The ObamaCare Effect: Hospital Monopolies
Last year saw 95 hospital mergers and acquisitions, a frenzy encouraged by the Affordable Care Act.
By Marty Makary
April 19, 2015
During the 2008 financial crisis, “too big to fail” became a familiar phrase in the U.S. financial system. Now the U.S. health-care system is heading down the same path with a record number of hospital mergers and acquisitions—95 last year—some creating regional monopolies that, as in all monopolies, will likely result in higher prices from decreased competition.
Hospital consolidation, done properly in a competitive marketplace, can have positive effects. Multi-hospital conglomerates can quickly disseminate best practices and quality initiatives, for example. But competition and the choices it provides can also disappear.
Health-care conglomeration aligns with the Affordable Care Act, which created incentives for physicians and hospitals to work together in “accountable care organizations.” But an important and often forgotten prerequisite for this model is hospital competition.
Some see the dangers. In a rare move, Massachusetts Superior Court Judge Janet Sanders recently blocked Partners HealthCare—Harvard’s affiliated 10-hospital conglomerate and Massachusetts’ largest private employer—from acquiring three competitor hospitals. Judge Sanders argued that the expansion “would cement Partners’ already strong position in the health-care market and give it the ability, because of this market muscle, to exact higher prices.” This threat is even greater in rural areas where one hospital is often the only provider.
Today’s frenzy of hospital mergers and physician practice acquisitions is giving hospital systems even greater leverage to inflate opaque “charge-master” medical bills that even hospitals are sometimes unable to itemize sensibly. With no mechanism to allow free-market forces to keep prices in check, this translates into higher health-insurance deductibles and copays for insured Americans, and in the case of Medicare and Medicaid, higher taxes.
When you’re the only game in town, you call the shots. That is one reason California Attorney General Kamala Harris is insisting on “strong conditions” before approving Prime Healthcare Services’ $843 million takeover of the six-hospital Daughters of Charity Health System. Prime is a hospital management company operating 34 acute-care hospitals in 10 states.
Ms. Harris required Prime to continue operating four Daughters’ facilities as acute-care hospitals with emergency services over the next 10 years. She also required that all six hospitals remain in the state’s Medi-Cal program, maintain charity care benefits at their historical levels, and continue providing essential health services such as reproductive health care.
Those conditions only begin to address the concerns surrounding such a merger. A San Bernardino, Calif., court recently held a Prime hospital, Chino Valley Medical Center, in contempt for needlessly admitting patients through the emergency room. On a national level, physician groups bought by large hospital systems are often prodded to send patients for ambulatory surgery and diagnostic procedures to the departments of their parent hospital, which may charge more than other outpatient centers the doctor might prefer.
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study of more than 150 hospital-owned and physician-owned organizations published last October in the Journal of the American Medical Association found that patient costs are 19.8% higher for physician groups in multi-hospital systems compared with physician-owned organizations.
The Affordable Care Act did not repeal antitrust laws. The Federal Trade Commission prevailed in three litigated hospital mergers in the last three years, and in 2014 it won its first-ever litigated case challenging a health-system acquisition of a physician group. But these victories are few. The great majority of mergers occur with little if any public debate about how they will effect prices or patients.
U.S. Oncology, for example, boasts more than 1,000 oncologists in its network and serves nearly 20% of all U.S. cancer patients. In 2010 it was acquired by McKesson Corp., one of the largest U.S. drug distributors, in what some called a savvy move to get cancer doctors and the drugs they prescribe under the same roof. Specialty hospitals are also sprouting around the country, even franchising, exemplified by the rapid spread of the MD Anderson Cancer Center, which aims to have a center within three hours of every American. But is it wise to have one corporation in charge of cancer care for an entire state or region?
Advocates say such expansion brings standardized care and clinical trials to more of the population, but it also results in an undeniable homogenization that may limit options for patients. If management decides that its doctors can only use one chemo drug for a particular cancer, or if the central leadership elects to not adopt a new surgical technology system-wide, will patients be told about the other options?
As a busy surgeon, I have serious concerns about the race to consolidate America’s hospitals because of the risk that very large organizations may govern without valuing the wisdom of their front-line employees. Already many doctors are frustrated by the electronic medical records, strategic planning and hospital processes that they feel have marginalized their medical insights into their own patients.
We can encourage the good work of hospitals to create networks of coordinated care, while at the same time insist that hospitals compete on price and quality outcomes. Achieving this balance in the wake of the Affordable Care Act is critical to ensure that one-fifth of the U.S. economy functions in a competitive and competent market.
[Dr. Makary is a surgeon at Johns Hopkins Hospital and professor of health policy at the Johns Hopkins Bloomberg School of Public Health. He is the author of “Unaccountable: What Hospitals Won’t Tell You and How Transparency Can Revolutionize Health Care“ (Bloomsbury Press, 2013).]
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