April 3, 2015

An article in Slate reports the average bill for an American hospital stay is $18,000 compared to $6000 in the rest of the developed world.

Of course, there could be numerous reasons for the discrepancy, everything care rationing overseas we don’t use here fortunately at least not yet to lifestyle differences. But any patient who ever perused his or her hospital bill knows healthcare charges can soar out of sight.

One factor in outrageous prices could be relentless consolidation among hospitals and medical practices. With fewer players competing, prices can escalate. For example, Duke Healthcare, a supposed nonprofit which gets millions in State tax breaks, has a joint venture with a for profit hospital chain to takeover competing hospitals in North Carolina and across the country.

The move toward monopoly might be helped by NCDHHS. First, they want providers to join together into accountable care organizations to run Medicaid. Forbes reported this could further dampen competition. “Mike Bertrand, former Insurance Commissioner of Vermont, points out that accountable care organizations, a phenomenon I discussed last week, could make the problem worse, by driving provider consolidation. Here’s an article (linked to below by Tim Ferguson) on the subject (emphasis and links added):

The federal Patient Protection and Affordable Care Act is looking for $500 billion in savings over the next decade to help pay for extending coverage to 32 million uninsured Americans. Yet it doesn’t address the problem of market concentration — and may make it worse, said Robert Berenson, a physician and policy analyst at the Urban Institute in Washington D.C.

The “unchecked” clout of hospital and physician groups in California is a “cautionary tale for national health reform,” Berenson said in a February article in the journal Health Affairs. He warned that incentives in the new legislation to improve treatment by promoting doctor-hospital alliances — called “accountable care organizations” — could backfire by strengthening providers’ bargaining leverage.

Higher prices stemming from hospital mergers that took place between 1997 and 2006 alone add $12 billion to annual health care costs, according to a study last year by Cory Capps, a former U.S Department of Justice economist. Capps, now a consultant, estimated that the ability of powerful hospitals to stimulate usage and the merging of doctors’ groups might be adding another $6 billion to $10 billion.

Secondly, NCDHHS administers the certificate of need law which artificially limits the number of medical providers who can compete against existing providers. A recent study at George Mason University found North Carolina had the fourth most restrictive certificate of need law to limit competition. “By limiting the number of providers that can enter a particular practice, and by limiting the expansion of incumbent providers, CON regulations effectively give a limited monopoly privilege to providers that receive approval in the form of a certificate of need,” the authors said.

“Approved providers are therefore able to charge higher prices than would be possible under truly competitive conditions. In effect, those who can pay are charged higher prices to subsidize those who cannot.”

N.C. near top for regulations

North Carolina’s program covers 25 regulated devices and services, ranging from hospitals and ambulatory surgical centers to adult care homes, dialysis centers and medical equipment, such as MRI scanners.

Only Vermont, with 30, and Hawaii, with 27, has more regulated devices and services covered by a CON. By contrast, both Arizona and Ohio have one regulated device and service that requires a CON.”

In effect, requiring potential new entrants into the medical marketplace to obtain a certificate of need from the state, which can take years and cost millions of dollars to get, creates a medical industry cartel to keep prices high. It’s good for the lawyers, bureaucrats and experts involved in the process, but bad for medical consumers who have to pay higher rates.

In fact, by shutting out competition, CON may inflate medical bills by 5% which will amount to over $1.5 billion in North Carolina.

Keeping one group of doctors from competing with another makes as much sense as blocking Amazon from challenging Walmart.

Conservative reformers are trying to bust the medical monopoly by repealing the certificate of need. The entrenched special interests don’t like it, but it’s time for free market competition in healthcare.

Here’s legislation to open the market and lower healthcare costs.