Hospital Monopoly: Changing the GameJuly 30, 2022
For me, the term “monopoly” brings to mind companies like Standard Oil, AT&T, Meta, and the omnipresent Amazon. So, when the Wall Street Journal ran an article about a billionaire who is funding a “battle against hospital monopolies,” I was intrigued.
The billionaire is John Arnold, an energy trader at Enron Corporation before its demise in 2001, who achieved some notoriety when he walked away seven figures richer and free of formal charges. Arnold and his wife formed a philanthropic organization (Arnold Ventures [AV]) that has influenced policies on a broad range of issues by means of financial awards totaling more than $2.5 billion per year.
Since turning its attention to the healthcare industry a decade ago, AV has provided over $358 million in grants with an eye toward disrupting the status quo and re-shaping healthcare policies at the state level. The pharmaceutical industry has been a prime target; awards have supported investigations into drug quality, pricing, and innovation.
AV has also funded multiple grants to study hospital consolidation — particularly employer and consumer complaints asserting that certain dominant hospital systems have stymied competition and illegally inflated prices. Today, major financing from AV supports the work of Fairmark Partners LLC, a law firm handling private cases against hospital systems. AV backing is reportedly key to Fairmark’s targeted effort to “…reshape hospital markets through the courts.”
For example, one lawsuit alleged that a national hospital chain’s acquisition of a 6-hospital system in western North Carolina gave the chain leverage to raise prices across its markets inside and outside the state. One of its hospitals was said to have charged four times the state average for a common procedure because of the chain’s outsized market power and noncompetitive marketing tactics. The court will decide whether antitrust laws have been violated.
Because of their potential for doing harm (e.g., limiting consumer choice, raising prices, compromising quality), hospital monopolies raise legitimate concerns. Clearly, alleged violations of existing laws and industry regulations should be investigated and resolved by legal means. But are hospital mergers inherently bad for consumers?
Hospital consolidations have accelerated in the U.S. over the last decade as national healthcare reforms shifted reimbursement models from fee-for-service (paying for volume) to value-based care (paying for quality outcomes). In theory, economies of scale help reduce waste and unnecessary duplication of services, improve communication and reporting via centralized electronic medical records, standardize clinical care processes, and facilitate collaboration and care coordination — all of which would improve patient outcomes while reducing overall costs.
Does it work? Like most “silver bullet” solutions, the evidence is mixed and analyses are hampered by the inability to account for a wide range of variables. Many studies show that mergers tend to be associated with higher costs for patients with commercial insurance. A 2020 study (246 acquired hospitals and 1,986 control hospitals) found that being acquired was associated with a modest differential decline in the hospital’s performance on patient experience measures, with no significant differential change in 30-day readmission rates. On the plus side, another study found that acquired hospitals had significant differential improvement in performance on clinical process measures.
Living in the Philadelphia area and based at one of its more acquisitive health systems, I continue to be optimistic that, in the long run, many large, consolidated, non-profit hospital systems like Jefferson will succeed in meeting quality and cost expectations. In the meantime, I hope that AV will wield its considerable financial clout to assure that everyone follows the rules.