The Corner

The Catheter to Serfdom: Crony Capitalist Hospitals

In the current issue of National Review, I have a lengthy piece on a problem that has vexed conservative for decades: Why is it that government keeps growing, despite valiant efforts by conservatives to oppose that growth? The answer, I contend, is that while we have had modest success reining in discretionary spending, the growth in health-care entitlement spending has overwhelmed those efforts.

The growth in health-care entitlement spending, in turn, is driven by the special interest that has the most to gain from coercing taxpayers to spend more money on health care: hospitals. Hospitals’ political and economic power, and their exaggerated reputation as pillars of their communities, has ensured that every health-care debate has ended with hospitals receving greater taxpayer subsidies than ever before. There is no industry that is, collectively, a bigger crony capitalist in terms of taxpayer funding than hospitals – not even the defense industry.

I open with the story of the merger of two Harvard-affiliated “nonprofit” hospitals, Massachusetts General and Brigham and Women’s, the conclusion of which resulted in steeply higher prices and insurance premiums for the residents of that commonwealth:

In 1994, two eminent Boston hospitals, Massachusetts General Hospital and Brigham and Women’s Hospital, merged. Officials hailed it as a new era for integrated, high-quality care. The state’s secretary of health and human services signed off on the merger without a public hearing, with the blessing of Republican governor William Weld.

The merged hospital entity, called Partners HealthCare, immediately went about raising rates for insurers. Blue Cross Blue Shield of Massachusetts, the state’s largest private insurer, wanted to fight — in 2000, at a gathering of the company’s executives, some suggested refusing to pay the higher fees. But executive Peter Meade delivered a cold slap of reality: “Excuse me, did anyone here save anyone’s life today? We are a successful business up against people that save people’s lives. It’s not a fair fight.” 

For 50 years it hasn’t been a fair fight. And understanding that is the key to solving a mystery that has puzzled conservatives for decades: Why is it that no matter what, the largest component of government spending — health care — keeps rising? In debates about health care, we spend a lot of time arguing over how we buy it: whether through government payers, private insurers, or health savings accounts. But there’s an equally important story, one that nearly everyone in the political class has neglected: how we sell health care.

Hospitals are at the center of this story. And they are using their economic and political power to drive up the price of their product. If the Congressional Budget Office’s projections are right, health care will account for almost all increases in government spending for the foreseeable future, excluding interest on the debt. And increasing spending on hospital care is the biggest driver of rising health-insurance premiums, which are in turn the main cause of wage stagnation for middle-income Americans. Put simply, we cannot confront the growth of government, nor of middle-class economic insecurity, without first confronting the central role that hospitals play in causing both.

NR’s proprietors will charge you 25 cents in order to read the article if you aren’t already a digital subscriber, but I hope you’ll read it anyway.

Avik Roy — Avik Roy is the President of the Foundation for Research on Equal Opportunity (FREOPP.org), a non-partisan, non-profit think tank.

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