Hospital Consolidation Costs Patients More

By November 15, 2018 Commentary

When something is wrong, it’s wrong, which is why I keep harping on the detrimental impacts of hospital consolidation, horizontal and vertical.  The New York Times joins the parade of researchers finding bad things for health plans and patients from the ongoing wave of such consolidation.   (NY Times Article)   Hospitals often try to justify their merger activity, as the article notes, by claiming it is necessary to reduce costs or improve quality and  care coordination.  There is little research evidence that supports any claim of benefits, but there is plenty that shows harms.  The Times commissioned an analysis of the 25 geographic markets with the highest rate of consolidation from 2010 to 2013.  The price of an average hospital stay rose dramatically in the years after consolidation occurred, rising from 11% and 54%.  One of the most puzzling things (not really, as I will explain in a minute) is why the federal antitrust enforcers and state ones have been so quiescent while this consolidation was occurring, almost never challenging a transaction even though the evidence for adverse effects has been strong.  Oh wait, maybe it is because these ever-larger health systems make significant political contributions and employ a lot of lobbyists to spread their misinformation.  The new administration has promised to take a different tack, but we will see.

In the New Haven market and along the Connecticut coast, regulators looked the other way while the hospital market shrunk to one, that is right, one health system.  As a result, while prices were already very high, they rose 25% from 2012 to 2014, while rising only 7% in the rest of the state.  The researchers noted that when the hospitals also buy doctor groups, the effect on prices is even more dramatic.  In more rural areas, hospitals often justify mergers by saying there isn’t enough business for more than one system; if that is the case, the regulatory response should be to set a low price that can be charged.  We cannot allow local monopolies; that automatically ensures that prices will be absurd and gives the hospital no reason to try to control costs.  In one such more rural area, following a consolidation to one system prices grew 54% from 2012 to 2014, while rising only 10% in the rest of the state.  And patients pay; their out-of-pocket cost sharing rises along with the prices.  As usual, hospital executives say they are investing in better facilities and better care, but that is BS, one thing they do accomplish is raising their already excessive seven-figure compensation packages, which is particularly egregious because these are supposedly non-profit institutions.

I am going to keep saying this and maybe someone will listen:  we need to 1) force a reversal of horizontal consolidation; 2) force a reversal of vertical consolidation; 3) consider all-payer rate-setting to limit the ability of these facilities to charge excessive prices; and 4) to help hospitals control their costs, very strict limits should be placed on executive compensation in non-profit systems.

Kevin Roche

Author Kevin Roche

The Healthy Skeptic is a website about the health care system, and is written by Kevin Roche, who has many years of experience working in the health industry through Roche Consulting, LLC. Mr. Roche is available to assist health care companies through consulting arrangements and may be reached at khroche@healthy-skeptic.com.

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