Hospital behemoth Sutter Health—a non-profit organization in Northern California that has gradually acquired 24 hospitals and 5,000 physicians—will soon go to court to defend itself against allegations that it has violated the state’s antitrust laws.
The plaintiffs claim that Sutter illegally pushed competitors out of the market and raised prices for patients. Indeed, compared to Southern California, where the market is less concentrated, patients in Northern California pay 70% higher inpatient prices and up to 55% higher outpatient prices.
This is just one example of a trend engulfing the health sector. Hospitals are rapidly consolidating. Small, independent healthcare providers are dying off—and not of natural causes.
Obamacare is killing them.
Obamacare’s architects thought hospital consolidation would streamline care, improve the quality of medical services, and generate savings for patients. Now, nearly a decade later, it’s clear they miscalculated.
Obamacare encouraged consolidation by incentivizing providers to coordinate care and adjusting Medicare payments to make mergers a smarter financial option. The White House’s top healthcare advisors wrote an open letter boasting that “these reforms will unleash forces that favor integration across the continuum of care.”
Hospitals responded to the Obama administration’s incentives. There were 93 mergers and acquisitions in 2011. In 2017, that number hit 115, the highest total on record.
Large corporate hospital systems also snapped up doctor’s offices. Between 2015 and 2016 alone, some 5,000 physician practices were absorbed into larger operations.
Consolidation, by design, reduces competition. So it should be no surprise that the new corporate behemoths have raised prices.
Consider one study analyzing 25 metropolitan areas with the highest rate of hospital consolidation between 2010 and 2013. The analysis revealed that in the years following mergers, the average price of hospital stays in most areas increased between 11% and 54%.
Or take a study of physician practices from Northwestern University. Researchers concluded that physician prices jumped 14% following an acquisition by a hospital.
Consolidation can also compromise the quality of care. Independent physician groups and community hospitals tend to develop intimate connections with their patient populations. They have the freedom to properly customize care, unconstrained from bureaucratic controls.
Hospital conglomerates, on the other hand, tend to impose a one-size-fits-all model of medical service, with doctors under intense pressure to shuffle patients through as quickly as possible. “I develop a very close relationship with my patients,” one independent physician recently lamented. “When you have big organizations, they’re pressuring the doctors to see more and more patients. It becomes more like an assembly line to get the patient in and out, and that wears down the trust between the patient and the doctor and things get missed when people are working like that.”
Even Obamacare’s architects have acknowledged these ill effects. Bob Kocher, one of the authors of the open letter bragging about the positive impact of industry consolidation, has publicly called for a policy reversal. In an op-ed published by the Wall Street Journal, Kocher wrote, “Having every provider in health care ‘owned’ by a single organization is more likely to be a barrier to better care.” He also said the government should “make it easier for [independent practices] to thrive under ObamaCare and don’t tip the scales toward consolidation.”
To reverse the damage done by Obamacare, policymakers need to unleash competition in the hospital industry.
They can start by eliminating “certificate of need” laws. Thirty-five states and the District of Columbia have these statutes on the books, which require healthcare providers looking to build a new hospital to first prove there’s sufficient patient need.
These laws artificially constrain competition and entrench hospital monopolies. Per-capita health spending is 11% higher in states with certificate-of-need laws than those without them.
Research from the Mercatus Center shows that eliminating such laws could save significant amounts of money. Florida, for example, would save $235 per capita in total health spending. New York would save $280.
Making hospital prices more transparent would also help bring overall costs down. Patients typically have no clue what they’ll pay when they visit the doctor. That makes it impossible for them to shop around. By listing prices upfront, patients can compare costs and choose care that offers the best value.
The architects of Obamacare wanted to consolidate hospitals. They got their wish—and the results have been disastrous.
Sally C. Pipes is president, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is The False Promise of Single-Payer Health Care (Encounter). Follow her on Twitter @sallypipes.