AHA Rebuttal to ‘Overcoming the Market Dominance of Hospitals’

A recent JAMA article, recycles old and tired arguments about hospital consolidation without any examination of the impact of consolidation in the commercial health insurance industry or related health care sectors that promise to have a profound impact on the cost, quality and accessibility of health care for consumers.

There is good evidence that mergers in the hospital sector reduce costs and improve health outcomes. According to a study by Charles River Associates (CRA), consolidation was associated with a statistically significant 2.3% reduction in annual operating expenses at acquired hospitals. By achieving greater scale, hospitals and health systems are able to improve efficiency and reduce costs and better coordinate care to achieve better health outcomes for patients. Not surprisingly, CRA found merged health systems had statistically significant reductions in rates of readmissions and mortality.

Focusing exclusively on hospital consolidation conveniently ignores that outsize impact of consolidation commercial insurance markets. There is no question that commercial health insurance markets are significantly consolidated. According to one study, 74% of metropolitan statistical area-level insurance markets were highly concentrated in 2019, and one insurer has at least a 50% share in nearly half of all commercial markets.^[1] Researchers have drawn a direct link between insurer monopolies and higher premiums. A 2018 study of Marketplace plans found that premiums were on average 50% higher in areas with just one insurer compared to those with more than two insurers.^[2] Moreover, a recent case in Philadelphia illustrated just how far large commercial insurers will go to retain their monopoly and block competition (FTC v. Thomas Jefferson University, et al).

Commercial health insurers’ vertical consolidation has intensified in recent years, which has the real potential to undermine competition by reducing patients’ choices and raising out-of-pocket costs. For example, UnitedHealth Group has a network of over 50,000 employed or affiliated physicians, plans to add 10,000 more this year and is one of the largest employers of physicians in the country.^[3] And following the CVS/Aetna merger, the three largest pharmacy benefit managers are now under insurance company ownership.^[4]

This has led to soaring income for insurers during the pandemic. The top five publicly traded insurers reported $52 billion in income before taxes in 2020, a 22% increase over 2019, according to their annual SEC filings. An analysis by the Kaiser Family Foundation shows that average gross margins among individual and fully-insured group market plans were 21% and 24% higher, respectively, than at the same point last year.^[5]

At the same time, established and new technology companies, including some of the companies that the author’s employer, venture capital firm Venrock, has invested in, seek to change how health is delivered^[6]. Unfortunately, some of these approaches will lead to more fragmentation and balkanization of the health care system in which these players seek to peel off only those services that are highly profitable. These firms are entering the field unencumbered from the regulatory burden faced by hospitals and health systems, and with capitalization beyond the means of many hospital systems.  Importantly, they can enter the market without any obligation to serve the entire community, unlike the hospital field.

The authors’ policy solution to the problems they imagine are to force market dominant hospitals to accept all forms of public insurance and invest money into health care provisions for low-income or marginalized communities. This policy solution underscores how little the authors understand the hospitals field, since hospitals and health systems are already doing this. Hospitals and health systems accept Medicare and Medicaid, even though payment rates from these payors underpay relative to the cost of providing care for their beneficiaries. Beyond the $75.8 billion in Medicare and Medicaid underpayments, hospitals provided $41.6 billion in uncompensated care.^[7]

In fact, tax-exempt hospitals, which constitute the majority of U.S. hospitals, reported providing $100 billion in community benefits in 2017.^[8] Tax-exempt hospitals are required to report programs and services provided to the community when they file yearly with the IRS. These include programs and activities that:

• improve community and population health by address social determinants of health;
• underwrite medical research and health professions education; or
• subsidize high-cost, essential health services.

Hospitals’ and health systems’ contribution to their communities has never been clearer than during the COVID-19 pandemic. During the early days of the pandemic, some hospitals and health systems developed their own COVID-19 tests before widespread molecular testing was available. Since then, hospitals have provided care for more than 1.45 million hospitalized patients with COVID-19 infections. Now, hospitals and health systems across the country are standing up vaccination efforts, in order to end the COVID-19 pandemic. All this is happening while hospitals and health systems still face unprecedented financial challenges. Hospitals are projected to lose between $53 billion and $122 billion in revenue in 2021 due to continued reduced volume.^[9]

As we emerge from an international epidemic, we should be focusing on how to repair the damage done to hospitals and health systems and the communities they serve, not suggesting redundant requirements.

Rick Pollack is president and CEO of the American Hospital Association.