聽hot聽streak may have come too late.
“Once there’s been a lot of consolidation it’s very hard to undo,” said Carnegie Mellon economist Martin Gaynor. “Unfortunately a lot of that has already occurred in the hospital sector.”
Many hold聽hope for accountable care organizations, alliances of doctors and hospitals聽working together under incentives to deliver better care more efficiently.聽The AEI panel was skeptical. ACOs have the potential to be “an anti-competitive sham” dominated by hospitals, Gaynor said.
The use of high-quality, out-of-town hospitals by large employers, exemplified by with Mayo Clinic and other providers, might help, said Gaynor.
鈥淭hat opens up local markets to competition from distant providers,” he聽said.
But Murray was skeptical of聽distant competition as well as聽ACOs and hopes of getting consumers to compare prices and be better health-care shoppers.
“Do we really think we can be good consumers when we are in the back of an ambulance going to the emergency room?” he asked. “All of these things are peanuts. They won’t make a difference overall.”
He even questioned whether Maryland’s system聽of hospital rate-setting, which he ran for years, could work elsewhere. His ideas: rationalize the system by giving primary care doctors more power and聽increasing their pay, and limit all payments to some multiple — “call it 150 percent, 125 percent” — of Medicare reimbursement. Princeton economist Uwe Reinhardt made Friday on the New York Times’ Economix blog.
Regulators aren’t out of ammo, Richman argued. They can challenge contractual terms between hospitals and insurers that limit competition, for example. He took comfort in the聽FTC’s ability to oversee聽ACOs, which,聽after all,聽he said, involve more provider combinations. But he suggested聽they’ll need to pay attention.
鈥淎COs do involve consolidation, and with consolidation we might see the exacerbation of all the problems we’ve seen,” Richman said. “What we have in the industry, in the provider market, is a hard-wired market strategy to seek and exploit market power.”
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