Most mainstream healthcare economists assume lowering healthcare prices and overall costs requires unleashing the power of competition in the hospital, physician and insurance markets.
Government, in their view, must pursue rigorous antitrust enforcement when hospital chains seek to merge or buy major physician practices.
The government's enthusiasm for pursuing antitrust remedies has waxed and waned, often depending on which political party is in power. Late in the Obama administration, there was an uptick in enforcement activity.
Yet the level of antitrust enforcement has had little impact on providers' and insurers' urge to merge, or the march of consolidation. A new analysis of 346 metropolitan areas, part of a suite of articles on "market consolidation" in the latest issue of Health Affairs, showed mergers increased dramatically between 2010 and 2016. Today, 90% of hospital markets, 65% of physician specialist markets and 57% of insurance markets are considered highly concentrated.
The special issue aimed most of the blame for rising prices at provider consolidation. One article did note that markets with high concentration in both insurer and provider sectors had slightly lower healthcare prices, but concluded, "significant premium increases and the profits of the health insurance industry in recent years suggest that little if any of the benefits of insurer bargaining power are being passed along to consumers."
The pace of mergers and escalating concentration in both provider and insurance markets shows no sign of abating. Struggling community hospitals are reluctantly giving up their independence to join larger chains. The nation's Catholic systems are rapidly consolidating, with stronger systems taking over the weaker ones.
The idea that antitrust can reverse this trend-or should-is misplaced. These mergers are taking place because of long-term trends transforming the delivery of healthcare: declining hospital admissions and lengths of stay, and advancing technology turning complex surgeries into outpatient procedures. The hassle of running a small physician practice and lifestyle concerns are driving doctors, especially young ones, into the arms of larger institutions.
Even without rigorous antitrust enforcement, new entrants-such as ambulatory surgical centers and storefront clinics-are upending the traditional patient relationships on which vertically integrated systems' revenue streams depend. Insurers are exerting their power in ways not seen since the 1990s: witness Anthem's recent move to cut reimbursement for imaging services done in hospital outpatient settings.
Several commentaries in the special issue endorsed radical measures beyond antitrust to rein in hospital and physician prices. They encouraged insurance regulators at the state level to begin doing for private insurers what government bureaucrats have long done for Medicare and Medicaid-set prices on discrete services.
One idea is to set the maximum price at some multiple of Medicare rates. Another is to rigorously regulate rates at networks' "must have" tertiary-care institutions so they can't price-gouge based on their unique ability to care for complex cases.
It's hard to imagine extending price regulation to the non-government half of the healthcare market will get very far in Republican-controlled state legislatures. But some Democratic-controlled states may give it a try.
There have been many times in U.S. economic history when price regulation of monopolies or near-monopolies kept overall costs in check while preserving providers' financial viability. It could work in healthcare, too. After all, Medicare and Medicaid already set prices.
But one reason to avoid this path is that it presumes our current "sick care" system, where providers deliver discrete episodes of care at prices set either through government regulation or private negotiation, will remain a permanent fixture in our society. It abandons the idea that the healthcare system should strive to improve the overall health of the American people.
It's an impoverished vision for the future of healthcare. We can do better.
