The Challenge of Hospital Mergers

Published September 30, 2014

Consumer Power Report #438

An underlying issue that has received little attention in the Right’s objections to the Affordable Care Act is its effect of driving further consolidation and hospital mergers.

By eliminating patient choices, hospital mergers often establish local monopolies, weaken accountability for low-quality care, and drive up the prices patients, insurers, and taxpayers are forced to pay for medical services.

The Wall Street Journal recently published a piece by Kenneth Davis, CEO of the Mount Sinai health system, which represents pushback from the hospital industry against growing criticism of consolidation.

But there are a number of problems with Davis’s argument about the impact of mergers. When it comes to health care in America, it’s largely accepted on right and left that the real problem is costs.

For his part, Davis maintains that hospital mergers mean more efficient delivery of health care services. Yet, while hospital mergers may improve efficiency when they eliminate overcapacity, that is not the motivation behind the merger wave we’ve seen in recent years.

The real motivation is increased pricing power.

Monopoly power allows hospitals to raise prices, and the evidence is clear that prices are higher in more consolidated local markets. The merger of hospitals leads to raised prices, and studies have found prices rising roughly 20 percent after mergers in uncompetitive markets.

Washington is increasingly aware this will lead to a higher cost burden on taxpayers and consumers. See these recent comments from the Federal Trade Commission’s Martin Gaynor:

Hospital consolidation since the enactment of the Affordable Care Act is a potential threat to free markets and health care costs, and one to which the Federal Trade Commission is paying close attention, said Martin Gaynor, director of the Bureau of Economics at the FTC.

Other panelists at a POLITICO Pro Health Care breakfast briefing Tuesday said the ACA was forcing expensive changes that required consolidation.

“The ACA and all other reforms in [the] health care system are built on top of the market-based system” and “will only work as well as those markets,” Gaynor said. More than 1,000 consolidations occurred in the 1990s, and mergers have ticked up again since the ACA was enacted. Some, though not all, of these consolidations are a threat to the market system, he said.

“Layered on top of many markets that are dominated by a small number of very large systems, it can be a concern so it’s something we pay very close attention to,” Gaynor said.

Barak Richman, a Duke University law professor, said there was “very little evidence” that consolidation had “provided any efficiencies at all.”

“Barak is right,” Gaynor said. “We’ve had mergers for a very long time. There are a lot of data, and we’ve seen almost no evidence of real efficiency claims. That doesn’t mean it won’t happen, but the most recent evidence doesn’t support those claims.”

For his part, Davis is not just defending hospital mergers on the basis of efficiency claims – he’s also advocating greater integration between the insurance and hospital industries. As a matter of policy, this would effectively force consumers into HMO-like plans. While there is a place for restrictive HMO plans as a cheaper source of coverage, people should be free to pay for better alternatives. The job of an HMO is to keep costs down, and this means saying no to people for a lot of what they want.

Davis seems to be endorsing Accountable Care Organizations without mentioning them by name, which is a little odd. But perhaps that’s indicative of the shift taking place before our eyes. Very few people would want everyone to be pushed into an HMO-style experience if such a system were openly proposed. If ACOs are bound for market dominance, as Davis implies, the real reason could be that they will dry up people’s alternative choices before they even realize what has taken place.

As much as the American Right fears single-payer, in some ways the larger threat is single-provider. Increased hospital mergers in areas without real competition will increase this threat, and the taxpayer and consumer will be left with no other option but to pay the bill.

— Benjamin Domenech



Oklahoma Attorney General Scott Pruitt hailed the state’s victory in its lawsuit challenging the implementation of the Affordable Care Act, it was announced Tuesday, September 30.

In September 2012, Oklahoma was the first to challenge the legality of an IRS rule that caused billions in illegal subsidies to be paid out, despite Congress having never authorized those payments. On Tuesday, U.S. District Judge Ronald White ruled in favor of the state’s lawsuit challenging that IRS rule.

“Today’s ruling is a consequential victory for the rule of law. The administration and its bureaucrats in the IRS handed out billions in illegal tax credits and subsidies and vastly expanded the reach of the health care law because they didn’t like the way Congress wrote the Affordable Care Act. That’s not how our system of government works,” Attorney General Pruitt said. “The Obama administration created this problem and rather than having an agency like the IRS rewrite a law it didn’t like, the administration should have done the right thing and worked with Congress to amend the law. Oklahoma was the first to challenge the administration’s actions and today’s ruling vindicates what we recognized early on and that is the administration can’t rewrite the Affordable Care Act by executive fiat.”

Oklahoma’s lawsuit challenges an IRS rule from May 2012 that called for 1) tax subsidies to be issued in states like Oklahoma without a state-based health care exchange and 2) assessed “large employer” penalties in states that did not establish state health care exchanges. Both parts of the rule contradict the language of the ACA, which plainly states that tax subsidies can only be issued and tax penalties are only to be assessed in states that established state-based health care exchanges.

The ruling in the Eastern District of Oklahoma can be appealed by the Department of Justice to the 10th Circuit Court of Appeals in Denver.

SOURCE: Broken Arrow Ledger


A nationwide effort to enroll consumers in health insurance under the Affordable Care Act is getting under way, and it is even more complicated than it was in the first year.

Insurance companies, states and the Obama administration have two missions for the law’s second major enrollment period. They want to draw millions of new, harder-to-attract enrollees to the law’s insurance exchanges, while also ensuring that existing customers retain their health plans for 2015. Marketplaces are scheduled to open for enrollment Nov. 15.

“This year, we have to walk and chew gum at the same time,” said Anne Filipic, president of Enroll America, a nonprofit that focuses on health-coverage expansion. “There are millions who did not enroll [whom] we need to reach and get in the door, and millions who got coverage and aren’t sure what to expect.”

One issue is that those who already have plans will get different instructions on how to renew them depending on where they live. The site that serves more than 30 states will in most cases automatically renew existing plans for next year, though federal officials are encouraging people to revisit the site to update their incomes and comparison shop …

Unlike last year, when pent-up demand for coverage drove millions to sign up to get insurance, advocates this year are having to work harder to target new enrollees. Enroll America is recruiting about 1,000 organizations to provide one-on-one assistance in signing people up. It plans to unveil an online tool in October that will let consumers make appointments with navigators and assistants.

SOURCE: Stephanie Armour, Wall Street Journal


When Jennifer Hopper raced to the emergency room after her husband, Craig, took a baseball in the face, she made sure they went to a hospital in their insurance network in Texas. So when they got a $937 bill from the emergency room doctor, she called the insurer, assuming it was in error.

But the bill was correct: UnitedHealthcare, the insurance company, had paid its customary fee of $151.02 and expected the Hoppers to pay the remaining $785.98, because the doctor at Seton Northwest Hospital in Austin did not participate in their network.

“It never occurred to me that the first line of defense, the person you have to see in an in-network emergency room, could be out of the network,” said Ms. Hopper, who has spent months fighting the bill. “In-network means we just get the building? I thought the doctor came with the E.R.”

Patients have no choice about which physician they see when they go to an emergency room, even if they have the presence of mind to visit a hospital that is in their insurance network. In the piles of forms that patients sign in those chaotic first moments is often an acknowledgment that they understand some providers may be out of network.

But even the most basic visits with emergency room physicians and other doctors called in to consult are increasingly leaving patients with hefty bills: More and more, doctors who work in emergency rooms are private contractors who are out of network or do not accept any insurance plans.

When legislators in Texas demanded some data from insurers last year, they learned that up to half of the hospitals that participated with UnitedHealthcare, Humana and Blue Cross-Blue Shield – Texas’s three biggest insurers – had no in-network emergency room doctors. Out-of-network payments to emergency room physicians accounted for 40 to 70 percent of the money spent on emergency care at in-network hospitals, researchers with the Center for Public Policy Priorities in Austin found.

SOURCE: Elisabeth Rosenthal, New York Times


A recent New York Times article discussed the case of a Peter Drier, who had surgery for a herniated disk … in his neck. Besides the regular surgeon, an assistant surgeon who was out of Peter’s network helped with the surgery. Whereas the in-network surgeon earned a discounted fee of about $6,000, the out-of-network assistant surgeon billed nearly $117,000. Had the patient been on Medicare, the assistant surgeon could have received no more than about $800. Being out of network meant the surgeon’s $116,862 charge was not subject to a negotiated discount. Gotcha! You owe an extra $116,862 not covered by your insurance.

The article used a few other anecdotes of patients hit with unexpected bills for services that seemed trivial. Fees for the “nurse” who walks you to the bathroom may be billed as physical therapy: $400. The device to help you dress? It’s considered occupational therapy: $679. That friendly doctor who poked her head in the door a couple times and asked how you’re feeling? Gotcha! That will be $1,000 because she’s out of your network.

None of this rant is to suggest these medical personnel didn’t provide a valuable service. Mr. Drier didn’t complain about his medical care, just the way it was billed. Some of the services could have been provided by a resident physician for free, but none were available. Other services were trivial and could have been provided by a nurse or nursing assistant. Some services seemed unnecessary – but were billed at significant rates.

Why does this occur? Because over the past few decades third-party payment has insulated patients from the cost of medical services they receive. Thus, the providers of care don’t have to compete on price. Had this hospital been competing for patients on the basis of price, it would have looked for ways to boost efficiency. Rather than look for ways to pad the bill, it would likely have offered a package price. Doctors would have likely contracted with the hospital to provide services. At the very least, fees would have been transparent and discussed ahead of time.

SOURCE: Devon Herrick, NCPA


In May, Department of Health and Human Services (HHS) Secretary Sylvia Burwell testified to Congress that costs for building were $834 million. New research from Bloomberg Government suggests that Burwell’s estimate represents a low-end estimate.

According to the new report, spending for has been an estimated $2.14 billion. Burwell’s estimates did not include numerous costs related to the project. For instance, she did not include the contract costs for processing paper applications, which are used as a backup. That contract cost $300 million.

Burwell’s figure also does not include spending at the IRS and other agencies related to ACA requirements. For instance, the IRS is required to provide real-time interfacing with to verify income and family size for insurance subsidy calculations. Those requirements cost $387 million.

Bloomberg also includes $400 million in costs that were excluded by HHS using creative accounting. When it wrote the ACA, Congress did not appropriate money to HHS for the construction of a federal exchange. Instead, it provided unlimited grants to states to construct their portals. When many states refused to construct their exchanges, HHS was forced to develop, but without a dedicated source of funding. HHS said it would need to “get creative” about funding options, leaving many wondering where HHS would eventually get the money. According to Bloomberg, HHS shifted money around to finance the construction of, using a number of existing contracts to finance the website’s construction.

Finally, Bloomberg included $255 million more in costs than Burwell due to time period differences. Burwell’s costs were as of February 2014. Bloomberg included costs until August 20, 2014, and then projected the current level of spending forward to the end of the fiscal year, September 30th. But this means that their figures are likely conservative too because federal agencies often ramp up spending – particularly contract spending – as it closes out its fiscal year.

Implementing the ACA is a costly exercise; Bloomberg says the $2.14 billion for administration is only a small part of the full $73 billion costs of Obamacare since its passage in 2010. But the administration nonetheless owes taxpayers an accurate accounting for the costs of the system.

SOURCE: Nicole Kaeding, Cato Institute


Hormonal birth control has been around for a long time, and while it has some dangers, they aren’t going to be addressed by hauling women in for a perfunctory, often uninformative doctor’s visit. Over-the-counter availability is a market-based approach to medicine, and it drives down the cost of drugs substantially. The pro-life movement has had some unease about birth control as evidence has appeared that it can, in some instances, destroy an embryo, ending a human life. But requiring a prescription is no way to address that concern.

The Left’s response to this political development continues its cynical treatment of this issue. Liberal-leaning doctors’ groups and abortion advocates such as Planned Parenthood supported proposals like the ones Republicans are touting now … until Republicans started touting them. They haven’t backed off the idea altogether, but they have complained that this is far from a sufficient approach to birth-control access.

Why? Because Republicans still oppose the president’s HHS contraceptive mandate. And they’ll continue to do so, because it violates religious liberty. It also does more than just force individuals – priests, nuns, Catholic administrators – to engage in providing something against their conscience. It is just one part of a larger effort to yoke the institutions these people run to the aims of the state, regulating civil society out of existence.

The contraceptive mandate was, like a lot of taxpayer-funded contraception programs, a political maneuver masking as a public-health intervention. Birth-control access is, broadly speaking, not a major problem in America, and “access” is often not about cost. Birth control is already cheap, and could become cheaper if more of it were available over the counter. (With co-pays banned by the HHS mandate, in fact, the cost of new contraceptives may rise.) The cost and inconvenience of repeated doctor’s visits can also be a real burden for many women, and one that only OTC birth control can solve. Meanwhile, of course, the mandate did nothing for uninsured women.

Democrats are not resisting the GOP’s suggestion because of any quibbles with its policy substance. They hem and haw because they want to continue to depict Republicans as intent on keeping contraceptives away from women. It is a cherished slander, and if their conduct on the campaign trail is any indication, it is one Democrats will not easily give up even as it becomes yet more risible.

SOURCE: Editors, National Review