Hospital Monopoly
The hospital sector has seen huge waves of consolidation and acquisition in recent years:
- In 1995, hospital merger and acquisition activity was nine times its level at the start of the decade, and by 2003, almost 90 percent of Americans living in the nation’s larger metropolitan statistical areas (MSAs) faced highly concentrated provider markets.
- This wave of hospital consolidation was responsible for price increases for inpatient services of at least five percent and likely more and it was responsible for price increases of 40 percent where merging hospitals were closely located.
- A second merger wave from 2006 to 2009 significantly increased the hospital concentration in 30 MSAs, and a majority of Americans are now subject to monopoly power in their local markets.
The implementation of the Affordable Care Act (ACA) will further expand hospitals’ monopolistic power and exacerbate the problem.
Source: Barak Rickman, AEI study.
We live in the age of institutionalized medicine practiced to meet a quota, rather than individual medicine practiced to acheive health.
Private hospitals are going to start looking like VA. State intervention works out so well there.
This is horrible news. There are many ramifications of this. Price increases are obviously a big one.
I have worked in a health care system that is a major player in a large metropolitan city. Hospitals are labor intensive and hard to automate. I would argue there is little in the way of economics of scale that can be derived from market consolidation. Hospitals already band together in large purchasing organizations. Hospitals are consolidating to increase leverage against insurers; and possible to reduce competition in the labor market. Hospitals are vertically integrating – buying more segments of the production process. Increasingly, hospitals are buying physician practices allowing them greater control over the practice of medicine. If hospitals were competing on price these factors might lead to greater efficiency. But, under third party payment, these are not necessarily consumer welfare-enhancing arrangements.
If hospital consolidation and acquisition leads to substantial price of care increases, I wouldn’t be surprised to see government try to set price caps for various procedures and services. Kind of like what we have with Medicare.
The evidence indicates that hospital prices generally increase after consolidation occurs in this market (more often than not, by quite large amounts). Although by merging hospitals these can achieve savings in the cost of rendering their services, most evidence suggests that such savings are not equivalent to the negative effects these have on payers and consumers. Meaning, these savings are not passed on to payers and consumers in the form of lower prices.
Though every hospital merger is different, generally speaking these market consolidations often enhance hospitals’ negotiating positions with insurers, which
enables them to raise prices to consumers.
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