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.