Americans typically view competition in the economy as a way to encourage innovation and drive down costs. We rely on competition to find the best deal for our favorite shoes, the highest quality TV, or the best flight for vacation. But a February study from the American Journal of Managed Care (AJMC) begs the question, why do lawmakers and regulators ignore the impact of competition when it comes to health care?
AJMC found that less competitive health-care markets — dominated by large hospital systems — correlate to both higher health-care costs and higher insurance premiums for patients. They conclude that more consolidation has “led to higher prices for physician and hospital services.”
Under ObamaCare, consolidation was forced through burdensome regulations and mandates that have made it harder for physician’s groups, insurers and hospitals to compete Across the industry the evidence points toward increased costs, decreased services and reduced quality of care for patients as a result
We’re not the only ones concerned. Even Bob Kocher, one of ObamaCare’s architects, has acknowledged he may have been wrong to favor consolidation, recognizing in hindsight that this consolidation isn’t the result of greater efficiencies, rather it’s the result of regulation.
Unfortunately, independent doctors are struggling to stay independent as policies mandated by insurers and the government favor large hospital systems. From 2015-2016, 5,000 independent practices employing 14,000 doctors were acquired by hospitals. Worse, as hospitals merge into larger chains, local services are cut and patients end up “paying more and getting less.”
Some observers see these results and call on the government to regulate lower costs and higher quality, which is akin to attempting to dig oneself out of a hole. More government involvement will simply further distort the market.
Consumers should have access to the benefits of market competition in health care, just as with most of the other products we buy. Market competition is what’s needed to lower costs and increase consumer choice in American health care.
Instead, government policies have turned us in the opposite direction. Of the 1,412 hospital mergers between 1998 and 2015, 40 percent occurred after 2009 and 2017 saw the most hospital mergers on record: 115 transactions valued at more than $63 billion. ObamaCare—passed in 2010 — has clearly exacerbated the problem.
Incentivized by bad government policy, hospitals have chosen to merge and put independent physicians out of business rather than compete for patients on price and quality of care.
In fact, according to David Dranove of Northwestern University's Kellogg School of Management, hospitals believe “it's too hard to create value so we'll win by eliminating our competitors.”
Hospitals should shoulder much of the responsibility for their bad behavior, but so long as government policy distorts the health-care market and incentivizes consolidation over competition, American patients will continue to pay more and receive less.
Only by removing onerous regulations, adopting market-based policies and increasing competition across our health-care system can we reduce costs and improve quality of care. Until that happens, consumers can expect hospital consolidation to continue to drive up health-care costs.
Matthew Kandrach is the president of Consumer Action for a Strong Economy (CASE), a free-market oriented consumer advocacy organization.