The story quoted below gives useful evidence that in the recent past hospital mergers have generally resulted in higher prices. But the story is incomplete, creating the misleading impression that government antitrust action is clearly needed. My hypothesis: mergers can increase efficiency and lower patient prices, but only tend to do so when hospitals are constrained by the real or potential entry of entrepreneurial health providers. Unfortunately entry is currently very limited, often by government actions. Often new hospitals must acquire a certificate of need before they are allowed to exist.
Often, incumbent hospitals successfully object to those certificates. Federal subsidies differentially go to large incumbent hospitals. Federal Covid-relief funds went to large incumbent hospitals that used much of the funds to buy up other hospitals. Less directly, enormous government regulation creates a differential burden on the small new entrant that likely cannot afford the huge specialized staff to successfully navigate the voluminous opaque regulations.
If we want lower prices, government should allow mergers, but also stop creating constraints that discourage entry. Government should especially reduce the regulations that discourage medical entrepreneurship.
(p. D4) The nation’s hospitals have been merging at a rapid pace for a decade, forming powerful organizations that influence nearly every health care decision consumers make.
The hospitals have argued that consolidation benefits consumers with cheaper prices from coordinated services and other savings.
But an analysis conducted for The New York Times shows the opposite to be true in many cases. The mergers have essentially banished competition and raised prices for hospital admissions in most cases, according to an examination of 25 metropolitan areas with the highest rate of consolidation from 2010 through 2013, a peak period for mergers.
The analysis showed that the price of an average hospital stay soared, with prices in most areas going up between 11 percent and 54 percent in the years afterward, according to researchers from the Nicholas C. Petris Center at the University of California, Berkeley.
The new research confirms growing skepticism among consumer health groups and lawmakers about the enormous clout of the hospital groups. While most political attention has focused on increased drug prices and the Affordable Care Act, state and federal officials are beginning to look more closely at how hospital mergers are affecting spiraling health care costs.
During the Obama years, the mergers received nearly universal approval from antitrust agencies, with the Federal Trade Commission moving to block only a small fraction of deals. State officials generally looked the other way.
President Trump issued an executive order last year calling for more competition, saying his administration would focus on “limiting excessive consolidation (p. B1) throughout the health care system.” In September [2018], Congress asked the Medicare advisory board to study the trend.
. . .
Prices rise even more steeply when these large hospital systems buy doctors’ groups, according to Richard Scheffler, director of the Petris Center.
“It’s much more powerful when they already have a very large market share,” said Mr. Scheffler, who recently published a study on the issue in Health Affairs. “The impact is just enormous.”
For the full story see:
(Note: ellipses added.)
(Note: the online version of the story has the same date as the print version, and has the title “When Hospitals Merge to Save Money, Patients Often Pay More.” Where the wording of the versions differs, the passages quoted above follow the online version.)
The article co-authored by Scheffler and mentioned above
Other relevant articles by Abelson: