Senior columnist Jake Novak of CNBC notes one critical factor about health care costs that politicians in Washington seem to overlook. Surprisingly, the reason costs keep rising for Americans has little to do with the cost of insurance, prescription medications or even expensive doctor's office visits.
Novak lays out a case that hospital mergers and acquisitions are the main reason health care costs continue to go up, as of 2017. When hospitals merge, operating costs go up and insurance premiums rise as well as hospitals pass those costs on to consumers.
The number of health care mergers and acquisitions from 2013 to 2015 eclipsed those made from 1998 to 2012. Around 5,000 hospitals exist in the United States. From 1998 to 2012, these hospitals went through 1,133 mergers. In 2014, there were 1,318 health care deals among all sectors of health care, including long-term care facilities, hospitals and physician medical groups. In 2015, that figure rose to 1,503 mergers. The mergers in 2015 were worth $557 billion.
For just hospitals, there were 99 mergers in 2014 followed by 102 in 2015. A mega-deal announced in May 2017 saw Boston-based Steward Health Care System acquire Tennessee-based IASIS Healthcare for $1.9 billion. This merger makes Steward the largest private for-profit hospital system in the United States with a whopping 36 hospitals in 10 states. The deal has the potential to make health care costs rise even further.
Why All the Activity?
The Affordable Care Act of 2010 made all of these mergers a possibility. Insurance companies needed a way to keep premiums from going up too much due to coverage of pre-existing conditions. Meanwhile, hospitals saw a sharp rise in the number of people using those facilities. Health care systems, led by hospitals, recognized an opportunity to make more money.
Hospitals did more than just consolidate in 2014 and 2015. These facilities bought doctor's offices and urgent care facilities. Hospital systems, in general, charge insurance companies, third-party payers and Medicare more for care than private practices and other facilities. That's because the hospitals spread out the cost of care among all of their types of care. Patients might pay more to go see the doctor because that office helps to pay for the hospital's operation. The hospital spreads its costs across all of its consumer-facing facilities.
The ACA accelerated the jump in health care costs because only people with Medicare and health insurance can pay full price for their health care. Even with any changes made to the ACA in the Republican-led Congress and the Trump administration, costs should continue to rise.
Boosting competition among hospitals is one way to bring health care costs lower. The one way to do that is to limit the clout of mergers and acquisitions as set forth in any changes to health care legislation. The difficulty with making changes is that health care accounts for 17 percent of America's economic activity. Hospital systems employ a lot of people, and those people make money and spend money on consumer goods to make America's economic engine move forward.
Health care costs keep rising due to carefully balanced supply and demand in the industry. When one part of that web changes, it could throw everything else off and cause more harm than good.
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