Blame towering market power for soaring hospital prices: Healthcare affordability specialist

If you get a hip replaced in the United States and you’re covered by private health insurance, the hospital invoice will come close to $30,000. Got Medicare? The bill drops to around $16,000.

And both of those price tags would seem out of whack in Germany, where the hospital would probably charge less than $10,000 for that same operation.

Why is that? 

Because U.S. hospitals have amassed mountains of market power over payers, which matters much when the two haggle over prices. 

So says a healthcare economist at the Yale School of Public Health. 

Since 2000, there have been more than 1,300 hospital mergers among the nation’s approximately 5,000 hospitals, notes the expert, Zack Cooper, PhD, who also leads Yale’s Healthcare Affordability Lab as well as its Tobin Center for Economic Policy. 

“When hospitals that were once competitors merge, prices go up, often by double-digit percentages, with no measurable improvement in patient outcomes,” Cooper adds. “Even though we rely on competition to determine hospital prices, 21% of hospitals are effectively monopolies—they have no competitor within a 30-minute drive—and an additional 24% face only one competitor.”

With that Cooper is just getting started. He fleshes out his argument in an opinion piece published as a guest essay by the New York Times May 4.

Here are five more points from Cooper’s commentary. 
 

1. If hospital prices are such a key driver of rising costs, why aren’t elected officials doing more about them? 

“Partly the answer is politics,” Cooper writes in answer to his own question. “Hospitals are the largest or second-largest employer in many counties in America, and a formidable lobbying force—spending more than $100 million annually in Washington, often more than health insurers spend, to protect their interests.”

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Politicians who represent places with dominant hospital systems are not eager to pick a fight with these institutions.

2. When an insurer denies your claim, you know it immediately. 

“When a hospital merges and its prices go up, the harms are real but diffuse,” Cooper points out.

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Such harms include slower overall economic growth and job losses outside the hospital sector. 

3. And then there’s the chronic underfunding of the Federal Trade Commission. 

Each year, there are approximately 20 potentially harmful hospital mergers, Cooper notes. 

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The cost of pushing back on all of them would potentially exceed the agency’s entire budget for antitrust enforcement across all sectors of the economy.

4. Addressing this issue would require regulating the prices for at least some hospitals. 

Economists generally prefer to rely on competition to determine what companies get paid, Cooper explains. “But in hospital markets that are effective monopolies, regulation isn’t a departure from sound economics—it’s the only tool left.”

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Congress should cap the prices monopoly hospitals can negotiate with private insurers, using Medicare rates or prices in other competitive markets as benchmarks.

5. Making hospital prices all the harder to confront is the relationship we have with our healthcare providers. 

This bond is very different from the transactional relationship we have with our insurers, Cooper reminds. “The physician and scholar Jay Katz spent his career writing about how vulnerability, fear and gratitude make it difficult to hold doctors and hospitals to the kind of scrutiny that we apply to other powerful institutions.” 

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We lean on hospitals when our children are born, when our parents get sick and when we approach life’s end. That kind of reliance requires trust.

In the comments section, a reader challenges Cooper’s focus on market forces. 

“Yet another article about high costs without a word about c-suite pay,” the reader writes. “Hospital System and Insurance Company CEOs and other c-suite executives each rake in tens of millions of dollars in compensation per year. They are being rewarded for maximizing profits at the expense of patient care.”

“You’re right that the leaders of these big organizations often make enormous salaries,” Cooper responds. “That can be so jarring when so many are struggling to afford access. What frustrates me is that, often for insurers and hospitals, it’s easier to make money gaming the system (coding aggressively, for example) than by making care better. My belief is that the better the incentives (e.g., more competition) the less of that we’ll see.”