Urban hospitals are in danger because of government’s good intentions. News report after news report from our nation’s cities lament the closing of local city hospitals, hospitals that became unprofitable because of high costs and too few insured patients, ultimately reducing access to care for those who need it most. The Federal Trade Commission (FTC) is trying to protect consumers from the consequences of the Affordable Care Act (ACA) and redistribute the economic pain to the providers of healthcare.
In June of 2014, the Office of Minority Health at the U.S. Department of Health and Human Services reported that among uninsured adult males ages 19-34, Latino and African-American males had the highest uninsurance rate among demographic groups. Most of these young men are hourly employees without employer provided health care coverage. Now that this demographic, as well as millions of other working people will be covered by health insurance through the ACA, it would be nice if they still had a local hospital to provide that care.
Unfortunately, while the ACA may accomplish the mission of getting more people insured, it doesn't address the issue of creating market efficiency. That issue, apparently, will be left to the not so free market. This is our world now, but federal bureaucracy shouldn't further obstruct the delivery of quality healthcare by imposing limits on business that succeeds based on quality.
Hospital consolidation is a result of the not so free market and a good thing for minority, rural and underserved populations. One of the primary goals of the Affordable Care Act is achieve better patient outcomes at a lower cost. As hospitals seek to fulfill the ACA mandate providing greater efficiency and more leverage to negotiate with insurance; hospital consolidation accomplishes these goals better than government prohibitions.
A Center for Healthcare Economics and Policy study released last January scrutinized critics of hospital mergers and acquisitions. The report noted that hospitals were merging to maintain their public safety mission, preserve access to healthcare, foster new investments and achieve greater scale of operations. In other words, hospitals merge for the same reason any company merges: to improve their product in the current and future regulatory environment.
Depending on the size of the merger and its impact on local markets, the FTC has a role in approving these consolidation efforts. This is tricky business in a market that has built in inefficiencies, i.e. consumers don’t directly pay the providers. The FTC generally focuses its analysis on “competitiveness,” or lack thereof. In other words, if there is not a hospital down the road providing competition, is it good for the community?
This approach is shortsighted and detrimental to low-income and minority communities. In the health care market, consumers are represented by insurance companies when it comes to costs that hospitals can charge for specific services. In the specific case of small urban hospitals, many closed because they were defenseless against large insurance companies, not because of competition. In fact, while these urban hospitals theoretically provided competition to suburban hospitals just miles away, in reality they serviced a different patient base (minority, uninsured) and couldn’t negotiate favorable reimbursement rates with insurance companies.
By contrast, suburban hospitals, which have a higher percent of insured patients get better deals from insurance companies and stay profitable. Urban hospitals traditionally depended on government or charitable support to compensate for lower reimbursement rates and were badly hurt after the financial collapse of 2008.
Hospitals are scrambling to hold down costs, keep themselves in the black financially and provide quality care to the patients and communities they serve. Hospital consolidation is a way to accomplish this and the FTC should not be standing in the way.
While Congress may want to continue to debate the merits of the ACA, Members and Senators can not ignore what the FTC is doing--standing in the way of progress toward moving to a more efficient and effective health care system by failing to acknowledge the new environment and that hospitals need to evolve; in the process, good intentions are hurting our nation's most vulnerable sick people.
Kemp is president of the Jack Kemp Foundation, and serves as chairman of the Board for the Hope Community Charter School located in NE Washington DC.