Uncovering the truth on hospital mergers
The American healthcare system is out of control. An estimated 25 percent of Americans age 25-54 have unpaid medical bills hanging over their heads, resulting in mounting debt and damaged credit scores. In fact, the hospital industry now takes a bigger bite out of our finances than Uncle Sam does. To put this more into perspective, the average household paid more in hospital costs in 2018 than in federal taxes. This is a shocking trend that’s only set to continue with the gap between taxes and skyrocketing hospital bills growing each year.
Consolidation is ultimately the culprit behind the increasingly staggering cost of healthcare today. Over the past decade, hospital mergers and acquisitions have created monopolies in many parts of the country, reducing competition and driving up prices for privately insured and uninsured patients. Large hospital systems buy smaller hospitals, then raise prices for higher profit, leaving local residents without a choice but to pay the exorbitant fees.
While it’s widely accepted that competition is a key factor in lowering costs and improving the quality of services in a marketplace, American healthcare isn’t held to the same standard as other industries. One argument in favor of hospital consolidation has been that larger hospital systems can leverage “economies of scale” to offer better patient care for lower prices. However, studies have actually shown that a more competitive hospital industry has a positive impact on both patients’ health and quality of care.
One study of the British National Health System revealed that a government policy encouraging hospital competition reduced mortality rates and lengths of hospital stays. A study of Medicare found severely ill heart-attack patients “in competitive markets receive more intensive treatment than in uncompetitive markets, and have significantly better health outcomes.” Likewise, concentrations of physician specialty groups also have a negative effect on patient wellbeing.
In other words, not only do large hospital monopolies drive up prices, they do nothing to improve patient care – and, in fact, may actually be detrimental to healthcare outcomes. However, tell that to the politically influential hospital industry, which reportedly spent around $99.7 million in 2018 lobbying the government for favorable legislation.
What’s the solution? Some tout the benefits of single-payer or Medicare-for-All healthcare, while others caution against unacceptable outcomes for consumers under such a federally regulated system. However, still others are searching for a middle ground – a free-market system that spurs competition among hospitals while improving healthcare quality and value.
In an editorial Forbes’ Policy Editor and president of the Foundation for Research on Equal Opportunity Avik Roy describes a proposed bill featuring regulations that would “eliminate the ability of local hospital monopolies to charge exploitative prices, by precluding them from charging the privately insured and uninsured more than they charge Medicare.” A solution such as this would potentially avoid the drawbacks a top-down, federally run system while making access to quality healthcare more affordable.
We need a more competitive market to rein in the excessive pricing practices of large hospital systems and return value and quality of care to American healthcare. Until then, the average family will continue to struggle with the financial burden of rising hospital costs