Health Care’s Crushing Lack Of Competition Causing Increased Prices and Poor Results

By Martin Gaynor, Farzad Mostashari and Paul Ginsburg for Forbes. 

No matter how it resolves, the fiercely partisan debate over repealing and replacing the Affordable Care Act will not solve America’s true health care crisis. Indeed, a key reason why expanding coverage is so hard is that health care services cost so much, making insurance premiums unaffordable to many.

Driven by lack of competition, ever higher prices are being paid to hospitals, doctors and insurers without leading to better outcomes. It’s time to implement a competition policy for health care before Americans crumple under a system that is devouring family and government budgets. Middle class families’ spending on health care has increased 25% since 2007, crowding out spending on clothes, food and housing.

We are paying the price for steady consolidation in the hospital and insurance arenas.

There were 1,412 hospital mergers from 1998 to 2015. Nearly one half of the country’s hospital markets are now considered highly concentrated. One or two large hospital systems dominate many areas, like Boston, Cleveland, Pittsburgh and San Francisco. Hospital admissions in these regions cost $2,000 more on average than admissions elsewhere.

Hospitals stifle competition even further by gobbling up physician practices. The percentage of physicians employed by hospitals jumped from 26% in 2012 to 38% in 2015.

Meanwhile, the top two insurers control more than 50% of the market in most of the United States. Premiums are higher in more consolidated markets. Researchers found that simply adding one more insurer to an ACA marketplace reduces premiums for everyone by an average of 4.5%.

Perhaps most alarming, patients have worse health outcomes when hospitals face less competition. One important study found that Medicare beneficiaries who experienced a heart attack had a substantially higher chance of dying within a year if they were treated by a hospital that faced few potential competitors, relative to hospitals that had many competitors.

To address these pernicious trends, we convened a bipartisan Summit on Health Care Markets at the Brookings Institution last fall, an off-the-record event that was attended by dozens of experts in government, industry and academia. The discussions led the three of us to develop a package of recommendations we believe can reset the competitive landscape in American health care.

The first step is to stop digging the hole deeper. State and federal officials need to act immediately to prevent further consolidation by getting rid of the myriad policies that encourage mergers or protect dominant players. For example, patients can suddenly find that the cost of a visit to their doctor has doubled or tripled when the office is bought by a hospital. Competition can be enhanced if Medicare pays the same for outpatient procedures regardless of who owns the clinic and private insurers follow suit.

Second, ensure that dynamic new competitors can enter the market. State licensing requirements and other regulations that often ride under the banner of consumer protection instead wind up protecting the market position of established providers. New companies can inject much-needed innovation into healthcare–for example, through the use of newer technologies like tele-medicine—and also keep prices lower and quality higher for everyone.

Third, ban anti-competitive practices. For example, hospitals frequently write contracts that prevent insurers from telling patients about less expensive or higher quality competitors. Similarly, dominant insurers insist that contracting hospitals not offer their services to other payers at lower prices. These sorts of practices should be prosecuted or outlawed.

Finally, make it easier for independent physicians to stay that way so that competition is preserved. Medicare, which is experimenting with new payment models, can limit the risk that physician groups take to participate in those models, and reduce the administrative burdens they endure.

Our package contains many more detailed proposals, some of which have already been embraced by federal and state regulators. But many will also face considerable opposition from entrenched interests—interests who commit to “quality, accessible and affordable care” in their mission statements, but who work against those values when they exercise anti-competitive power.

Political leaders need to recognize the misdirection in those mission statements. They need to act decisively to make health care markets work and provide relief for beleaguered American families.

Gaynor is the E.J. Barone Professor of Economics and Public Policy at Carnegie Mellon University’s Heinz College. He formerly directed the Bureau of Economics at the Federal Trade Commission. Mostashari is the CEO of Aledade, a start-up he co-founded aimed at helping primary care doctors transform their practices and form accountable care organizations. He previously served as National Coordinator for Health Information Technology. Ginsburg is Leonard D. Schaeffer Chair in Health Policy Studies at the Brookings Institution and Director of Public Policy, Schaeffer Center for Health Policy & Economics, and Professor of Health Policy, at the University of Southern California.   []

Jun 28, 2017 

Editor: Although the publication date of this article may not be current the information is still valid.