By Barak Richman
January 1, 2019
Source: Politico Photo / Image Source: Unsplash,
Antitrust strategies could go a long way toward reining in rising health care costs. Some things in health care are not so complicated. One rudimentary principle of economics applies in health care markets, as anywhere: When there’s less competition, prices are higher. This has been especially true for America’s hospitals, the largest driver of the increasing cost of health care.
Hospital systems have experienced rapid consolidation over the past three decades. An abundance of research examining hospital acquisitions and mergers over that period reveals some basic truths. When nearby hospitals merge, prices go up; cities with fewer competing hospitals exhibit higher prices; and even hospitals acquired by distant health systems increase prices more than unacquired, stand-alone hospitals. In fact, most of America’s unsustainable health care costs are driven by hospital care, and most of that price inflation over the past decades has been due to hospital mergers. Perhaps for this reason, there is a newfound fervor in Washington to use antitrust laws more aggressively in the health care sector. Enforcement enthusiasts are both atop the Federal Trade Commission and the Department of Justice, and both agencies have taken steps to target concentrated health care markets. Among Health and Human Services Secretary Xavier Becerra’s accomplishments as California’s attorney general — and one of the reasons he was tapped for the job — was a landmark antitrust suit against a major hospital system. House and Senate committees in the last Congress held hearings that featured critics of hospital mergers and mega-mergers, and President Biden issued a sweeping executive order on “Promoting Competition in the American Economy,” which highlighted the hospital sector as one in which consolidation has been especially costly. This has been a long time coming. Antitrust policymakers failed to halt the rapid consolidation of hospital markets in part because many judges and health policy leaders used to believe, falsely, that hospital consolidation led to efficiencies and better care delivery, and it took years of painstaking academic research to arrive at this updated understanding of the market. Although hospital systems continue to consolidate, policymakers are now armed with better analytical techniques and a wealth of evidence that can be used to stop the most egregiously anticompetitive mergers.
But if we’ve started succeeding in preventing further consolidation in hospital markets, we have invested far less thought into developing meaningfully competitive and innovative markets. It is folly to think that antitrust policy should solely consist of stopping bad things like additional hospital mergers. We also need to use the antitrust laws to usher in the benefits of genuine competition.
As the U.S. emerges from the pandemic, the timing for a renewed push to increase competition is ideal. The 20th century model of health care delivery, in which patients get in-person care at designated brick-and-mortar facilities from licensed professionals, is reaching a turning point. Telemedicine, at-home care, and other delivery innovations — many of which achieved prominence when the pandemic struck — are offering new alternatives to hospitals, and data analytics are informing insurers how to better manage patients with chronic illness. Together, these innovations might forge a transformation away from a hospital-centric delivery system and towards an age of digital medicine.
But hospital monopolies, like all monopolies, harm markets not only by charging prices. They also impede innovation, and today’s hospital monopolies are working hard to endanger the arrival of this new age of medicine.
They are doing this through a variety of well-tested techniques. One is using their dominance to impose “all-or-nothing” contracts, which require insurers to pay for all of a hospital system’s services or drop out of the market altogether. This strategy prevents insurers from contracting with select providers — creating so-called “narrow networks” — that can direct patients to higher-value providers and stimulate competition between rival facilities. Hospital monopolists bundle their services together, which forces patients to pay for a system’s costly services if they want to rely on their critical services; for example, in order to have access to the only trauma center in town, patients must also commit to the hospital system’s oncologists and cardiologists, practices that would be vulnerable to competition from other providers and telemedicine companies. And hospital monopolists work to squeeze out small, nimble providers that might offer lower-cost alternatives to the multi-specialty giants; and if they fail to drive them out, they purchase them.
None of this is casual. Dominant hospitals are well aware of the threats that innovations pose to their business model. They know the health care market of the future puts less primacy on inpatient care and more on virtual care. They know that health care services are provided at higher quality and lower costs at facilities that do not suffer from the overhead and governance burdens of costly multispecialty centers. And they know that telemedicine and hospitals-at-home companies pose existential threats to their dominance.
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