By Jill Zorn
As insurers and hospitals plan major mergers, they are playing with our hard-earned dollars and not with pretend Monopoly money.
For this last post in our mini-series on consolidation, we focus on the hospital industry.
The first blog in the series, Insurance Industry vs. Hospital Industry: Who Should Consumers Believe?, set the scene by using the analogy of two sumo wrestlers circling each other — with the consumer most likely to be crushed in the process.
The next installment, Connecticut Consumers Likely to be Squeezed by Insurer Mergers, focused on one of the sumo wrestlers, the health insurance industry.
Just in time to close out the series, a new report hit the streets: The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured.
As you can tell from the title, the basic conclusion of the paper is that health spending is high because the prices are high. And what is one of the major reasons for outrageous prices? Hospital monopolies.
The fact that the US health care prices are the major cause of the US health care cost problem is not news. Check out this blog by Uwe Reinhardt, US Health Care Prices are the Elephant in the Room, and follow the link to a 2004 paper he co-authored, “It’s the Prices Stupid.” Or read Steven Brill’s book, America’s Bitter Pill.
What’s interesting about this new report is that it provides information about the locations in the country that have the highest private insurance costs. Previous studies comparing health care costs by geographic area have relied on Medicare data. But it turns out that Medicare costs are not a good proxy for private insurance costs. Look at how different the two maps are in a New York Times article about the new study, when high Medicare costs are compared to high private insurance costs.
In fact, the study shows that there is very little relationship between high Medicare costs and high private insurance costs. As Atul Gawande explains it in this piece in the New Yorker:
The costs of care for the privately insured vary from town to town just as crazily as they do for the publicly insured (Medicare). But the patterns are strikingly different…. Medicare can use its authority to set prices for hospitals. Private insurers can’t. They have to negotiate with individual hospitals….
One of the authors of the new study is from right here in Connecticut, Professor Zack Cooper of Yale University. He is quoted in the Hartford Courant saying:
“The inconvenient truth is the reason hospitals have these extremely high prices is they are merging and they do have outsize market power,” Cooper said. “How do you unring the bell when a monopoly has already happened? What do you do in New Haven?”
Monopoly pricing is the “inconvenient truth” Cooper is referring to. The “Price Ain’t Right” paper reinforces the evidence from many other previous studies: hospital prices are higher in markets that are more consolidated.
As Gawande puts it, “When your grocery store is the only one in town, it can jack up prices without losing customers. The same goes for hospitals.”
Meanwhile, the process of building hospital monopolies in Connecticut continues. With their proposed acquisition of Lawrence + Memorial Hospital in New London and their “slow motion takeover” of Milford Hospital, Yale-New Haven Health System, already the largest system in the state as measured by hospital discharges, will get even bigger. Other hospital mergers are also moving forward in the state.
If only Connecticut consumers could pay for the higher prices caused by hospital and insurer consolidation with Monopoly money. Unfortunately, we will be paying with REAL dollars instead.