
When Hospitals Merge to Save Money, Patients Often Pay More - rafaelc
https://www.nytimes.com/2018/11/14/health/hospital-mergers-health-care-spending.html
======
elliekelly
My ex-boyfriend was an attorney at UPMC doing M&A. Their business strategy
goes something like this:

1\. "Rescue" the only small hospital in a rural area through merger or
acquisition. The hospital entity is a "non-profit."

2\. Over the course of the next year or two ramp up sales of the very much
for-profit (and, conveniently, affiliated) health insurance plan, UPMC Health
Plan to all major local employers.

3\. Once sales of the health insurance plan reach "critical mass" within the
community, the "non-profit" hospital becomes out of network, and ridiculously
expensive, for all major insurers except one: UPMC Health Plan.

4\. Within the year all local employers are basically forced to adopt UPMC
Health Plan.

5\. UPMC Hospital and UPMC Health Plan rates go up. UPMC Health Plan
shareholders rake in the money while a small town goes broke trying to receive
adequate healthcare.

~~~
amluto
Step 6: solicit donations!

[https://www.upmc.com/about/support/faq](https://www.upmc.com/about/support/faq)

Out here, it’s Sutter Health. They have a slightly different strategy
involving acquiring near-monopoly status and screwing everyone over. It’s
gotten so bad that the state is suing to partially break them up.

To be somewhat fair to the hospital groups in question, a lot of this is
driven by outlandish regulation that makes it hard for independent medical
groups to survive.

~~~
aaavl2821
That regulation favors hospital groups and reinforces their monopolies.
Independent physicians who can't deal with the regulations sell out to big
hospital groups, who then, enabled by their greater control of physician
supply, squeeze insurance companies, who then in turn must squeeze the
remaining independent physicians who can't fight back, who then give up and
sell to hospitals

I think in some ways the ACA empowered monopolies by enabling them to further
consolidate physician supply in the guise of integrating data for "population
health"

~~~
mtgx
In some ways? Or by design? After all ACA was always a capitalist form of
healthcare.

~~~
tomohawk
Maybe for a very strained definition of capital.

The ACA was essentially written by the big industry insiders that are now
benefiting from it. This is cronyism, not capitalism, and is the hallmark of a
socialist / regulatory state.

------
seibelj
Even worse is that some states have legally mandated monopolies that prevent
competition from opening up. See this doctor who has to fight in court to
allow his clinic to offer MRI's [https://www.vox.com/policy-and-
politics/2018/7/31/17629526/m...](https://www.vox.com/policy-and-
politics/2018/7/31/17629526/mri-cost-certificate-of-need-north-carolina-
lawsuit)

New medical schools must be allowed by the American Medical Association,
artificially capping the number of doctors minted. This is why it's so
difficult to get into medical school - the supply of spaces is constrained,
unlike law school, where there is a spot for everyone who applies.

Dentists in Maine vehemently opposed allowing dental hygienists with a special
kind of license to fill cavities without needing a full DMD.
[https://www.washingtonpost.com/politics/the-unexpected-
polit...](https://www.washingtonpost.com/politics/the-unexpected-political-
power-of-
dentists/2017/07/01/ee946d56-54f3-11e7-a204-ad706461fa4f_story.html?utm_term=.6ef22f2853d1)

If we want to fix the medical and legal professions, and by fix I mean make it
cheaper, we need to remove the warped incentives caused by the government that
prevent natural competition from fixing the issues.

~~~
blakesterz
I see what you're saying there, but I'm not positive artificially capping the
number of doctors minted is a terrible idea. Don't we want to make sure only
the best and brightest end up being doctors? If there's a spot for everyone
who applies to med school, wouldn't that leave us with far more incompetent
doctors?

There should probably be more doctors, but it doesn't seem wise to lower the
bar too far down.

~~~
seibelj
By that logic, we should artificially cap everything. Why allow just anyone to
be a programmer? Don't we only want the _best_ programmers to write our
software?

Any entrepreneur should be able to open up a licensed medical school. Anyone
who graduates should be able to get certified as an MD. This is how markets
should work - not capping doctors on the hope that we get "better" ones.

Also, I have seen some awful doctors, so I'm not sure the system is working.

~~~
nradov
Anyone who meets accreditation requirements can open a new medical school. The
actual bottleneck in producing new physicians is downstream of medical schools
in the residency system. Every year there are students who graduate with an MD
degree but can't find a residency position.

~~~
blakesterz
I know so very little about how all this stuff works, that's really
interesting, I've not heard that before.

------
atourgates
The other side of the story that's not covered here is that when hospitals buy
up independent medical groups, patients, insurers and tax payers pay more.

In general, if a practice is hospital owned, they're allowed to bill about 2x
what an independent provider could for the exact same procedure.

My wife is an ophthalmologist in private practice. A couple years back, we
were looking at the economics of buying a laser to do a common treatment for
patients with glaucoma, called a Selective Laser Trabeculoplasty (SLT).

Even with a decent understanding of medical reimbursement models in the United
States, I was still kind of shocked by what I found.

The laser to perform the procedure costs about $30,000 to purchase.

The Medicare allowable for a physician performing the procedure in a
standalone surgery center was about $315. There's really no reason that the
procedure needs to be performed in a surgery center, and Medicare does let the
physician bill about $30 more if they bought a laser for their office, and
performed the procedure there. But, at an increase of $30/procedure, you'd
have to be doing a ton of SLTs to make buying your own laser financially
attractive vs. just using the local surgery center's.

Where things get crazy, is in terms of facility fees.

If a physician performs an SLT procedure at an ambulatory surgery center, the
physician's Medicare allowable is about $315, and the surgery center can bill
a separate facility fee of about $290, making the total procedure cost
medicare just over $600.

If my wife's practice were bought by a hospital tomorrow, and they brought an
SLT into her office, every time she performed an SLT in the exact same office
that was now hospital owned, they'd be able to bill the $315 physician fee,
plus a "hospital outpatient department" (HOPD) facility fee of $443, bringing
the total cost of the procedure to over $750.

So, to recap the total costs to medicare:

Physician does the procedure in their privately owned medical practice: $345

Physician does the procedure in a surgery center: $600

Physician does the procedure in a hospital-owned medical practice: $750

This is why independent medical providers are getting bought up by hospitals
and large health systems at an alarming rate.

You hear a lot in the healthcare market about the efficiencies of scale, and
how large integrated healthcare organizations are doing amazing things. You
don't hear a lot about the potential for independent practitioners to reduce
costs, but it's absolutely there, and largely ignored.

~~~
aaavl2821
I wish more people talked about this

I attended a talk by the president of a major academic hospital system. He
talked about how his friends who were independent physicians would call him up
and ask him to "save" them. Their practices were failing (probably bc the big
academic center was so massive that it crowded out any smaller practices). The
big system bought the small one, and overnight the previously independent
practice doubled its billing rates. This was a core part of the strategy of
the hospital system, as it is for hospital systems nationwide -- buy up small
practices and use them as loss leaders to direct patient flow to the hospital
profit centers (I've talked to people at these systems who view primary care
as a loss leader even after their rates double when they are acquired). Then
negotiate higher rates with payers since you control the market

There was no talk of benefits of better care coordination or data sharing
through integration. Not in this talk or any of the other half dozen similar
talks I've been to. "Population health" is a PR play that big hospital systems
use to justify monopolistic behavior. And we wonder why healthcare costs are
so high

~~~
sjg007
You should expect EMR integration but I do know that it has not happened in
many places where the local clinic carries the major group name but the EMRs
are separate.. It's actually a shame. This is relevant to the Children's
hospitals and clinics in Minnesota for example.

------
ken
Patients also (as the article mentions towards the end) get worse results,
e.g., in [1] "Higher hospital competition was associated with lower 30-day
mortality for three to five of the six study conditions, depending on the
choice of competition measure, and this finding was robust to a variety of
sensitivity analyses".

[1]:
[https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1955358/](https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1955358/)

My local non-profit healthcare org was bought out by a giant conglomerate a
couple years ago. They promised prices wouldn't increase. My monthly bill
jumped 20%. It boggles my mind that state regulators approved this merger.

------
jihoon796
Both the prices and costs of a hospital/clinic are very much politics-driven.

And the most infuriating part to all of this is that whether a system does
well financially has little to do with patient outcomes or any other metric
related to human health. Yes, I understand Goodhart's law ("when a measure
becomes a target, it ceases to be a good measure") since it's a common
counterpoint used against my argument, but surely there are better metrics to
optimize for other than profit?

For example, I work closely with a medium-sized reference laboratory, and it's
clear to me that they have to take literally every shortcut possible in order
to survive. The only reason that they're able compete in the market at all
against a LabCorp or a Quest is due to the fact that they have deep political
connections (lobbyists, governors, lawyers, etc) - certainly not because they
have a better product or have better testing methods (although if you asked
them, that's what they'd tell you).

~~~
creaghpatr
>The only reason that they're able compete in the market at all against a
LabCorp or a Quest is due to the fact that they have deep political
connections (lobbyists, governors, lawyers, etc) - certainly not because they
have a better product or have better testing methods (although if you asked
them, that's what they'd tell you).

Exhibit A: Theranos

------
pasbesoin
People are worried about "socialized medicine".

In my metropolitan area, almost all doctors are working for one of three very
large and expanding private networks.

And more and more insurance offers are forcing members to pick a plan serviced
by only one of those networks.

It may not be "government", but their healthcare is already dictated by a
single large and not very transparent nor accountable organization. Where
employees aren't worried just about making money, themselves, but also about
maximizing "returns" for shareholders.

~~~
InclinedPlane
Indeed, it's hilarious that people are concerned about "socialized medicine"
here when we already spend more public money on healthcare for worse benefits
that any other developed country. We keep on passing up opportunities to do it
right because our politics are so broken (to be clear: intentionally broken by
one party who represents a minority of the population).

------
edoo
I saw something very interesting the other day. The Surgery Center of Oklahoma
doesn't take insurance and they can't charge you if they make a mistake. Their
post-op infection rate is 5% the rate of hospitals that get to bill your
insurance for the infection you got. That is mind blowing.

~~~
Fomite
It should be noted that you _cannot_ bill Medicare or Medicaid for preventable
infections that arise during a hospital stay.

I'll also say the statistical adjustment to actually make those infection
rates comparable between hospitals is _very_ non-trivial, and hospitals with
low rates often tout them in ways I find fairly deceptive.

~~~
edoo
I think it is worth studying. In regulatory based hospitals there are natural
profit incentives that are only gated by the law. The hospital has no
incentive to go above and beyond the basic legal requirements for sanitation
and won't if there is a profit based incentive not to.

Free market solutions where the consumer has strong rights usually leads to
superior solutions and their result lines up with the hospital adopting free
market methods.

~~~
Fomite
A couple notes:

"The basic legal requirements for sanitation and won't if there is a profit
based incentive not to."

As I mentioned, there is not really just a 'basic legal requirement for
sanitation'. There are significant financial _penalties_ in the form of both
uncompensated expenses and genuine cuts to reimbursement rates based on
outcomes.

"Free market solutions where the consumer has strong rights usually leads to
superior solutions and their result lines up with the hospital adopting free
market methods."

This is not necessarily self-evident. For example, for many quality measures,
despite their bad press, the VA outperforms private hospitals. Furthermore,
many hospitals like the one mentioned in your original post are able to pick
and choose their cases, which very frequently leads to lower rates.

I think it's worth studying as well, because it's my career. I am however also
noting that you're making a couple false assumptions, and even measuring
things like "Does Hospital A have more infections than Hospital B" are
deceptively challenging if you actually want the correct answer.

~~~
edoo
Good points, and I'm no expert. I do think the VA outperforming private
hospitals could be in line with it having different incentives, like fixed
pricing and not being run as a profit mill. Different incentives due to a
different non-free market structure could explain some of the other problems
they have too.

------
noonespecial
Oh, you thought they merged so the _patients_ could save money? Heh. No.

Seriously though, as a market moves towards a monopoly, prices increase. How
is this a surprise to anyone at all?

~~~
MrMorden
“Are—are you with the Friends of Sleep?” she asks hoarsely.

“I told you, we’re from the govern—” Agent Jones begins, just as Agent Smith
says, “Yes.”

Agent Jones clears his throat. “We are the Friends of the Lord of Sleep, and
we’re from the government, and we’re here to _help_ ”, he explains.

“To help our Lord”, Agent Smith clarifies, “not you.”

( _The Labyrinth Index_ , Charles Stross, 2018)

------
nradov
This is just part of a general consolidation trend in the healthcare industry.
Payers (insurers and claims administrators) have been merging to gain more
negotiating leverage over providers and drive down prices. Providers responded
by merging to maintain pricing power. The next step, which is happening now,
is payers acquiring provider organizations to have everything under one roof.
Essentially the industry is converging on the Kaiser Permanente model.

------
King-Aaron
Man, _just imagine_ having to worry about how much going to the hospital will
cost you.

~~~
geodel
Well nothing much to imagine. It's true in most of the world that decent
hospital treatment for serious ailment can bankrupt people. Now it is
different in some rich european countries. But people here somehow behave as
if apart from US one can get top notch hospital care anywhere in world without
severe financial consequences.

I have seen here many who visit from US singing paeans for excellent
healthcare in third world nation like India. It mainly works because 1) Whats
very cheap for people in US is still very good amount of money there. 2) Local
hospitals there would not dare ripping off Americans as it can cause great
reputational harm if that incident ever covered by first world media.

However for locals these hospitals behave in absolutely atrocious and corrupt
manner. And anyone not in top 5% in wealth pyramid will be ruined financially
by treatment expenses.

~~~
jellicle
Meh, it's the norm in developed nations that medical care will not bankrupt
you, period. You can fall off a cliff and break every bone in your body and in
any of the green countries here, your out of pocket costs will be minimal:

[https://www.theatlantic.com/international/archive/2012/06/he...](https://www.theatlantic.com/international/archive/2012/06/heres-
a-map-of-the-countries-that-provide-universal-health-care-americas-still-not-
on-it/259153/)

It's not the norm in the undeveloped countries, which admittedly have a lot of
population, but is that really the standard the USA wants to compare itself
to?

~~~
elliekelly
Even in Saudi Arabia. The government might chop your hand off for stealing but
even they take you to the hospital immediately and you won't go broke when you
get the bill.

------
bookofjoe
"When elephants dance, the grass gets trampled."—African proverb

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your-nanny
the tend to blame insurers for high medical costs (and hey it's easy not to
like them), but the relative size of providers when negotiating prices with
insurers is more likely

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yuhong
Health care is a good example of some of the problems of the current debt-
based economy. Charles Hugh Smith mentions insulin as an example.

