By Victoria Spartz
December 19, 2022
Source: The Hill Photo / Image Source: Unsplash,
While serving as an Indiana state senator, I wrote an op-ed that government is always the biggest problem in health care and had a successful fight to deliver some needed reforms. However, these problems with our health care system have primarily been created by the federal government and cannot be resolved at the state level. Therefore, as a congresswoman, I joined the Healthy Future Taskforce to develop health care policy solutions.
Growing up in the Soviet Union, I witnessed firsthand how damaging full government control of health care can be. Regrettably, I see many of the same socialist concepts in our own health care system today. Government interventions have contributed to a monopoly problem in every corner of the market leading to increased consolidation, elimination of competition and rising prices.
Adam Smith, the father of economics, in his 1776 “The Wealth of Nations” book warned that the law which facilitates consolidation ultimately “ends in a conspiracy against the public … to raise prices.” Unfortunately, the modern health care market resembles what Smith so clearly described three centuries ago.
In the hospital market, consolidation occurs both horizontally — when two or more hospitals merge together, and vertically — when a hospital purchases a physician’s practice or clinic. Both forms of consolidation can directly contribute to the increased price of care and worse outcomes for patients.
The hospital merger trend has reached untold heights, with over 1,500 mergers in the past 20 years. In 2020, 90 percent of hospital markets qualified as “highly concentrated” by the FTC’s standards, according to MedPAC. This lack of competition has significant consequences for patients. Hospitals in highly concentrated markets charge higher prices for medical services and negotiate higher prices from health insurance providers, resulting in higher insurance premiums.
Additionally, hospital consolidation has drastically reduced the number of independent physician practices. Between 2019 and 2021, hospital systems acquired 36,200 additional physician practices across the country, to the point where in January 2022, 74 percent of physicians were employed by hospitals, health systems or corporate entities.
This consolidation reduces competition and allows a few large systems to dictate prices. We know that physician prices increase by an average of 14 percent after being acquired by a hospital system, according to a Northwestern University study, with no improvement in quality.
In my home state of Indiana, 91 percent of the hospital market is controlled by the largest hospital systems and over half of physicians are directly employed by the largest three hospital systems. As a result, Indiana has the 4th highest hospital facility prices in the country according to the RAND Hospital Price Transparency Study published earlier this year.
Hospitals will argue that consolidation allows them to achieve economies of scale and thus provide better quality and more coordinated care to patients, but recent studies by Rice University and Harvard University suggest otherwise. In fact, a 2019 New York Times article by health economist Austin Frakt argues that rates of mortality increase when competition falls. Hence, not only is consolidation increasing the price of care, but it could be a matter of life or death for patients.
To make matters worse, health care consolidation has led to the absence of any choice at all for consumers. Another study by Harvard University on hospital markets found that between 2007-2017, 19 percent of markets — representing 11.2 million Americans — were served by just a single hospital system.
Consolidation and lack of competition are not new phenomena, but they have been greatly exacerbated through policies targeted at health systems reform included in the 2010 Affordable Care Act (ACA), also known as ObamaCare. In fact, increased consolidation was a specific goal of the ACA, with President Obama’s top health care advisers writing that “these reforms will unleash forces that favor integration across the continuum of care.”
Provisions such as the ban on physician owned hospitals and increased experimentation with Accountable Care Organizations directly served to incentivize consolidation across the market. Other federal policies, such as the 340B Drug Discount Program and Medicare paying hospitals more than physician offices for the same services, also promote consolidation.
This misguided plan once again proves correct Ludwig von Mise’s observation that government intervention in the market always creates a new set of problems which will require additional government intervention in the future. Fortunately, commonsense solutions do exist to increase the quality and affordability of care for all Americans and restore the right competitive forces on the market.
The federal government created this hospital monopoly problem, so we now have two choices — either we restore competition by eliminating monopoly protections, or we form a complete monopoly — a full government takeover of health care. I prefer the former and have introduced legislation to remove barriers to competition and make health care more affordable for all Americans.
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