Beware the Affordable Care Act! That was the message of a fine National Journal piece that thoroughly investigated the current economics of the nation’s hospitals. Stories about economics—especially those that go deep—are always tough to do, and reporter Margot Sanger-Katz put it all together, lacing her piece with plenty of warnings about what health reform will and won’t do. The nub of her story is that the hospital industry is continuing to consolidate, and “the 2010 health care reform law is likely to make it much, much worse,” with consumers footing the bill. “A law designed to lower costs will likely raise them instead,” she wrote.
Her lede describes what happened in Evanston, Illinois, when Evanston Northwestern Healthcare merged with two smaller rival hospitals to increase its negotiating leverage with managed care organizations. Sanger-Katz used documents from a government anti-trust case against the hospital and learned that within four years of the merger the price of health care had risen by as much as 48 percent. “None of this could have been achieved by either Evanston or Highland Park alone,” wrote the hospital president in a post-merger memorandum. Four years ago, the Federal Trade Commission ruled the merger was anti-competitive, and ordered the hospitals that were part of the conglomerate to negotiate insurance contracts separately in the future. National Journal’s piece pointed out that current regulations protect the new Accountable Care Organizations (ACOs) from “tough antitrust scrutiny that many hospitals worried would interfere with their plans.” Reform supporters hailed ACOs as one of the best ways of reducing medical inflation because they would offer more seamless medical care, reducing fragmentation of services and duplicative costs.
But ACOs, Sanger-Katz reported, encourage consolidation. And consolidation, we know, is the antithesis of competititon, which the law was supposed to foster. Her reporting showed that hospital mergers and acquisitions increased by more than 50 percent since the law’s passage. The numbers tell the story. Sandy Steever, who editsHealth Care M&A Information Source, told National Journal that there were 86 deals involving 145 hospitals in 2011, compared to 73 in 2010 and 52 in 2009. There’s plenty of merger activity yet to come. Daniel Zismer, who studies health policy and management at the University of Minnesota, explained that some hospital system giants wonder if they are big enough, indicating that there’s still more consolidation yet to come.
What does this mean for health reform’s efforts to bend the proverbial cost curve? It may not happen, according to National Journal’s reporting. Sanger-Katz examined the Boston market, where much consolidation has taken place. Citing a 2008 Boston Globe series, she noted that when several insurers and only a few hospitals are involved in negotiations, hospitals can pretty much name their price, especially if the hospital system is a brand name, which Partners Group is in Boston.
She shows that the hospitals got off easy during the health reform debate, which turned insurance companies into the villains, letting the hospitals escape public scorn. When insurers pay more because hospitals have the muscle to demand it, they pass those costs on to consumers. Even with reform’s limits on how much insurance companies can pocket, Sanger-Katz pointed out that “the vast majority of cash they collect in premiums goes to medical providers. So as the price of care rises, so will the premiums.” That point got lost in the strategy to paint insurers as the basic bad guys.
She questions not only whether ACOs will do what is expected, but also scrutinizes another path for controlling costs. She cites a 2011 OECD report that described the U.S as an extraordinary outlier in the amount it spends per capita on health care. It’s worth repeating those numbers. U.S. per capita spending is almost $8000, more than double the average for the 34 developed countries from which the OECD collects data. But what’s key from the report, she writes, is that the volume of health care services did not vary much by country. That turns American policymakers’ focus on its head, she argues. Policymakers blame our high spending on the high use of health care and unnecessary services. But the real problem is the price we pay compared to other countries, she says, noting that “American patients pay 163 percent more to hospitals, 238 percent more for doctors’ visits, and 152 percent more for drugs than the OECD average.”