Are Hospitals Exercising Monopoly Power?
Looking across eight health care markets—Cleveland; Indianapolis; Los Angeles; Miami; Milwaukee; Richmond, Va.; San Francisco; and rural Wisconsin—average inpatient hospital payment rates of four large national insurers ranged from 147 percent of Medicare in Miami to 210 percent in San Francisco. In extreme cases, some hospitals command almost five times what Medicare pays for inpatient services and more than seven times what Medicare pays for outpatient care. Variation within markets was just as dramatic. For example, the hospital with prices at the 25th percentile of Los Angeles hospitals received 84 percent of Medicare rates for inpatient care, while the hospital with prices at the 75th percentile received 184 percent of Medicare rates. The highest-priced Los Angeles hospital with substantial inpatient claims volume received 418 percent of Medicare.
Full research brief by Center for Studying Health System Change here.
Is a monopoly characterized by a lack of competition? Where no subsitute alternative is available? Where prices, costs and revenues don’t correspond?
Yes they are, just like any other successful rent seeker. Consolidated networks reduce competition and create market power by controlling lucrative referrals. I wrote a monograph about Milwaukee’s experience way back in 2000.
ObamaCare is all about sophisticated rent seeking by hospitals. It emphasizes integrated networks. Hospitals, if Massachusetts is any guide to the future, expect to control those networks.
I thinkk Linda is right. I am tempted to say this is an unintended consequence of the new health law. But who knows? Maybe it isn’t unintended.
In every market — insurance, hospital care, doctor care — we are going to see consolidation and less competition.
Hate to be cynical, but I think that this consolidation was predictable. If it was predictable, does that make it intended?
I think there’s another possible argument to this: private insurers don’t have the same bargaining power that Medicare does. That’s sort of a no-brainer. After all, Medicare is funded by the government, which can come confiscate all of your things if you don’t accept their pricing. But, thinking about it this way helps to justify why private insurers pay so much more than Medicare for the same procedure.