Let Competition Cure Hospital Monopolies

M idterm voters may not have handed a clear mandate to either Republicans or Democrats, but both parties should understand that rising health-care costs are a problem they cannot afford to ignore.

A recent survey by Arnold Ventures found that 67 percent of voters say reducing the cost of health care is the most important priority for Congress to tackle. That number included nearly four out of five Biden voters and about half of Trump voters

These results are not surprising to anyone who has experienced the crushing cost of health care over the past several years. Between 1998 and 2021, the price of hospital care has increased by over 250 percent, according to national health-expenditure data compiled by the federal government. The total cost of hospital care in the U.S. averages out to roughly $10,000 per household per year.

Hospitals are charging more than ever before because they face less competition than ever before. Over the past 25 years, large hospital groups have monopolized the market in large swaths of the country, buying thousands of independent hospitals through nearly 1,600 mergers. Today, 80 percent of hospital markets are considered “highly concentrated” by the Federal Trade Commission.

Hospital groups have also bought out a significant share of physician practices. Between 2013 and 2018, the share of physician practices that were hospital-owned more than doubled, from 14 percent to 31 percent. By 2020, over half of physicians worked directly for a hospital or at a physician practice that was owned by a hospital, according to analysis from the American Medical Association. This has led to health care that’s less tailored to the individual, with physicians having to sacrifice time with patients to fulfill administrative obligations to their corporate employers.

Once a hospital group takes control of the facilities in a community, it can use its monopoly power to raise prices for patients. A 2018 analysis by the University of California at Berkeley found that when hospitals merge, the price of hospital stays increases by 11 percent to 54 percent. In addition, the price of physician services increases by 14 percent after a hospital purchases a physician practice.

Fortunately, lawmakers have a wide range of options available to increase competition and bring down the price of health care. First, Congress should empower physicians to build their own hospitals and compete with hospital groups. Does that sound pie-in-the-sky? Think about it: Lawyers can own law firms and bankers can own banks. But since 2010, federal law has prohibited doctors from opening new hospitals and prevented existing physician-owned hospitals from adding new beds and operating rooms. A bipartisan proposal, the Patient Access to Higher Quality Health Care Act of 2021, would end this ban and allow physicians to offer their communities a low-cost and high-quality alternative to hospital monopolies.

Second, Congress should enact the Consumer Choice of Care Act to free ambulatory surgery centers to deliver more outpatient services. Surgery centers routinely charge 60 percent lower prices than hospitals for surgical procedures. Unfortunately, the federal agency overseeing Medicare bans surgery centers from offering patients over 1,700 important surgical procedures, such as hip replacements. This has effectively shielded hospitals from competition and raised prices on patients and taxpayers.

Finally, Congress should end Washington’s subsidies for hospital consolidation. For years, Medicare has paid hospitals significantly higher rates — between 106 percent and 217 percent more — than they pay to physician practices for exactly the same services, such as chemotherapy, cardiac imaging, and colonoscopies. In total, these wasteful subsidies cost patients and taxpayers nearly $700 billion, according to the Committee for a Responsible Federal Budget.

Medicare’s higher payments create an enormous incentive for physician practices to merge with hospitals in order to charge patients higher prices. One 2015 report by the Government Accountability Office recommended that Medicare equalize payment rates between hospitals and physician practices to prevent large hospital groups from further consolidating America’s health-care system.

Thankfully, a growing number of policy-makers are interested in ending Washington’s pro-monopoly subsidies. In July, Representative Bruce Westerman (R., Ark.) introduced the Fair Care Act, which would equalize Medicare’s payments. In addition, Representative Victoria Spartz (R., Ind.) introduced legislation to empower the private market to end “dishonest billing,” whereby hospitals secretly reclassify a doctor’s office they own as a hospital-based setting in order to charge more money. Each of these bills would give more Americans the affordable and personalized care they deserve.

Both Democrats and Republicans agree that the rising price of essential health care hurts ordinary Americans. It is time that our leaders acted to restore competition to our health-care system.