Health care industry can learn something from airlines

Health care industry can learn something from airlines
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The health care industry is shrinking. Mergers of hospitals, healthcare providers, insurers and pharmacy benefit managers has drastically changed the healthcare landscape. What’s left is a greatly contracted, less competitive market, in which costs have gone up and patient choice has increasingly gone away.

Some architects of ObamaCare  argue that healthcare consolidation will lead to economies of scale and greater efficiencies, but this has not been the case.

Hospital consolidation — driven largely by regulations and mandates — has distorted the market, driven up prices, and limited access to care. And cross-industry mergers like UnitedHealth’s purchase of DaVita Medical Group and CVS’ acquisition of Aetna are poised to fundamentally reshape the healthcare industry, further concentrating control, reducing competition, and patient options on a much larger scale.


But this isn’t the first time we’ve seen the impact widespread, rapid consolidation can have on consumers. The American commercial airline industry provides an informative case study on the dangers of comprehensive consolidation. The comparison isn’t apples to apples, of course, but it provides a window into what threatens to come down the pike in health care.

The Airline Deregulation Act of 1978 dramatically reduced the government bureaucracy associated with air travel, leading to an explosion of new players in the market place and greater price competition, making air travel more affordable for Americans. But the competition eventually meant some could not compete, and we saw an uptick in airline mergers.

And this consolidation has undone some of the progress that came from deregulating the industry. In fact, since 2005, the number of major U.S. airlines has shrunk from 10 to only four carriers, which now control 82 percent of the commercial market. The result has been reduced services and increased prices and fees for consumers.

Over the past decade — from 2007 to 2016 — U.S. airlines increased baggage fees by 800 percent, from $464,284 to $4,177,135. Similarly, after the American Airlines-US Airways merger in 2013, the airline increased fees on almost every ticket and service.

From September 2015 to September 2016, airlines raised over $7 billion in fees from checked bags and changed tickets alone.

And without competition, the airlines don’t face any meaningful pressure to change. As the New York Times recently asked, why “should an industry that has ingeniously used free-market principles to squeeze the most revenue out of each middle seat be protected from competing in a real free market?” 

Airline consolidation should be a cautionary tale for the health care industry. Far from the claims that consolidation will lower costs and improve quality of care, studies show that healthcare mergers increase costs to consumers. In one study, payments for hospital admissions increased 70 percent from 2004 to 2013 as hospital networks consolidated. Similarly, Policy experts from the Brookings Institute and Carnegie Mellon University found that hospitals with fewer than four local competitors have prices 16 percent higher than an average hospital market.

Not surprisingly, Obamacare accelerated the consolidation process making a bad problem worse. Over the past seven years, the rate of consolidation in hospital and health systems has increased by 14 percent on average every year.

All mergers are not bad. Consolidation that comes from real market forces as opposed to government intervention, and can have a positive result for consumers. But the Affordable Care Act forced “efficiency” through mandates and regulation which has hurt patients.

It’s led to the formation of large physician practices, hospital consolidations, insurance concentrations, and cross-industry mergers like the recent Aetna-CVS acquisition. So it’s important to ask: is all of this consolidation really intended for greater market efficiency or simply greater government control?

The real threat, of course, is yet to come. As patients and voters become increasingly frustrated by rising costs and worsening care, there will be more pressure on Washington to do something. Activists are already pushing to solve the problem through a single-payer system — a sure fire way to ensure skyrocketing costs, decreasing quality, and the rationing of care.

Gerard Scimeca is an attorney and Vice President of Consumer Action for a Strong Economy (CASE)  a free-market oriented consumer advocacy organization.