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December 26, 2013 3:08 PM Common (Health) Carriers

By Ed Kilgore

With all the talk about the immediate issues facing the health care system as the Affordable Care Act is implemented, it’s easy to forget the great big long-term challenge of rising costs. Solving it is essential not only to health care reform, but to managing the federal budget; most of the cost spirals used to justify “entitlement reform” are attributable to medical inflation and its impact on Medicare and Medicaid spending.

But as WaMo’s Phil Longman and the Council for Affordable Health Coverage Paul Hewitt explain in the January-February issue of the Washington Monthly, the ACA provisions aimed at “bending the curve” of health care costs don’t address (and could actually exacerbate) the single largest contributor to rising costs, provider consolidation, particularly among hospitals.

Start with the sheer number of hospital mergers, which has become staggering. In recent years, the tally has run up from fifty-two in 2009, to seventy-two in 2010, to ninety in 2011, and reaching 105 in 2012. In 2012, only 13 percent of hospitals surveyed said they intend to remain independent from other hospitals or systems. Booz & Company, a consulting firm, reckons that an additional 1,000 hospitals could merge in the next five to seven years….
This trend of increasing concentration has been building since the 1990s and is a major reason why health care costs rose dramatically during the last decade. By 2009, the mega-trend of consolidation already meant that most Americans were living in metro areas where there was little if any competition between hospitals.

Seeking to increase their own leverage over the prices they charge, physicians are increasingly affiliating themselves with ever-larger hospitals as well. And these trends parallel (although in terms of costs may contradict) the growth in highly integrated health care systems, which ACA encourages.

What to do? Longman and Hewitt recommend a combination of old-fashioned antitrust enforcement and a regulatory regime that treats large hospitals as “common carriers.”

Applied to health care, a common carrier regime might work like this: A hospital over a certain threshold of market power—let’s say, one-third or more of a community’s beds—would be required to publish a full schedule of its prices for all its different services and procedures. It would also be required to charge all customers the same price, whether those customers were large or small insurance companies, employers, or individual patients….
A common carrier hospital could also not discriminate between independent doctors and doctors employed by or otherwise affiliated with hospitals. All would have the same scheduling rights and pay the same overhead allocations for services such as operating rooms, CAT scans, and intensive care beds. A common carrier physician group, likewise, would have a single rate structure.

Politically, say Longman and Merritt, this common carrier model may be the only alternative to a single payer system in terms of holding down costs:

Conservatives might object that it is beyond government’s competence to perfectly calibrate the balance of concentration and competion in each local health care market. But as politicially and administratively difficult as this approach will be, it’s basically the only way to create the conditions under which markets in health care can operate efficiently even in theory. You will not find Adam Smith defending the notion that the hidden hand works in monopolized markets with secret prices.
The only actual sustainable alternative is to have government directly set prices and thereby allocate resources in health care. Some liberal readers may well say, “Yes, let’s just do that.” But whatever the merits of that model, it is not going to happen anytime soon in America at the federal level.

Both antitrust enforcement and common carrier regulations have a long history in the U.S., and using them to stop price gouging by providers holding monopoly power is only “socialistic” to those promoting laissez-faire economics. More importantly, it may be the only way anyone vision of the American health care system can be pursued without calamitous price hikes that could ruin national and family economies while making long-range federal budget deficits unsustainable.

Ed Kilgore is a contributing writer to the Washington Monthly. He is managing editor for The Democratic Strategist and a senior fellow at the Progressive Policy Institute. Find him on Twitter: @ed_kilgore.

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