The American Enterprise Institute didn鈥檛 plan its panel last week on hospital consolidation to聽coincide with Steve Brill鈥檚 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.
鈥淔inally the evidence is catching up with the reality that we have a humongous monopoly problem in health care,鈥 said Robert Murray, a consultant and former director of Maryland鈥檚 unique hospital rate-setting commission. Quoting former Medicare administrator Bruce Vladeck,聽he described the current system聽as 鈥渁 massive environment for the reallocation of income鈥 from households and employers to health care providers.
Barak Richman, law professor at Duke University, was even harsher: 鈥淲e are in a real disaster,鈥 he told the audience. 鈥淭he house indeed is on fire. It鈥檚 been on fire for a long time.鈥
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鈥檚 unique聽financing聽system 鈥 in which employers pay most聽expenses and demand rarely聽slackens no matter how high prices go 鈥 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鈥檚聽hot聽streak may have come too late.
鈥淥nce there鈥檚 been a lot of consolidation it鈥檚 very hard to undo,鈥 said Carnegie Mellon economist Martin Gaynor. 鈥淯nfortunately a lot of that has already occurred in the hospital sector.鈥
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 鈥渁n anti-competitive sham鈥 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,鈥 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.
鈥淒o we really think we can be good consumers when we are in the back of an ambulance going to the emergency room?鈥 he asked. 鈥淎ll of these things are peanuts. They won鈥檛 make a difference overall.鈥
He even questioned whether Maryland鈥檚 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 鈥 鈥渃all it 150 percent, 125 percent鈥 鈥 of Medicare reimbursement. Princeton economist Uwe Reinhardt made Friday on the New York Times鈥 Economix blog.
Regulators aren鈥檛 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鈥檚 ability to oversee聽ACOs, which,聽after all,聽he said, involve more provider combinations. But he suggested聽they鈥檒l need to pay attention.
鈥淎COs do involve consolidation, and with consolidation we might see the exacerbation of all the problems we鈥檝e seen,鈥 Richman said. 鈥淲hat we have in the industry, in the provider market, is a hard-wired market strategy to seek and exploit market power.鈥
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