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Bankrupt Health Care
Study: Big Hospitals Contribute to High Prices

The role that hospital consolidation plays in contributing to high health care prices just got some new attention. Over at the Upshot, Kevin Quealy and Margot Sanger-Katz sum up the results of a new study in a piece entitled “The Experts Were Wrong About the Best Places for Better and Cheaper Health Care.” According to the piece, experts treated low Medicare costs in a region as a good proxy for lower overall health care costs. But that turned out to be a mistake, because some areas in which Medicare costs are low see high private sector costs. The study identified a mechanism behind the high costs:

“The reason why health insurance for the privately insured is expensive is because the prices from hospitals with a lot of market power are higher,” said Zack Cooper, an assistant professor of economics and health policy at Yale University, and the paper’s lead author. […]

Martin Gaynor, a health economist at Carnegie Mellon University and one of the authors of the paper, has spent many years studying how market competition influences the cost and quality of health care. He says the new data is strong evidence that the federal government needs to enforce antitrust laws vigorously to prevent health care markets from becoming monopolies.

Other experts say more aggressive price regulation may be necessary in markets that already have monopoly hospitals. Dr. Berenson suggested policy makers look to Maryland, where a government board sets standard prices for hospital services.

We have covered the issue of hospital consolidation and its effects for years now, thanks in part to the excellent analysis of the subject Right-of-Center commentators like Avik Roy. We’re glad to see it highlighted here—and the ACA’s role acknowledged. “In particular, they [the findings] cast doubt on the wisdom of encouraging mergers among hospitals,” the piece notes, “as parts of the 2010 health care law did.”

Applying anti-trust law is certainly one way to rein in prices—and regulators have gotten more aggressive here in some cases—but there are other developments to encourage as well. The growth of alternative care venues, like clinics in big box stores, is one; price transparency, and the resulting competition for consumers, is another. Rate-setting is of course a policy proposal congenial to some on the Left, but the evidence here is decidedly mixed. Maryland isn’t the only U.S. state to experiment with price setting. As Sarah Kliff at Vox has written, 10 states tried that approach in 1970s and 1980s, and all but Maryland dropped it in the absence of evidence that it was bringing down costs.

That debate aside, however, it’s good to see the wonk class drilling down hard on the question of prices for health care procedures. This has always been the key area on which reformers must focus, because the cheaper health care is as a whole, the easier it is to expand coverage.

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  • Jim__L

    Honestly, anti-trust law should be one of the only levers Government has on the business sector. And it should be used a lot more often.

  • Andrew Allison

    “The reason why health insurance for the privately insured is expensive is because the prices from hospitals with a lot of market power are higher,” Duh!

  • Jacksonian_Libertarian

    It is the “Feedback of Competition” which provides both the information and motivation which forces continuous improvements in Quality, Service, and Price, in free markets. The Government Monopoly like all Monopolies including the Big Business Limited Monopolies all suffer from the same disease, the lack of the “Feedback of Competition”.
    The normal and unsuccessful method for dealing with Utility Monopolies is with commissions and boards that set prices and rules for the Monopolies, but this doesn’t work to improve things, only make them go bad at a slower pace.
    The Best solution is to break up the monopoly. For example: AT&T the phone monopoly which after it was broken up, has resulted in the whole smart phone cell phone market in only a few decades, this is improvement in Quality, Service, and Price with a vengeance. This same improvement would be seen in the Healthcare industry if it was broken up. Another example this time in the Healthcare industry: Lasik eye surgery which isn’t covered by Health Insurance. In 35 years this industry went from an infant Radial Keratotomy inpatient procedure costing Thousands of Dollars to outpatient Laser eye surgery that takes about 1 hr and is “Advertised” (I put quotes on that because the Healthcare Industry never advertises prices, they’re monopolies and don’t have to compete) at $298 per eye (About the price of a pair of designer prescription eyeglasses).
    Imagining the advances in a truly free market Healthcare industry is impossible, just as imagining today’s Phones was back when AT&T was broken up.

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