Time to reverse hospital market consolidation

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President Biden says that hospital consolidation — which leaves health care markets dominated by a few giant hospital systems — reduces patient options and drives up health care costs. He is right, and Congress can help reverse this dysfunctional situation.

The pace of corporate mergers and acquisitions accelerated under the Affordable Care Act, with giant hospital systems buying up private medical practices. Today, about 90% of America’s metropolitan hospital markets are “highly concentrated,” and the American Medical Association reports that only 44% of American doctors are self-employed. The number of independent medical practices is shrinking.

These anti-competitive dynamics fuel higher costs and guarantee fewer health care options for patients. The absence of meaningful competition also reduces the economic incentives for hospitals to develop and deliver innovative care practices that improve health outcomes.

State officials are best positioned to remove barriers to provider competition. Reviewing, reforming or repealing state certificate of need laws should be their top priority. These laws require hospitals and medical professionals to show a state agency a “need” and get a “permission slip” to build, expand or modify medical facilities.

The Department of Justice and the Federal Trade Commission, under both Democratic and Republican administrations, have declared these state laws anti-competitive. And with good reason: They bar entry of new firms, undercut patient choice and provider innovation, fail to control costs or improve quality of new firms, undercut patient choice and provider innovation and fail to control costs or improve quality.

At the federal level, Mr. Biden has already issued an executive order toughening up anti-trust enforcement and supporting the Trump administration’s hospital price transparency rules.

Congress can go beyond these executive actions to help reverse this consolidation. For example, lawmakers can leverage the influence of the $926 billion Medicare program, the nation’s largest medical payer.

First, Congress can make Medicare payment to providers “site-neutral,” meaning that Medicare would pay the same for a service whether it was delivered in a hospital, a clinic or a doctor’s office. Today, Medicare pays more for a service if delivered in a hospital setting. Not only does this increase taxpayers’ costs, but it also discourages alternative care at independent clinics or medical practices.

By adopting “site neutrality” payment, Congress would stimulate competition between hospital and non-hospital service delivery centers, make access to care more convenient for patients, and improve the cost and efficiency of care delivery on the ground. This Medicare payment change would have a positive spill-over effect on cost and care delivery in the private sector.

“Site neutrality” for Medicare payment is broadly supported in the health policy community, ranging from analysts at the conservative Heritage Foundation to analysts at the liberal Brookings Institution — an uncommon health policy consensus.

Second, Congress should lift Medicare payment restrictions on physician-owned specialty hospitals and let them compete with other hospitals in serving Medicare patients.

The Affordable Care Act, aka “Obamacare,” prohibits Medicare from reimbursing these specialized hospitals, thus depriving them of crucial revenues available to the giant hospital systems. This is tantamount to a barrier to Medicare patients’ access to the high-value care provided by this high degree of medical specialization.

The evidence is clear. Physician-owned specialty hospitals deliver a higher quality of care than other hospitals and score higher on Medicare’s quality metrics. Cardiac and orthopedic hospitals especially have scored “very high” in securing patient satisfaction.

Left unchanged, current law forecloses patients’ ability to take advantage of tomorrow’s innovations in specialized care delivery. Today’s restrictions on hospital competition no longer make any sense — if they ever did.

With just two changes in federal law, Congressional Democrats and Republicans can come together and benefit millions of Americans by making the hospital markets more competitive. On this issue, at least, there is no excuse for partisan gridlock.

• Robert E. Moffit is a senior fellow specializing in the study of health care and entitlement programs at The Heritage Foundation.