Health care is becoming more and more expensive. While it’s easy to dismiss this as a byproduct of the inflationary pressures the economy has faced more broadly in recent years, the fact is that rising health care costs predate and have increased even faster than what has affected the market more broadly.
There are several reasons for this: 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 total US population – about 160 million – is insured by Medicare or Medicaid. As a 900-pound gorilla with a market monopoly, Washington dictates reimbursement rates to providers virtually regardless of the actual cost of care.
For example, in 2020, government reimbursement to hospitals for Medicare and Medicaid patients was more than $100 billion less than the actual costs of the health services provided – a whopping 32.5% increase over total subs. -payments for 2019. Providers are then forced to increase billing for care to other patients in order to recover only part of this underpayment – i.e. cost shifting, which all the world admits is grossly unfair.
Healthcare providers, especially smaller and rural hospitals, are increasingly finding themselves faced with difficult choices in order to simply keep their doors open. Many of these hospitals are forced to cut services just to survive, and even then most of them are constantly on the brink of closure. In fact, almost 30% of rural hospitals are currently at risk of closing.
Many other rural hospitals succumbed. Between 2004 and 2019, 150 rural hospitals in America closed, 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 get worse.
Among the tools available to keep at-risk and rural hospitals afloat and enable them to provide a high level of service in the face of such challenges is the possibility of merging either with other facilities of similar size or with larger urban hospitals. This improves patient access to quality and advanced care, such as emergency and specialty services, by granting these facilities greater access to resources of a larger healthcare system. The data also clearly shows that such mergers actually reduce costs for patients and providers by keeping care close to home while improving the quality of care.
A 2021 study by Charles River Associates, for example, showed that hospital consolidations led to significant improvements in a number of key metrics, including readmission and mortality rates. Another study done the same year by the Maryland Agency for Healthcare Research and Quality and IBM Watson Health showed a decrease in mortality rates at consolidated hospitals from 9.4% before the merger to 5 .0% post-merger.
These improvements are due to a number of factors, including better access to resources that enable new cutting-edge 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 to invest in technology upgrades.
Despite all of this, the Federal Trade Commission (FTC) continues to act as an obstacle to beneficial hospital mergers. Recently cultivated institutional biases against consolidation in general and very inaccurate myths about hospital systems underlie this attitude. The antitrust laws, which the FTC tries to enforce against hospitals, were designed to ensure fair and open competitive markets, not to eliminate entire segments of an industry. These laws were intended to maintain reasonable, market-based consumer prices by preventing monopolization.
But the FTC’s crusade against all mergers, including healthcare mergers, is not based on objective empirical analysis of healthcare markets and will therefore have the opposite effect. By effectively forcing smaller, rural hospitals to close, specialist 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 everyone and is the key to keeping prices in line. Certainly, the health system could use a little more. But blind hostility to necessary mergers within the hospital community by an overzealous federal agency is not conducive to better access and better prices for care. Instead, it’s another example of a government bureaucracy getting too bloated to see the realities of the world it regulates 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 stand in the way.
Bob Beauprez represented Colorado’s 7th District in the United States Congress from 2003 to 2007, where he served on the Ways and Means Committee and currently operates a bison ranch in northern Colorado.
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