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Joe Biden claims he wants to combat hospital consolidation and anti-competitive business practices. The “infrastructure” reconciliation bill will make that task more difficult. It expands the scope of Medicare.
Medicare is part of the problem.
A timely study found that hospitals with larger volumes of Medicare patients are more likely to be insolvent. This leads to an increase in acquisitions and mergers of these hospitals.
Also timely is the Sutter Hospital antitrust settlement. This $575 million ruling came when Sutter was found to be employing anticompetitive practices in Northern California (hardly a bastion of free-market ideals). Even the California attorney general got on board with the ruling, stating that “a competitive healthcare market is essential to ensuring patients and families aren’t bearing the brunt of healthcare costs while one company dominates the market.”
So how does Medicare lead to hospital consolidation? It’s simple economics. Medicare reimburses approximately half as much as private insurance. If hospital reimbursements don’t cover costs, hospitals become insolvent. Even non-profits must cover their labor, utilities, pharmaceuticals, rent, etc. Insolvent hospitals get bought up by large conglomerates like Sutter.
When hospitals negotiate with private payers, they can negotiate prices that cover those costs. Medicare reimbursement is set by the federal government. There is no negotiation. There’s no way to cover increases in costs besides shifting that burden to private payers.
The $3.5 trillion “infrastructure” bill will make things worse. It will decrease the age for Medicare eligibility, adding millions to Medicare, taking them off private insurance. This will mean more Medicare patients, more insolvent hospitals, and more hospital consolidation. The COVID pandemic, which deprived hospitals of revenue from elective surgeries (one of the few dependable revenue generators in healthcare), is already exacerbating the problem.
This goes contrary to Biden’s stated goal of decreasing hospital consolidation.
There is debate over the societal benefit to hospital consolidation. Some argue that it increases care coordination and integration. They use free-market terms like “economies of scale.” Others argue that their practices are anti-competitive.
The research tends to agree with the detractors. Martin Gaynor, economist at Carnegie Mellon, in a 2018 report to congress, summarized how consolidation disrupts the free market functioning of US healthcare. MedPAC’s 2020 report to congress stated the same. There is also little evidence that consolidation & care integration improve outcomes. A recent New England Journal of Medicine study found no improvement in readmission or mortality rates with hospital consolidation. It also found that patients reported worse experiences in consolidated systems.
When people complain that the “medical-industrial complex” is increasing prices and decreasing quality, they tend to blame physicians. It’s legislation like this that really drives it. This is anti-competitive, anti-market legislation being passed under the guise of “the greater good.” It’s similar to legislation that outlawed physician-owned hospitals, despite their potential to reverse the negative side-effects of consolidation.
A cynic would argue that it’s a ploy to increase the cost of private insurance as a hidden tax on those who use it. A greater cynic would argue the point is to make private insurance prohibitively expensive so more Americans clamor for “Medicare for all.” Continue to disrupt the free market and then point to the remnants and say “see the market doesn’t work! The government must do a full takeover.”
The evidence is clear. Expanding Medicare will increase hospital consolidation and worsen outcomes. It will increase prices on those left using private insurance. It’ll strengthen the “medical-industrial complex.” It’s just another step on the way towards complete government takeover of healthcare.Published in