By Ben Domenech
October 1, 2014 at 5:00 am ET
One of the underlying issues which has received little attention in the right’s objections to the Affordable Care Act is its effect of driving further consolidation and hospital mergers.
By eliminating patient choices, hospital mergers often establish local monopolies, weaken accountability for low-quality care, and drive up the prices which patients, insurers, and taxpayers are forced to pay for medical services.
The Wall Street Journal recently published a piece by Kenneth Davis, CEO of the Mount Sinai health system, which represents pushback from the hospital industry against growing criticism of consolidation.
But there are a number of problems with Davis’s argument about the impact of mergers. When it comes to health care in America, it’s largely accepted on the right and left that the real problem is costs.
For his part, Davis maintains that hospital mergers equate to more efficient delivery of health care services.
Yet, while hospital mergers may improve efficiency when they eliminate overcapacity, that is not the motivation behind the merger wave we’ve seen in recent years. The real motivation is increased pricing power.
Monopoly power allows hospitals to raise prices, and the evidence is clear that prices are higher in more consolidated local markets. The merger of hospitals leads to raised prices, and studies have found prices rising roughly twenty percent after mergers in uncompetitive markets:
Washington is increasingly aware that this will lead to a higher cost burden on taxpayers and consumers. See these recent comments from the Federal Trade Commission’s Martin Gaynor:
Hospital consolidation since the enactment of the Affordable Care Act is a potential threat to free markets and health care costs, and one to which the Federal Trade Commission is paying close attention, said Martin Gaynor, director of the Bureau of Economics at the FTC.
Other panelists at a POLITICO Pro Health Care breakfast briefing Tuesday said the ACA was forcing expensive changes that required consolidation.
“The ACA and all other reforms in health care system are built on top of the market-based system” and “will only work as well as those markets,” Gaynor said. More than 1,000 consolidations occurred in the 1990s, and mergers have ticked up again since the ACA was enacted. Some, though not all, of these consolidations are a threat to the market system, he said.
“Layered on top of many markets that are dominated by a small number of very large systems, it can be a concern so it’s something we pay very close attention to,” Gaynor said.
Barak Richman, a Duke University law professor, said there was “very little evidence” that consolidation had “provided any efficiencies at all.”
“Barak is right,” Gaynor said. “We’ve had mergers for a very long time. There are a lot of data, and we’ve seen almost no evidence of real efficiency claims. That doesn’t mean it won’t happen, but the most recent evidence doesn’t support those claims.”
For his part, Davis is not just defending hospital mergers on the basis of efficiency claims – he’s also advocating greater integration between the insurance and hospital industries. As a matter of policy, this would effectively force consumers into HMOs-like plans. While there is a place for restrictive HMO plans as a cheaper source of coverage, people should be free to pay for better alternatives. The job of an HMO is to keep costs down, and this means saying no to people for a lot of what they want.
Davis seems to be endorsing Accountable Care Organizations without mentioning them by name, which is a little odd. But perhaps that’s indicative of the shift that is taking place before our eyes. Very few people would want everyone to be pushed into an HMO-style experience if such a system was openly proposed. If ACOs are bound for market dominance, as Davis implies, the real reason could be that they will dry up people’s alternative choices before they even realize what has taken place.
For as much as the American right fears single-payer, in some ways the larger threat is single-provider. Increased hospital mergers in areas without real competition will only increase this threat, and the taxpayer and consumer will be left with no other option but to pay the bill.
Benjamin Domenech is a senior fellow at The Heartland Institute and publisher of The Federalist.