HomeHealth Care NewsLack of Competition, Not Beds Explains Hospital Crunch

Lack of Competition, Not Beds Explains Hospital Crunch

Hospital market consolidation, a process that has been well underway for decades, appears to have undermined the efficient delivery of health care services during the COVID-19 pandemic.

“In large part because of mergers, the vast majority of US metropolitan residents now live in highly concentrated hospital markets,” concludes a group of prominent physicians and researchers in an April 12 blog post on healthaffairs.com.

Noting that the hospital sector has faced 20 years without labor productivity growth, the authors say that hospital and physician consolidation has led to “a lack of quality benefits and decrement in patient experience, physician burnout due to a loss of control over the practice environment, and higher hospital prices driving rising insurance premiums and ultimately rising costs to consumers.”

The blog, “Reversing Hospital Consolidation: The Promise of Physician-Owned Hospitals,” was written by Jesse Ehrenfeld, a member of the Board of Trustees of the American Medical Association; James Ficke, a member of the Board of Directors of the American Academy of Orthopedic Surgeons; Joseph Marine, a member of the Board of Governors at the American College of Cardiology; Brian J. Miller, a health policy researcher at John Hopkins University School of Medicine; and Robert E. Moffit, a senior fellow at the Heritage Foundation.

New Wave of Mergers?

The authors argue that COVID-19 has made the problem worse because the pandemic-induced lockdowns put financial strains on hospitals brought on by the temporary cessation of profitable elective surgery and decreased hospital use. Rural hospitals, already on the financial brink before COVID-19, are at risk of closure, the authors note. The National Conference of State Legislators reported at the end of 2019 (pre-COVID) that 118 rural hospitals had closed since 2010.

“Together, these same financial pressures are driving independent physicians to consider both horizontal and vertical mergers and transition to an employed model, compounding the challenge for policymakers,” the authors write.

With hospital market consolidation creating bad outcomes for doctors and patients, policymakers need to seize the initiative, the authors recommend. At the state level, they should explore repealing or reforming certificate-of-need laws, currently enforced in 35 states, that often restrict or inhibit the introduction of new medical or hospital facilities.

“Such laws are anti-competitive, imposing barriers to market entry and simultaneously undercutting efforts at cost control (a recognized problem since at least 1988),” states the blog.

At the federal level, the recent change in administrations and narrow majorities in Congress doesn’t bode well for addressing the hospital shortage. The last few years have seen regulatory efforts to tackle such things as drug price transparency and site-neutral Medicare payment. However, they have faced legal challenges, and their future remains uncertain.

“For ordinary Americans, however, the U.S. hospital sector is completely dominated by third-party payment,” notes John C. Goodman in his recent book, New Way to Care: Social Protections that Put Families First.  “As a result, hospitals don’t compete for patients on price.  And when providers don’t compete on price, they don’t compete on quality either.  Hospital competition is mainly competition on amenities.”

Physician-Owned Hospitals Come under Attack

In response to managed care and the rise of the corporatization of medical practice, physician-owned hospitals (POHs) entered the scene in the early 1980s. According to the authors of the healthaffairs.com post, it was an effort “to acquire control and ownership over their practice environment” while simultaneously facilitating “patient care redesign.”

Almost equally split between community hospitals and specialty surgical hospitals (cardiac, orthopedic, and surgical), POHs were criticized in some circles for physician self-referral, in which doctors were alleged to have prescribed treatments in POHs that they themselves would carry out. Congress later enacted the so-called Stark Laws, that restricted and regulated self-referrals in Medicare—and later, Medicaid—while creating “whole hospital exceptions” that allowed a physician to refer a patient to a facility in which the doctor was authorized to perform services even if he or she had a financial interest in the whole hospital, as opposed to a specific department.

POHs were also attacked from within the hospital industry for allegedly catering to better-heeled patients, and for undermining competition in the hospital sector. Even though a 2003 Government Accountability Office (GAO) study painted a more nuanced picture of surgical-specialty POHs serving Medicare and Medicaid patients, Congress mandated an 18-month study period and a moratorium on new specialty POHs through temporary close of the “whole hospital exception” for specialty POHs.

ACA’s Virtual Statutory Ban on POHs

Tucked into the 1,000-page 2010 Affordable Care Act (ACA) is Section 6001, which played a significant role in bringing about today’s hospital shortage, the bloggers contend. In the face of an initial statutory deadline of December 31, 2010, to have a Medicare provider agreement in place (that is, be a participating provider and ‘in-network’ for the Medicare fee-for-service program), “more than $275 million of planned economic activity spread across 45 hospital expansion projects ceased,” the authors write.  “More than 75 hospitals either planned or [in] development were prematurely terminated, representing more than $2.2 billion in economic losses.”

Among the unforeseen consequences of the ACA’s premature foreclosure of the POH marketplace is the “loss of flexibility from increased hospital bed capacity in a country that faced pandemic-driven shortages of hospital and intensive care unit beds,” the authors write.

Hospital Shortage or Hospital Monopoly?

“I think the real issue is not hospital shortage,” John Goodman, president of the Goodman Center for Public Policy Research, tells Health Care News.  “There are about the same number of hospital beds in the U.S. today as there were a decade ago.  What the bloggers were complaining about is hospital monopoly.”

Goodman cites data available at statista.com that support his statement about the number of hospital beds in the United States.



Bonner R. Cohen, Ph.D., (bcohen@nationalcenter.org) is a senior fellow at the National Center for Public Policy Research.


Bonner R Cohen
Bonner R Cohen
Bonner R. Cohen is a senior fellow with the National Center for Public Policy Research, a position he has held since 2002.


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