Healthcare economists insist mergers and regional monopolies give hospitals the market power to impose huge price hikes and saddle patients with ever higher bills.
A new study from the not-for-profit Health Care Cost Institute supports this thesis. Its review of the nation’s 112 largest metro areas showed a growing concentration in the hospital industry. No surprise there. Then, using claims provided by private insurers, the study found that “metros where hospital markets became increasingly concentrated also tended to see larger increases in their inpatient prices.”
But what about insurers? The American Medical Association’s annual survey found 75% of the nation’s 382 metro-area insurer markets were highly concentrated. Insurer “monopoly power” enabled them to “raise and maintain premiums above competitive levels instead of the passing of any benefits obtained through to consumers,” the study concluded.
Let’s look next at physicians, whose specialty societies operate like guilds, and drug companies, whose patents allow cartel-like price-fixing. Modern Healthcare’s annual survey on physician compensation showed salaries rose 3% a year on average between 2010 and 2019, a full percentage point higher than inflation.
The average masks the huge gains made by some specialties. Orthopedic surgeons and invasive cardiologists now make nearly $600,000 a year. Intensivists, hospitalists and emergency room docs averaged annual pay gains of 5.1%, 4.5% and 3.9%, respectively.
What’s left to say about the drug industry? At the retail level, average spending on drugs (including insurer and out-of-pocket costs) rose 3.9% on average between 2011 and 2017, according to the Peterson-Kaiser Health System Tracker. Total drug spending averaged 4.8% annual increases over those six years, according to CMS economists.
The picture that emerges from this broader array of data isn’t pretty. It’s not a greedy cabal of hospital execs that is driving costs higher. Healthcare has multiple cartels that are supposed to keep each other in check, but in fact engage in pseudo-negotiations that lead to higher prices on everything.
Of late, hospitals have taken the most heat for this sorry state of affairs. The media are busy shaming finance departments that rush to court to collect unpaid bills from near-destitute patients. A House Judiciary Committee hearing last March on anticompetitive conduct in healthcare focused exclusively on hospital mergers.
But the problems are structural. Why doesn’t Congress hold hearings on fee-for-service medicine and how it drives unnecessary utilization, undermines care coordination and allows hospitals and doctors to needlessly grow revenue through volume-driven healthcare? When will the administration seriously challenge patent-driven drug and device prices that are completely unmoored from medical value?
In recent weeks, CMS Administrator Seema Verma has taken to issuing stern warnings to hospital executives about the need to move toward value-based care. “We can choose Medicare for All or a public option, doubling down on government and a one-size-fits-all, socialist approach, with government price-setting … (or move) to a system of competition and value,” she told an American Hospital Association meeting.
That’s a false juxtaposition. Over the past five years, prices for all medical services have gone up 8%, less than the rate of inflation. How can that be, given most peoples’ experiences? Simple. The prices paid by Medicare have only gone up 5.1%; Medicaid just 3.9%. Private-sector prices, on the other hand, have gone up a cumulative 11.2%, according to the Altarum Center for Value in Health Care.
Price controls aren’t socialism. Nor are budget caps like the ones being used in Maryland. They are as American as Medicare and Medicaid. And they work.
Antitrust enforcement, on the other hand, only affects the privately insured hospital market. More price competition in that shrinking sphere doesn’t begin to address the serious problems caused by healthcare’s multiple cartels.