By Chris Jacobs, The Foundry
JUNE 12, 2013 – The New York Times published a column highlighting one way Obamacare will raise health costs: by promoting hospital industry consolidation that will force prices higher.
The Times highlighted the case of two Chicago-area hospital systems whose merger was investigated by the Federal Trade Commission in 2000. The article notes that one hospital CEO “had told his board that the deal would ‘increase our leverage, limited as it might be,’ the investigation found, and ‘help our negotiating posture’ with managed care organizations.”
The other hospital’s CEO said that “it would be real tough for any of the Fortune 40 companies in this area…to walk from [the merged hospital group] and 1,700 of their doctors.” The end result of the merger:
It was a great deal for the hospitals. The fees they charged to insurers soared. One insurer, UniCare, said it had to accept a jump of 7 to 30 percent for its health maintenance organizations and 80 percent for its preferred provider organizations.
Aetna said it swallowed price increases of 45 to 47 percent over a three-year period. “There probably would have been a walkaway point with the two independently,” testified Robert Mendonsa, an Aetna general manager for sales and network contracting. “But with the two together, that was a different conversation.”
And who was left holding the bag? Not the shareholders of UniCare or Aetna. It was the people who bought their policies, who either paid higher premiums directly or whose wages grew more slowly to compensate for the rising cost of their company health plans.
Industry mergers give hospitals more market clout to raise prices—and those higher, “take it or leave it” prices are passed on to all Americans in the form of higher insurance premiums.
What has Obamacare done to solve this problem? It’s made it worse. The Times quotes Martin Gaynor, an expert on industry consolidation, about this “potentially troubling” aspect of the law:
Professor Gaynor, for instance, worries that accountable care organizations may prove anticompetitive. Merger activity has jumped in anticipation of the law’s coming fully into effect.
“Hospitals want to maintain their revenue streams and enhance their bargaining leverage,” said Professor Gaynor. “This [i.e., Obamacare] is a way to do so.”
Obamacare as a way for hospitals to “enhance their bargaining leverage”? No wonder they endorsed the law. However, the American people will be paying the price—quite literally—for years to come.