Unhealthy Competition

Doctors, lawmakers lament hospital consolidation, rising monopolies

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The health care system is the least competitive industry in America, leading to skyrocketing costs, according to a Harvard physician.

Dr. Ashish Jha, director of the Harvard Global Health Institute, said better price transparency—a popular solution to rising medical costs—will make health care more affordable for patients, but that solution alone will not reduce prices. Disclosing the costs of treatment does little good if consumers do not have access to other doctors—one of the key drivers of rising costs, according to Jha.

"Imagine a place where somebody is selling slices of pizza for $10," he told the Senate Health Committee. "You can make that price transparent, but if you don't have an alternative to go somewhere else for a cheaper slice of pizza then price transparency isn't going to do you much."

Jha said that the health care industry was less competitive than almost any other in the United States, which poses the biggest threat to consumers. Some lawmakers shared his misgivings with the evolution of regional monopolies in both rural and urban areas.

Sen. Bill Cassidy (R., La.), a career physician, has spearheaded efforts to reform the health care system and co-sponsored the Senate's failed attempt to repeal and replace Obamacare. He said that the consolidation of providers has driven up costs exponentially, even in bigger cities such as Boston. The trend of area monopoly providers can be traced to the lack of competition in the insurance market, as well as demographics.

"Some of this consolidation takes place as baby boomers get off of Blue Cross and into Medicare," Cassidy said. "Margins fall and less efficient hospitals cannot stay afloat, and so part of the consolidation is the inefficient are purchased by the efficient. Therefore, market consolidation is almost inevitable."

In May, Cassidy released an outline of what lawmakers can do to reform the health care system, taking special aim at avoiding future monopolies. The current system favors doctors and surgeons who work out of hospitals, which set prices. He said reforms must give them incentives to operate outside of that setting, encouraging competition against the status quo hospital-based system.

"Payment policies are exacerbating monopolies by incentivizing physicians to sell their practices to hospitals and discouraging lower cost settings of care from expanding or entering into the market," he said. "These lower cost settings of care could include allowing greater use of ambulatory surgery centers, free-standing emergency rooms, rural emergency centers, and physician-owned hospitals."

Sen. Tim Kaine (D., Va.) said the discussion should center on the overall health of Americans more than focusing on reducing costs. He touted several health care plans in progress in the Senate, including his joint proposal with Sen. Michael Bennet (D., Colo.) called Medicare X, which is aimed at slowing cost growth in Medicare.

Under Medicare X, the Centers for Medicare and Medicaid Services (CMS) would develop an insurance policy to cover Obamacare essential health care benefits and put that assistance on health care exchanges for individuals to purchase. Though CMS would have to cover the cost of the policy through premium collection, he asserted that it could be an effective compromise between free market proposals and the single-payer plans touted by Sens. Elizabeth Warren (D., Mass.) and Bernie Sanders (I., Vt.).

"I hope we get to a day—I'm sure there's good things about my proposal and I'm sure there are some challenges—but I'd love to have a time after we finish hearings on costs where we put Medicare X on the table with Senator Cassidy's proposal and the Sanders/Warren single- payer proposal," Kaine said.

While neither single payer, nor Obamacare repeal have managed to attract bipartisan support, there are steps the federal government can take to help block consolidation short of legislation, according to Jha. One of the biggest obstacles in reducing costs has been the hesitance of federal regulators to police providers and hinder monopolies. He said the Federal Trade Commission and the Department of Justice have not taken the necessary steps to prevent mergers and acquisitions among hospital networks.

"The signal to the marketplace is clear," Jha said. "Mergers and acquisitions get more market power and higher prices. The federal government isn't going to stop [them]. That, I think, has been a major issue in keeping prices high and keeping our health care spending high."