October 6, 2019
Fixing Our Hospital Monopoly Problem
Last week’s column on Indiana’s hospital monopolies generated ten times the emails of any other column I’ve penned over the last decade. Hoosier taxpayers are interested in understanding who caused this problem and how we can fix it. I commend the thousands of readers who visited our website to read the study. What you learned is that my study is just one of several recent reports alerting Indiana to monopoly problems in hospitals. Moreover, you know that my study combined data from several different sources including the IRS, Department of Commerce, Center for Medicaid and Medicare Services and the Rand Corporation, the nation’s most respected think tank.
Awareness of this issue is important because Indiana’s not-for-profit hospital industry surely earned a billion dollars in interest on their accumulated profits last year, through their hedge fund and money market investments. That kind of money should attract thorough scrutiny of my work. I welcome more research in this issue, especially a deeper analysis of the IRS financial data, which provide a truthful look at not-for-profit hospital profits. Still, no matter what spin you hear, my study came to the correct conclusions. We have a serious hospital monopoly problem in need of immediate attention.
This invites the question of who we should blame. If you are looking to pin the fault on the legislature, I must disappoint you. It appears that this problem really grew in the wake of the Great Recession and healthcare reform. Even the strongest supporters of the Affordable Care Act (ACA or Obamacare), anticipated significant disruptions in healthcare markets. Many states added tools for hospitals to survive the transition. States also allowed much more aggressive hospital mergers than federal merger guidelines allowed. Indiana was ground zero for these problems.
By 2012 or 2013, it was clear the ACA was not as disruptive as expected, but it left not-for-profit hospitals in Indiana awakened to a host of new tools to prevent competition. They used these tools skillfully, amassing huge profits before almost anyone noticed. The industry kept a tight lid on their windfall profits, spending part of them to convince legislators that we needed less, not more competition in healthcare markets. This diversion and lack of transparency has meant few of us figured out there was a crisis brewing. This is not some failure of a market economy. Instead, an accumulation of small favors by government created this hospital monopoly problem. Of course, now we need to act, but what can and should we do?
My study recommends that we do three broad remedies, or else we will be in the midst of another major healthcare cost crisis in fewer than five years.
First, we have to level the playing field between for-profit and not-for-profit hospitals. The biggest issue is eliminating barriers to market competition. We need to end the Certificate of Need legislation, outlaw non-compete clauses in practitioner contracts, prevent hospitals from limiting admitting privileges to favored physicians, and force hospitals to publish transparent pricing data.
Second, we need to tax not-for-profit hospitals like their for-profit competitors. We should all recognize that these shocking profits come from just three groups who pay healthcare expenses. These are Indiana’s state and local governments (including schools), Hoosier businesses and Hoosier families. Without equal tax liabilities, we will see no real competition. As a side benefit, this extra tax can fully pay for the Medicaid expansion that these not-for-profit hospitals lobbied for so eagerly.
Finally, we are going to have to separate ownership control of the accrued profits from these hospital boards. The reason is that the mere existence of these immense war chests represents a classic barrier to competition. For example, Fort Wayne has perhaps the highest healthcare prices of any American city. Normally, this would invite hospitals to compete in that market. However, Parkview hospital can remain solvent without charging patients a single dollar for several years. That fact alone would rightfully scare off any for-profit hospitals. This is a textbook source of monopoly protection that explains why residents of the greater Fort Wayne area pay such high healthcare prices.
I am not sure where these profits could go, but I have heard some intriguing ideas. Maybe they should fund a large, statewide investment fund. This is an idea I especially like. Perhaps we could end the endless whining by hospitals about a nursing shortage by asking that they permanently endow every nursing school in the state. That would cost only most of last year’s interest on their investments. In addition, I expect we will have a few trial attorneys help move these funds back to consumers.
These three steps are not some sweeping new government intrusion into free markets. On the contrary, they simply level the playing field, removing the government-created advantage not-for-profit hospitals have so successfully exploited. One strategy the industry will employ to avoid these changes is to claim that healthcare finance is so complex that no study single can really be informative. Nonsense. You do not need to be an industry insider or accountant to understand the behavior we observe in Indiana’s hospital industry. Any history of the Gilded Age would provide a rough outline of their current business practices.
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