The Untamed Rise Of Hospital Monopolies

Source: National Public Radio

Last month, Michigan’s two largest hospital systems, Spectrum Health and Beaumont Health, announced they wanted to become one. The $12.9 billion “megamerger” would create a health industrial complex spanning 22 hospitals, 305 outpatient facilities, and an insurance company. It would employ 64,000 people, making it the largest employer in Michigan. Local newspapers had expected the merger to “sail through” government approval. But now they’re not so sure.

That’s because President Joe Biden recently signed an executive order saying his administration was serious about promoting competition, and he specifically singled out hospitals as an area where growing monopolization is a concern. The order, the White House says, “underscores that hospital mergers can be harmful to patients and encourages the Justice Department and Federal Trade Commission (FTC) to review and revise their merger guidelines to ensure patients are not harmed by such mergers.”

Hospitals are a really important part of the American economy. The hospital sector is one of the largest sectors in the overall American economy, accounting for about 6 percent of America’s GDP (gross domestic product).

Hospitals do a lot of good things. But because of growing monopolization of them, Zack Cooper, an economist at Yale School of Public Health, worries that they’re becoming a “Dracula” that “sucks some of the vibrancy out of a lot of towns across the country.”

Cooper and his colleague, Martin Gaynor, have crunched the numbers on hospitals using the government’s preferred way of measuring market concentration, and they’ve found that about 80% of America’s hospital markets are now “highly concentrated.”

“The average hospital market in the U.S. is just way over what the FTC and the DOJ would consider a healthy level of concentration,” Cooper says. Many of these markets, he says, are dominated by just one or two hospitals, giving them market power to suck extra money from communities for health procedures and emergencies.

In addition to decades of mergers and acquisitions with hospitals gobbling up other hospitals, hospitals have also been increasingly buying up physician practices. Economists refer to this as “vertical integration.” Think steel manufacturers buying the railroad lines.

Like with mergers and acquisitions, Cooper says, many of these deals have not received adequate scrutiny from federal regulators. The research clearly shows that growing monopolization results in less competition.

Less competition means hospitals can charge higher prices, pay lower wages, provide worse care — and get away with it.

“We want firms to compete and be incentivized to raise their quality to attract more consumers, and the more that hospitals merge, the less sharp those incentives become,” Cooper says. “We have evidence that death rates are literally higher in markets where hospitals face less competition.”

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