HCI3 Update from the Field: Consolidation Inflates Prices

Submitted by francois.debrantes@hci3.org on Friday, November 16, 2012 - 01:05

Newtown, CT – November 16, 2012

"Like many businessmen of genius he learned that free competition was wasteful, monopoly efficient. And so he simply set about achieving that efficient monopoly." Mario Puzo, The Godfather.

And so the story goes for most companies, including hospitals, whether for profit or not. Acquisitions and mergers have ballooned in 2012 and are forecast to grow again in 2013. The consequence of these consolidations has, in the past, almost always resulted in price increases for the private sector, and a RWJF brief summarizes the considerable evidence to-date on this effect. This week, Catalyst For Payment Reform adds to the body of evidence in a new report showing that price inflation continues to result from consolidation. And so we must ask ourselves what in the world federal regulators are waiting for? Because the impact of these price increases is pretty clear: the continued impoverishment of middle America and a barrier to growth and employment. Take for example my community of roughly 28,000 residents. The Town budget, which is mostly driven by the Schools' budget, has been forced (rightfully so) to keep a tight lid on any inflation, growing at barely 1% these past few years as families continue to struggle, and real estate prices to stagnate or even decrease. Of course, the Schools' budget is driven, in very large part, by salaries and benefits. So here's the simple math. The total budget for all schools is about $68MM and the health benefits costs are about $7.5MM – a 10% increase in health care costs wipes out a 1% increase in the total budget. And the price of health care has grown, but since the budget has to stay the same, staffing has actually gone down. This scenario, which is true for the schools, is truer still for most companies where revenues have stagnated because of international competition. Something's got to give, and people are losing their jobs so that the hospitals can get higher prices.

What this means to youCPR's report proposes several ways in which we can fight back, and our past missives have highlighted a few as well. So I'd like to propose an additional one that stems from personal experience. One of the reasons the price of healthcare has increased in Newtown is that the hospital market, which only numbered two, has consolidated to one system. And at one point, whilst I volunteered on the hospital's Finance Committee, hospital officials reported gleefully (as is their right in this screwed up FFS payment world) that they had "socked it" to the health plans, having achieved two-digit rate increases. Before taking my permanent leave from that committee, I reminded them that it wasn't the health plans they were socking it to, it was every business, every municipality, every school. And the price those folks would pay is fewer jobs, stagnant or even decreasing household income, and a dimmer future. That's the cold and harsh reality that many hospitals choose to ignore, preferring instead to wrap themselves in the warm blanket of their mission, and justifying unfair taxation to carry out that mission. It is our duty and obligation, however, to call out this egregious behavior and to see that it stops. I've done it, perhaps to little effect, but better to have tried and failed than never have tried at all. And if we all try, if we all act – employers, consumers, and regulators – we will all succeed.


Francois de Brantes
Executive Director
Health Care Incentives Improvement Institute, Inc.
w: www.hci3.org