Hospital Consolidation and Medicare

 

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 healthcareMedPAC’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 Healthcare
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  1. Dr. Bastiat Member
    Dr. Bastiat
    @drbastiat

    Dr. Craniotomy: 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.”

    And I’m sure that the California attorney general thinks that Medicare is a good thing, even though it has no competitors.  Why does he think that competition is good for the private sector and not the public sector?  Or does he really think that?  Perhaps he’s thinking like you are:

    Dr. Craniotomy: 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.” 

    So he is either a fool, or a lying, sneaky statist who favors complete government control but won’t admit what his true goals are.  Which one is it?

    Neither of those are good.

    Joe Biden won 81 million votes in the last election.  Which one is he?

    • #1
  2. Kozak Member
    Kozak
    @Kozak

    Dr. Bastiat (View Comment):
    So he is either a fool, or a lying, sneaky statist who favors complete government control but won’t admit what his true goals are. 

    Joe Biden won 81 million votes in the last election. Which one is he?

    Yes.

    • #2
  3. Kozak Member
    Kozak
    @Kozak

    Dr. Craniotomy: When people complain that the “medical industrial complex” is increasing prices and decreasing quality, they tend to blame physicians.

    People need to understand that at this point physicians control almost nothing. Most are just cash cows for healthcare entities to maximize their profits.

    • #3
  4. MarciN Member
    MarciN
    @MarciN

    When I read Regina Herzlinger’s book in 2007 Who Killed Health Care?, what jumped out at me was how similar the political situation was to that of the education reform and school choice movements (rebellions). Republicans today often overlook the school choice proponents as one of the strong forces that converted many Democrats to Republicans and that got Ronald Reagan elected. The school choice movement was and remains formidable.

    I think we need a similar political storm for medical care. I think it could be done.

    • #4
  5. MiMac Thatcher
    MiMac
    @MiMac

    In my field if you have >30% Medicare/Medicaid your practice will be insolvent-this data is several years old & the situation is worse today. With the Obama administration’s mandating electronic healthcare records (EHR) and all the HIPPA rules etc, the private practice of medicine is dying. EHRs are incredibly expensive and require a lot of staff training- as does all the other compliance costs- but hospital systems &/or ultra-large groups can better carry the costs- so consolidation will continue.

    • #5
  6. Dr. Bastiat Member
    Dr. Bastiat
    @drbastiat

    MiMac (View Comment):

    In my field if you have >30% Medicare/Medicaid your practice will be insolvent-this data is several years old & the situation is worse today. With the Obama administration’s mandating electronic healthcare records (EHR) and all the HIPPA rules etc, the private practice of medicine is dying. EHRs are incredibly expensive and require a lot of staff training- as does all the other compliance costs- but hospital systems &/or ultra-large groups can better carry the costs- so consolidation will continue.

    Exactly correct.

    • #6
  7. carcat74 Member
    carcat74
    @carcat74

    Mr.C had a doctor growing up who swore the insurance companies were going to ruin health care. He said this in the early 70s, and you know, he was right!

    • #7
  8. Flicker Coolidge
    Flicker
    @Flicker

    carcat74 (View Comment):

    Mr.C had a doctor growing up who swore the insurance companies were going to ruin health care. He said this in the early 70s, and you know, he was right!

    Well, I suppose so but the government had a bigger role.  The government regulated health insurance.  And they took health insurance out of the hands of individuals and put it in the hands of employers, and gave employers tax incentives to boost this.  And they limited the scope of individual insurance companies to state boundaries.

    • #8
  9. Dr. Craniotomy Coolidge
    Dr. Craniotomy
    @Craniotomy

    Dr. Bastiat (View Comment):

    MiMac (View Comment):

    In my field if you have >30% Medicare/Medicaid your practice will be insolvent-this data is several years old & the situation is worse today. With the Obama administration’s mandating electronic healthcare records (EHR) and all the HIPPA rules etc, the private practice of medicine is dying. EHRs are incredibly expensive and require a lot of staff training- as does all the other compliance costs- but hospital systems &/or ultra-large groups can better carry the costs- so consolidation will continue.

    Exactly correct.

    This was a stated goal of the ACA.  Now Democrats are pretending like they never said that.  

    • #9
  10. Dr. Craniotomy Coolidge
    Dr. Craniotomy
    @Craniotomy

    MarciN (View Comment):

    When I read Regina Herzlinger’s book in 2007 Who Killed Health Care?, what jumped out at me was how similar the political situation was to that of the education reform and school choice movements (rebellions). Republicans today often overlook the school choice proponents as one of the strong forces that converted many Democrats to Republicans and that got Ronald Reagan elected. The school choice movement was and remains formidable.

    I think we need a similar political storm for medical care. I think it could be done.

    Exactly.  Republicans need to start saying we support a “healthcare choice” model that doesn’t exclude anybody.  We can’t keep arguing against M4A by citing the status quo. 

    • #10
  11. Stad Coolidge
    Stad
    @Stad

    Dr. Craniotomy: A timely study found that hospitals with larger volumes of Medicare patients are more likely to be insolvent.

    My doctor went bankrupt and closed his practice because he had too many Mediscare patients.  He told me (paraphrasing), “Medicare doesn’t pay on time, and it’s not enough.  At times I couldn’t pay my staff, and a lot of them quit.”

    • #11
  12. JustmeinAZ Member
    JustmeinAZ
    @JustmeinAZ

    I live in a small retirement town and we just got our own hospital about 5 years ago. They’ve already changed ownership once, maybe twice. They’ve added a lot of provider offices, have an excellent ER, lab and imaging department. They are about 5 minutes from my house and I’ve changed all my care that I can over to their providers and use their services whenever I can. The parking lot was packed when I was over there today. I don’t want anyone to be sick but I was gratified to see it. I just hope it’s enough to keep them viable.

    • #12
  13. WillowSpring Member
    WillowSpring
    @WillowSpring

    MiMac (View Comment):
    EHRs are incredibly expensive and require a lot of staff training-

    I am sure they are terrible from a Doctor’s standpoint.  They are awful from the patients side.

    My first Doctor – Dr. Livingood (seemed like a good omen) was a single office.  He never touched a computer since he didn’t have one, but he knew me.  When I got the blood test  to get married, he asked “Is this the owner of the dog that bit you last year?” (It was).  He had a receptionist, billing clerk and a single desk “staff office”

    My second doctor was part of a 4 Doctor practice with more paperwork, but no computer while he was seeing patients.  There were 4 office workers including one just for insurance.

    When we moved to the country, it was more like Doctor one, but he wound up with a computer taking his time during the exam. I think he saw the writing on the wall, retired and sold out to a large group.  Since the switch, the only medical person to touch me is the nice lady doing blood draws. Unless the problem is trivial, I get sent off to a specialist

    It seems like the patient care is on a strong decline while the government role is increasing. I don’t think that is a coincidence

    I would love to have some sort of “Doctor Choice”, like School Choice

    • #13
  14. The Reticulator Member
    The Reticulator
    @TheReticulator

    MarciN (View Comment):

    When I read Regina Herzlinger’s book in 2007 Who Killed Health Care?, what jumped out at me was how similar the political situation was to that of the education reform and school choice movements (rebellions). Republicans today often overlook the school choice proponents as one of the strong forces that converted many Democrats to Republicans and that got Ronald Reagan elected. The school choice movement was and remains formidable.

    I think we need a similar political storm for medical care. I think it could be done.

    Yes, but it’s harder because good medical care is a lot more capital-intensive these days. More professional-intensive, too.  

    • #14