Market Institute President Charles Sauer joined The Steve Gruber Show to discuss hospital consolidation, rising health care costs, and the government policies that are distorting the market.
Sauer argued that consolidation itself isn’t necessarily the problem. In a functioning free market, mergers and acquisitions can create efficiencies and give entrepreneurs an important incentive to build successful businesses.
Health care, however, operates under a very different set of rules.
Government reimbursement policies can pay hospitals substantially more than independent physician practices for providing the exact same service. That creates a powerful incentive for large hospital systems to acquire independent practices.
Sauer illustrated the problem with a simple example: a service that might generate $10 at an independent doctor’s office could generate $70 after that same practice is purchased by a hospital system.
“They don’t change a thing,” Sauer explained. “They just change the name over the door and now that same office can charge $70.”
Those incentives contribute to consolidation while increasing costs for patients and taxpayers.
The broader problem, Sauer said, is that health care has increasingly separated the patient from the person or institution actually paying the bill. Government programs, employers, and insurance companies dominate the payment system, leaving patients with less ability to directly influence prices.
“The patient is kind of the customer that’s not the payer,” Sauer said.
That distorted market allows hospitals and insurers to negotiate prices and discounts that bear little resemblance to the kind of transparent pricing consumers encounter elsewhere in the economy.
Sauer pointed specifically to site-neutral payment reform as one way policymakers could begin addressing those incentives. Paying different amounts for the same medical service simply because of where it is performed encourages consolidation and increases federal spending.
Ultimately, Sauer argued, the problem isn’t the free market producing too much consolidation. It’s government policy creating financial incentives for consolidation that otherwise wouldn’t make economic sense.
Watch Charles Sauer’s full conversation with Steve Gruber below.
0 Comments