Why is the FTC blocking free market health care solutions?
Healthcare is getting more and more expensive. While it is easy to dismiss this as a byproduct of the inflationary pressures that have faced the economy more broadly over the last few years, the fact is that increased healthcare costs predate, and have been rising even faster, than what has affected the marketplace more broadly.
There are several reasons why this is the case: A growing and aging population, emerging health risks and rapid advances in pharmaceutical technologies all contribute. But the biggest skunk at the party is the federal government. Nearly half of the entire American population — about 160 million – are Medicare or Medicaid insured. As the 900-pound gorilla with a monopoly on the market, Washington dictates reimbursement rates to providers virtually irrespective of the actual cost of care.
For example, in 2020, the government’s reimbursement to hospitals for Medicare and Medicaid patients was over $100 billion less than the actual costs of the health care services delivered — a whopping 32.5 percent increase over the underpayment total for 2019. Providers are then forced to raise charges for care to other patients in order to recapture just portions of that underpayment — aka cost shifting, which everyone admits is patently unfair.
Health care providers, especially smaller and rural hospitals, increasingly find themselves facing difficult choices in order to just keep their doors open. Many of these hospitals are forced to cut back services just to survive, and even then most of them are constantly on the precipice of closure. In fact, nearly 30 percent of rural hospitals are currently at risk of closing.
Many other rural hospitals have succumbed. Between 2004 and 2019, 150 rural hospitals in America shut their doors, and in 2020 alone, 19 rural hospitals closed. These are grim statistics that the effects of the COVID-19 pandemic, inflation and cost-shifting will only worsen.
Among the tools available to keep at-risk and rural hospitals afloat and allow them to provide a high level of service in the face of such challenges is the ability to merge either with other facilities of a similar size or larger urban-based hospitals. This allows improvements in patient access to quality and advanced care, such as emergency and specialist services, by granting these facilities increased access to the resources of a larger health system. The data also clearly shows that such mergers actually reduce costs for both the patients and the providers by keeping care close to home while also improving the quality of care.
A 2021 study by Charles River Associates, for instance, showed that hospital consolidations led to significant improvements in a number of key metrics including readmission and mortality rates. Another study done that same year by Maryland’s Agency for Healthcare Research and Quality and IBM Watson Health showed a decrease in mortality rates at consolidated hospitals, from 9.4 percent pre-merger to 5.0 percent post-merger.
These improvements are due to a number of factors, including improved access to resources that allow for new state-of-the-art diagnostic, testing and treatment technologies. The Healthcare Financial Management Association tells us that mergers offer underperforming hospitals an alternative to closure by increasing access to capital and providing an opportunity for investment into technological upgrades.
In spite of all of this, the Federal Trade Commission (FTC) continues to act as an impediment to beneficial hospital mergers. Recently cultivated institutional biases against consolidation in general and highly inaccurate myths about hospital systems are underpinning this attitude. Anti-trust laws, which the FTC is attempting to apply to hospitals, were designed to ensure fair and open competitive markets — not to eliminate entire segments of an industry. These laws were intended to help keep consumer prices reasonable and market-based by preventing monopolization.
But the FTC’s crusade against any and all mergers, including those in the health care sector, is not based on objective empirical analysis of health care markets and will therefore have the opposite effect. By effectively forcing smaller and rural hospitals to close, specialty and emergency care will be concentrated in a few large urban hospitals, driving up costs for everyone — especially patients in rural and economically disadvantaged communities.
Free market competition benefits all and is the key to keeping prices in line. Certainly, the health care system could use a little more of that. But blind hostility to necessary mergers within the hospital community by an overzealous federal agency is not conducive to better access and affordability of care. Instead, it is another example of a government bureaucracy becoming too bloated to see the realities in the world it is regulating or to recognize the consequences of its actions.
Reasonable consolidation is one of the few remaining lifelines for many rural hospitals and the communities they serve, and the FTC should not be standing in their way.
Bob Beauprez represented Colorado’s 7th District in the United States Congress from 2003-2007, where he served on the Committee on Ways and Means and currently operates a bison ranch in northern Colorado.
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