When Hospitals Merge to Save Money, Patients Often Pay More

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.

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...

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.

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.

[1]: 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.

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).

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.

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