In 2009, President Obama stated “There have been reports just over the last couple of days of insurance companies’ making record profits, right now,” and “At a time when everybody’s getting hammered, they’re [insurers] making record profits, and premiums are going up. What’s the constraint on that?” Such are the prevailing political diatribes directed toward a convenient scapegoat, the health insurance industry, which succeeds only in shooting the proverbial messenger. Example: Blue Cross executives understood quite clearly those politicians demonize insurers and venerate hospitals as Blue Cross Blue Shield of Massachusetts unsuccessfully fought raising rates by a newly merged hospital entity. Profits for health insurance companies have remained relatively stable at around 5 percent for numerous decades, while newly merged hospital monopolies increase fees with escalating profits.
The average U.S. hospital stay of five days costs $18,142, whereas in the developed world the cost is $6,222. The supposition here is that the extra monies provide for high-tech advantages not utilized in Europe. Studies reveal this as incorrect; American hospitals simply charge higher sums because they can. MD Anderson Cancer Center in Houston charged an uninsured patient $283 for a chest X-ray it would have billed Medicare $20, $15,000 for blood tests that cost a few hundred dollars and so on. Hospitals expect no payment of such overcharges but claim unpaid balances for PR and tax purposes. This cancer center in 2010 recorded a profit of $531 million.
Hospital consortiums remain unmotivated to develop free-market solutions encouraging lower costs, as normal businesses would; but instead besiege Congress with lobbyists to escalate government subsidies. It is no revelation that the American Hospital Association fervently supported Obamacare. These hospitals will be the single largest recipient of the trillions in new spending resulting from Obamacare. Increasing taxes proved politically easier than confronting the AHA, which spent nearly $300 million since 1998 on lobbying alone.
To promote leverage against private insurers, hospitals utilize consolidation to create regional monopolies. In disparate sectors of the economy, antitrust laws are usually employed to restrain such monopolistic formations. Such market concentration is measured by regulators by means of the Herfindahl-Hirschman Index, or HHI. HHI is determined by calculating market share of all players in a given market, squaring each market share percentage and adding up the total. Example: A market of three airlines, two with 40 percent each and one with 20 percent yields an HHI of 3,600 (twice 1,600 plus 400). U.S. Department of Justice and the Federal Trade Commission guidelines deem any HHI above 2,500 to be “highly concentrated” and subject to regulatory investigation. From 1993 to 2008, no hospital merger was prohibited despite an average HHI of 3,261. Such elevated HHI indexed hospitals outcharged their below average HHI brethren by 44 percent.
Most hospitals are “nonprofit” establishments, but such status only impedes distribution of earnings to owners or shareholders; while allowing executives to receive generous salaries and stockpile cash for expansion and improvements. One McKinsey study revealed that the nation’s 2,900 nonprofit hospitals exceed profit margins of the 1,000 for-profit hospitals. Such hospital mergers include acquisition of private physician practices to promote control and higher fees of patients with private insurance. Obamacare effectively restrains free enterprise solutions. Section 6001 of the Affordable Care Act forbids the building of new physician-owned hospitals if those hospitals accept Medicare patients; a crucial restriction exploited by Congress to acquire support of the AHA for Obamacare.
Apparent solutions to this burgeoning unrestrained affair include antitrust proceedings against hospital mergers, repealing Obamacare restrictions on physician-owned hospitals and allowing Americans to be in charge of their own health care dollars to lower costs opposed to third-party payment.
Tony Favero is a freelance writer, media researcher and former math and science instructor and engineer. He lives in Half Moon Bay.