The National, Bipartisan Loathing of Hospital Monopolies

State legislators of all political leanings are fed up.

Photo credit: Matt Walter

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The United States, rather famously, has the highest health care prices in the developed world. And one of the chief drivers behind that is high hospital prices: Hospitals receive $1 in $3 dollars spent in the U.S. on health care, and they’re more profitable than other notorious health care sectors such as insurers or pharmacy benefit managers.

But even that doesn’t tell the whole story, as hospital prices diverge a lot in different parts of the country, and even within states that border each other or cities without much distance between them. The difference-maker is power: Hospital systems that have more successfully consolidated their markets charge higher prices, in classic monopolist behavior. Those same hospital chains also use their power to drive down wages and working conditions for employees, too, and command large tax breaks, sucking even more money into their own coffers and out of communities.

Legislators across the country, from all across the political spectrum, have had it with this state of affairs. Below, I’ll provide some more background on why hospital monopolies are such a pressing issue today, and detail how legislators in four states are working to rein them in.

First, the numbers. Over the last decade-plus, health care merger activity has been rampant: Between 2010 and 2017, there were 778 hospital mergers across the United States, in markets large and small, and there have been many more since.

The Federal Trade Commission’s Bureau of Economic Analysis has said that these consolidated hospitals charge as much as 40-50 percent more than hospitals in more competitive markets, and recently warned state governments against making merger-related deals with hospitals. And that’s far from the only piece of evidence showing price harms from hospital power. The Rand Corporation found in a report last year that “a 10 percent increase in hospital market share is associated with a statistically significant 0.5 percent increase in a hospital’s price relative to Medicare.”

In fact, straight up, markets with one hospital are more expensive than those with two, which are more expensive than those with three, which are more expensive than those with four.

More hospital competition, meanwhile, is associated not just with lower prices, but with better outcomes. For example, one study found that a 10 point drop in hospital concentration led to a nearly 3 percent drop in the 30-day mortality rate at those hospitals. That meant about 1,000 fewer deaths per year across the 133 hospitals studied.

But costs aren’t the only negative of consolidation. Four years after a hospital merger, according to one study, wages for nurses and pharmacy workers were 6.8 percent lower, and were 4 percent lower for non-medical workers than they would have been in the absence of the merger. So hospitals use their power not only to extract more money from patients and insurers, but also from their own employees.

In at least four states, of all political leanings, legislators are aiming to do something about this. Here’s where things stand and the potential solutions that are on the table.

Minnesota: The proximate cause of hospital merger attention in Minnesota is a proposed merger between Sanford, a South Dakota-based hospital chain, and Fairview, a Minnesota system that encompasses the hospital connected to the University of Minnesota Medical School. Democrats hold both houses of the legislature there, as well as the governorship and the attorney general’s office, and have been holding a series of both community-based and legislative hearings about the merger, which is opposed by medical workers, medical students, the medical school administration, and lots of others.

This exact merger has been tried before and fell apart, and the case for it has only gotten worse since, as both chains are now larger and more incompetent. The merger would also allow Fairview to evade Minnesota oversight, which is more rigorous than that in South Dakota.

In addition to the hearings and potential blocking of the merger on antitrust grounds, the legislature has been debating a measure that would give the Minnesota Health Department the ability to block hospital mergers on the grounds that they would reduce access to care. I don’t love all aspects of that bill, but it’s important in that it acknowledges that patient access has been getting left out of merger decisions.

Indiana: Indiana has some of the highest hospital prices in the nation. As economist Michael Hicks wrote recently, in Indiana, “a whopping 97 percent of outpatient visits to the six biggest hospital systems are charged rates that are above the national average.” “These conglomerates are so lucrative that just last year, one of them made a nearly half-billion-dollar donation to Indiana University to mask its profits and still was more profitable than Walmart,” Hicks wrote.

Hospital mergers in the state have caused prices to go up nearly 20 percent for residents, and I have heard from multiple people on the ground there that, when lawmakers approach hospital administrators to discuss getting costs down, they are told in no uncertain terms to go pound sand.

The Republican supermajority legislature has clearly had enough, and is moving a comprehensive bill to rein in hospital monopoly power. It has several key parts: It would ban noncompete agreements for physicians, ban steering provisions that force physicians to send patients to particular hospitals, and levy fines on hospitals that don’t keep their average costs in line with average national costs. If it becomes law, it will do a whole lot of good, and still leave the door open to antitrust enforcement actions against individual hospitals.

Pennsylvania: My shop, The American Economic Liberties Project, recently released a report about UPMC, the supposedly non-profit hospital system that dominates Western Pennsylvania and uses its power to undermine care, harm workers, and union bust, all while collecting tens of millions of taxpayer dollars every year. It’s also extending its reach into other parts of Pennsylvania and the world, having recently acquired its fourth property in Ireland, and it runs an insurance network as well, which it uses to drive business away from competitors by refusing to cover patients if they use competing facilities.

The report lays out a policy agenda for tackling UPMC’s power, and hospital monopolies in the state more generally, including by: creating a Pennsylvania state antitrust statue, which it currently lacks; setting up a reporting regime for health-care related mergers, so the attorney general can get a better sense of what’s happening in the sector; creating new price discrimination and price setting rules; blocking insurers from using access for anticompetitive reasons; and much more

Already, the mayor of Pittsburgh has announced a renewed investigation into UPMC’s non-profit status, and Pennsylvania House Democrats are working on a bill that both creates an antitrust statute and institutes a health care merger reporting system.

Washington: Washington State has been grappling with a slew of hospital mergers for a long time; in the late 1980s, just 10 percent of the hospitals in the state were part of a larger system, and they handled about 20 percent of patients. Now nearly half of hospitals are in larger systems, and those hospitals see about 80 percent of patients. Of particular concern has been religiously-affiliated hospital networks taking over secular hospitals and then denying reproductive or end-of-life care to patients.

The Democratic legislature there, with the support of Attorney General Bob Ferguson and Gov. Jay Inslee, is considering a measure called the Keep Our Care Act, which would give the AG the power to block mergers on provision of care grounds, meaning a merger could be stopped if it would deny care to certain areas or populations, whereas currently the harms for blocking a merger are limited to, essentially, price concerns. If passed, it would be a potent new tool for enforcers to use against hospital consolidation.

I’m sure I missed some things — it’s a big country! Flag anything you’re seeing in the comments or via email, or let me know if you’re interested in getting involved in one of the state efforts I outlined.

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UPDATE: I’ve written before about state and federal efforts to rein in Apple and Google’s power over the app economy. Those got an important new booster last week, as the Biden Administration’s Commerce Department weighed in, issuing a call to curb Apple and Google’s ability to levy fees, self-preference, and generally gatekeep via their respective app stores. You can read the full set of recommendations here. It’s really exciting to see a cause a lot of people have spent time and sweat on, in the face of very intense tech industry lobbying, getting this sort of endorsement.

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SHAMELESS SELF-PROMOTION: I talked to Business Insider about the Arizona Coyotes’ quest for a new publicly-funded arena, which you can read here, and with Inkstick Media about secrecy in a Utah subsidy deal for a nuclear weapons plant, which you can read here.

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— Pat Garofalo