ACA Agonistes
The Two-Front War on Healthcare Competition

The big Obamacare news today is that Aetna is abandoning most of the public health insurance exchanges after suffering large losses, the latest departure in the ongoing insurer-exodus from the Affordable Care Act and a major blow to the law’s stated goal of creating more choice and competition in insurance markets.

But the hollowing-out of the exchanges isn’t the only way Obamacare is blunting market pressures in healthcare. The law’s costly new mandates have also accelerated hospitals’ race to consolidate. In particular, according to a new study published in Health Affairs, the law is driving physician-owned hospitals into virtual extinction by sharply restricting their access to Medicare and Medicaid and creating massive regulatory obstacles to their expansion:

Given the crucial role of Medicare in hospitals’ survival, the ACA has effectively eliminated the formation of new physician-owned hospitals. Moreover, the ACA has rendered remote the likelihood of significant future expansion of existing physician-owned hospitals that accept Medicare. Expansion is not allowed without approval by the Centers of Medicare and Medicaid Services, which requires a finding of community need based on population growth, occupancy rates, or high Medicaid admissions (since implementation of the ACA, only three physician-owned hospitals have been granted approval to expand).

The stated reason for the law’s discrimination against physician-owned hospitals is that they allegedly disfavor patients who are less profitable, even though this was powerfully disputed by a recent study in the British Medical Journal. Moreover, physician-controlled healthcare providers outperform their corporate-controlled counterparts by a number of metrics. It’s hard not to wonder if part of the rationale for the ACA’s bias against smaller physician-controlled enterprises is that politically connected mega-hospitals were looking to suppress competition.

As Avik Roy has noted, public policy discussions of healthcare typically place a disproportionate emphasis on “the way we buy healthcare” instead of “the way we sell healthcare.” In other words, while the structure of the insurance industry is important, the structure of the hospital market is important as well. Any genuine effort to bring down costs will need a laser-like focus on reversing the trend toward consolidation among hospitals and intensifying competition for insurance money, both private and public. Restoring the vitality of physician-owned hospitals would be an important first step.

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