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Hegemonic Hospitals
Monopolists Are Taking Over American Healthcare

All the focus on Obamacare’s collapsing insurance exchanges distracts from another trend driving healthcare costs steadily upward: The consolidation of healthcare providers into regional monopolies with the power to charge increasingly extortionate rates from government and insurance providers. New America’s Phillip Longman highlights the extent of this problem in the latest issue of Democracy Journal:

Following its 2012 takeover of its last remaining local competitor, the Yale-New Haven Hospital System’s market share rose to 98 percent of inpatient discharges among New Haven residents. Meanwhile, the Chicago region’s largest hospital system, Advocate, is merging with its chief competitor, NorthShore. Though the Federal Trade Commission (FTC) determined “it will create a highly concentrated market that is presumptively illegal,” a federal judge recently declined to block it. In the San Francisco Bay area, the giant hospital chain Sutter has amassed such market power—up to 100 percent of the market for inpatient hospital services in Berkeley and Davis—that it forces health-care plans, including those run by large insurance companies and large employers, to sign contracts in which they promise not to steer patients to lower-cost hospitals. […]

We are headed toward a country in which two or three giant, self-dealing health insurer/provider combinations enjoy near-total monopolies in health-care markets across the country, thereby eliminating the last vestiges of competition and consumer choice.

Longman doesn’t address it in detail, but the Affordable Care Act has played an important role in accelerating this trend. The Medicaid expansion was a boon to big regional hospitals. The ACA’s onerous regulations on physician-owned hospitals pulled the rug out from under the mega-hospitals’ competitors. And other mandates have made business more costly for small and medium-sized care providers and encouraged consolidation across the board.

As we’ve said from the outset, the crucial conceptual error behind the 2010 health reform law was to prioritize an expansion of access to healthcare through subsidies without taking meaningful steps to control costs. The result was an unsustainable mixed system that may now be starting to unravel. As a result, many Democrats are starting to push for single-payer. But as Longman points out, single-payer in “a system controlled by price-gouging monopolists” would make things even worse.

The debate over healthcare reform in the United States is far from over, whatever the White House might say. Many unresolved problems remain, and in many cases are getting worse. Future rounds of reform must focus first and foremost on increasing the leverage of consumers at the expense of hospital-insurer hegemons. As Longman suggests, that means using anti-trust law more aggressively. But it also means changing the regulatory and administrative climate so that it is more favorable to competition: Rolling back regulations on physician-owned enterprises, encouraging price transparency, leveraging new technologies, and changing the way government subsidies are disbursed.

The current American healthcare regime is not sustainable, and, in the absence of attractive alternatives, the Democrats’ drift toward single-payer insurance or even fully socialized medicine will gain momentum. The role of a responsible center-right party should be to preserve, as much as possible, the benefits of market competition and innovation in American healthcare. And that means presenting the public with viable reforms that break up monopoly power, rectify market distortions, and enlist the invisible hand to restrain the seemingly relentless inflation in costs that weighs most heavily on the middle class.

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  • Andrew Allison

    “But as Longman points out, single-payer in “a system controlled by price-gouging monopolists” would make things even worse.” How? The price gouging monopolists are the providers of health care, not insurance companies. Single-payer is insurance, not healthcare, and ACA is dying because of the risk profile of those signing up. A single insurer (the government) would have even more leverage than the handful of private insurance companies participating.

    • Kevin

      But government will be captured by providers and use that power to shovel even more money their way. Look at what’s happened to education.

      • Andrew Allison

        Medicare, which has significantly lower costs (both overhead and reimbursement) than private health insurance, suggests otherwise. Education is, indeed, as big a mess as health care, but is not comparable (local control, unions, etc.) to health insurance, which pays a negotiated price for specific services. Now that I think about it, that’s sort of how Charter Schools work, which might account for their results.

        • JR

          If everybody gets Medicare rates, everybody goes bankrupt.

          • Andrew Allison

            Nonsense. Quite apart from the fact that the sentence is meaningless (premiums or reimbursements, and the government is already bankrupt), Medicare is, I suspect, the biggest health insurance provider in the country, and both it and the providers (the vast majority of the provider population) are doing OK.

          • JR

            From what I understand, Medicate is a loss-leader for most health providers. They make the money back from charging higher rates to private insurances. You can’t make everyone into a loss leader until you are prepared to fully nationalize the healthcare industry, doctors, nurses and all…

          • Andrew Allison

            Nope. Most heath care providers accept Medicare because they can’t survive without it. Of course they pass some of the costs to the private insurers, but if there were no private insurers, they couldn’t. It’s an interesting question as to whether, if the only source of reimbursement were a single payer, providers would choose to go out of business rather than accept the reimbursement. My guess is that the additional tax revenue from the loss of the employer-provider insurance deduction would more than make up for any increase in reimbursement.

          • JR

            With all due respect, I don’t want my health care to be determined by some bureaucrat. I prefer different methods of rationing. Because this is all we are arguing about. Who doe the rationing and what criteria are used.

          • Andrew Allison

            There, with apologies to RR, you go again. We’re talking about insurance, not care. Nobody is suggesting public care. Furthermore, to the best of my knowledge none of the OECD single-payer systems (including Medicare) preclude private insurance.

        • Kevin

          It’s pretty well accepted that Medicare uses its market and political oiler to charge close to marginal costs, shifting the fixed costs onto private payers. This will not be possible in a single payer environment (as there will be neither payer to shift the fixed costs to).

          • Andrew Allison

            Not quite. If there were a single payer, providers would have the choice of accepting the single-payer reimbursement or going out of business.

          • Josephbleau

            Heath care providers going broke, that’s a useful option! An EU bureaucrat once said “We know what to do, we just don’t know how to get re-elected after we do it.” Everyone knows the real answer, just not the mob-ocratic answer.

          • Andrew Allison

            Oh, that must be why essentially all providers accept Medicare!
            BTW, Juncker was Prime Minister of Luxembourg when he made the statement.

  • Frank Natoli

    in the absence of attractive alternatives
    PUH-lease. During the GWB Administration, when Republicans controlled both houses, Republicans attempted to enact federal pre-emption of state insurance laws thus permitting true interstate competition for health care. Democrats in the Senate successfully filibustered. The electorate will never give Republicans 60% of the Senate, so there will never be interstate competition, the sine qua non of controlling health care costs. The people don’t want it. Finito.

    • Andrew Allison

      . . . thus permitting true interstate competition for health INSURANCE. It’s not that the people don’t want it but that incumbent insurance companies don’t want competition.

  • Beauceron

    Sure. But we’re moving towards single payer with a public delivery system where the government will be the sole health care provider. The Left has openly said that is what they really want.
    When your goal is to attain government control of health care, I doubt your bothered much my private monopolization. To the contrary, when it comes time to consolidate under the government umbrella, this will just make it that much easier.

    • Andrew Allison

      No, we’re not moving toward a public delivery system. The inability (unwillingness?) of commentators to differentiate between insurance and the provision of care is mind-boggling. There’s absolutely no reason we can’t have single-payer insurance and private delivery (it’s called Medicare in the US, and is the norm in many countries which provide better overall care that the US manages to do).

      • Beauceron

        I am well aware of the differences between a public, private and mixed delivery system. Which is why I specifically used the term “public delivery system”. The Left will push for public delivery, the so-called “socialized healthcare,” because that’s what really gives them the control over people they’re looking for. The Left aren’t pushing for health care reform because they care about people’s health. No one actually interested in public health would push for the Obamacare system we actually got.
        They want power over people. While moving to a single payer system certainly gives the government some power, it’s not the full, juicy control needed to order people how to live their lives the Left always seems to be after. With a single payer public delivery system, you gain a lot of levers and pressure points over people.

        • Andrew Allison

          As I’ve pointed out several times, the subject is not delivery but how it’s paid for. It’s possible, although in several countries which are more left than the US this has not been the case, that the left will push for public delivery. This simply isn’t going to happen here because, thanks to the VA, we have seen up close and personal what public delivery looks like. At the risk of being repetitious, we already have a hugely successful public insurance private delivery system called Medicare in effect.

          • Beauceron

            Delivery is very important. Indeed it’s essential. If you only control how it’s paid for, you can’t use it as a system of control. You think the Left want that?

            And no one cares what the people want.

            By the way, Medicare has some aspects that are public delivery:

            “Medicare only offers basic coverage as public insurance (Parts A and B) and let’s private insurers control the supplemental market (Parts C, D, and Medigap) making it an example of a mixed delivery system.”

            http://obamacarefacts.com/single-payer/

          • Andrew Allison

            We’re more-or-less in agreement about delivery (there’s absolutely no public delivery of Medicare). Now, can we please have a coherent discussion about how it should be paid for?

          • Beauceron

            OK– I thought you were saying I didn’t understand the different delivery systems– and although I am no health care policy expert, I do get that.

            As far as paying for it, that’s the big question. That and keeping costs down. A friend of mine recently broke up a dog fight in the park and in the process he got bit and had to go to the hospital to get stiches. Nothing major- just like six stiches. He got the bill: $14,000. 14K!!! For a trip to the hospital and 6 stiches. I believe doctors deserve to be very well paid. They have a tough job that requires a long education and they have a lot of responsibility. I doubt most of that 14K went to them anyway– but there is something wrong with a system that charges 14K for a few stiches. He has insurance, so they paid most of it. But that is madness…

          • Andrew Allison

            We’re agreed on that too: my wife had a similar experience a couple of months ago, no stitches, just tests, same cost. A big part of the cost problem is the insurance mess. To simplify, the hospitals have to treat the uninsured and the insured have to pay for the treatment. That problem would go away if everybody were insured (Medicare for most, Medicaid for the indigent). The hospital bills are purely fictitious. The insurance write-offs (check your friends bill and see how much the hospital agreed to accept as payment in full — in the case of my wife’s $14K bill, we paid $4,700 [thanks Obaminable Care Act], the insurance company $7,300 and the hospital ate $2K — if she had medicare, the hospital would probably have eaten close to half the total). It’s completely insane.

  • gabrielsyme

    The problem is not the absence of attractive alternatives, but the absence of simple alternatives. Single-payer is easy to explain and pitch as a solution. The conservative alternatives make a great deal of sense, but they are complex creatures involving tax credits, changes to insurance regulation, subsidies for pre-existing condition pools, etcetera.

    This is but one more area where it is obvious that socialism has a massive messaging advantage – intelligent regulation of a private sector is difficult to explain, but outright public control is easy to explain. Within a democracy where people are neither uniformly brilliant nor uniformly well-informed about political matters, this dichotomy provides an innate advantage to the left.

    • Andrew Allison

      Well no, the simple alternatives are to preempt the ridiculous individual State insurance laws and allow full-blown competition or follow the example of all the other OECD counties and go to single-payer INSURANCE (pardon the shout, but people don’t seem to be able to differentiate between insurance and care). I’d settle for either.

      • gabrielsyme

        Very little of the left proposes a nationalization of the health-care providers in the U.S. Even Bernie Sanders’ plan makes no mention of nationalization. They are focussed on single-payer insurance.

        Now, as it happens, I support federal pre-emption of state insurance rules, but this leaves a very complex system in place which is difficult to communicate in the political arena. More importantly, pre-emption is not the only element of conservative reforms to the system – every Obamacare replacement plan put out by conservative institutions has been significantly more complex.

        • Andrew Allison

          Interesting is it not that while, as you point out, very little of the left proposes nationalization of delivery essentially all the commentary is about exactly that.
          It’s not clear that preempting the State insurance regulation scam (which only reduces competition and provides jobs for State employees) would leave a complex system. I fear that you may be conflating the requirements of the Obaminable Care Act with free market competition. If insurance companies can offer whatever sort of coverage they can convince the government they can deliver on, buyers will winnow the market. There is, for example, an enormous untapped market for catastrophic insurance which the OCA has foreclosed.
          What continues to amaze me is the inability of people to grasp that insurance underwriting is a matter of scale (the size of the risk pool, price leverage and claims administration). It is to my mind nonsensical that multiple health insurance companies are doing (and charging for) exactly the same thing.

          • gabrielsyme

            Well, I think the right generally is happy to conflate single-payer with public provision (nationalization), since the latter is a little more scary than a public insurance scheme. I’m not sure why the left doesn’t make more of an effort to clarify that they (usually) aren’t proposing nationalization.

            I don’t conflate the ACA terms with the free market, at least in my own mind (I make no claims about the clarity of my writing). I do think that federal pre-emption will result in a federally regulated system, which, while simpler than a patchwork of state regulatory systems, will still be complex in at least some manner. But I was mostly thinking that the complex interactions of Medicare, Medicaid, employer-provided insurance, union-based insurance, and private insurance and uninsured care will remain in a federally regulated system absent much broader reforms.

          • Andrew Allison

            It’s not clear to me that the interactions to which you refer are inherently complex. Medicare is single-payer health insurance (with private add-ons available); Medicaid is welfare, pure and simple; employer-provided insurance trades off the tax deduction for higher net premiums; union-provided insurance is employer provided; private insurance is private and in a Medicare-for-all environment there is no uninsured care.

  • FriendlyGoat

    We don’t have a “responsible center-right party” (other than the Democrats). The Republicans have ceased being functional enough in Congress to be “responsible” and they no longer are permitted to admit being “center”-anything. Nothing of substance has been proposed from the GOP but expansion of health savings accounts as tax shelters for people who have money and need tax shelters—-and—–“selling insurance across state lines” to kill federal policy standards and allow employers in New York and California to buy the policy standards for their employees which are cooked up in Mississippi or whatever the worst-regulated state turns out to be after a legislative “competition” to low standards.

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