Posted by Bill Sandweg on 19 November 2018.
Last week I wrote about hospitals not knowing exactly what their costs were for various procedures. Without that information, they cannot make informed decisions about pricing. Without informed decisions about pricing, there can be no price competition. There also can be no price or other competition when there is only one hospital chain in the area. As hospital chains have been merging and growing ever larger, the cost of medical care has been rising as competition has been dwindling.
Supply and demand is the most basic rule of economics for determining price. When supply goes down, the price of the good or service in question goes up. When there is only a single supplier of a product or service, the situation is called a monopoly. If there are only a few suppliers, it is called an oligopoly. The monopolist and oligopolists can charge what they want for the product or service because they don’t have any competition. This is why we have anti-trust laws to break up or prevent combinations which reduce or eliminate competition.
For a variety of reasons, there has been a surge in the consolidation of hospitals in the United States. Here in Arizona we see Banner Health gobbling up other hospitals and building new hospitals all over the state. Less than twenty years ago Banner was formed with only a few hospitals. Now it has over 50,000 employees and hospitals all over Arizona and in Colorado, Wyoming, Nebraska, Nevada and California as well. As reported in a recent article in the New York Times, hospital consolidation is a national trend and it has led in almost every instance to higher prices.
Although one of the arguments for consolidation is the elimination of unnecessary duplication and waste and the promotion of efficiency, it doesn’t seem to result in a decrease in prices. As I have mentioned before, we patients are insulated from the actual costs of hospital and other health care by our insurance. We have Medicare or Medicaid (AHCCCS here in Arizona) or employer-provided health insurance. We pay a co-pay but our insurer sees the actual charges and must respond to them. Some policymakers have argued that giving patients more “skin in the game,” more exposure to the actual cost of treatment, would help drive down costs. I am not so sure.
Complicating the situation still further and driving up costs on its own is the trend for hospital groups to purchase the practices of physicians. Your doctor used to be an independent contractor working for himself or herself, often in a group with similarly situated doctors. Today, especially if you live in an urban area, your doctor is much more likely to work for a hospital chain. The hospital chain may require your doctor to produce a certain amount of money for the chain, or it may set her fees, or may require a certain number of hospital admissions, or may require your doctor to admit patients only to the chain’s hospitals. Some of these requirements may not be all that beneficial for you.
Interestingly, one of the justifications offered by hospitals for charging private patients so much is that they are the health care provider of last resort for those who have no insurance. When people with no insurance get sick enough, they show up at the emergency department. By law, they cannot be turned away. They must be treated until it is safe to discharge them. While they may leave with a large bill, the likelihood of the hospital ever collecting on that bill is very low. The hospital reasonably and correctly points out that someone must pay for that care and that someone turns out to be you and me and any other patient who pays for treatment at that hospital. The cost of treatment of those with no insurance is spread out over all of the hospital bills of all those who do have insurance. Remember that the next time there is a debate about requiring everyone to have insurance. Society is going to pay one way or the other for the care of those who can’t afford it on their own.
The hospital consolidation train has left the station and there is no way to bring it back and undo consolidation, even if we wanted to. We may not want to because we have no good alternatives to it. We need to explore other ways of controlling health care costs and getting good health care to all our citizens.