Health Care

Federal Hospital Regulations Are a Competition-Killing Mess. A New Bill Promises To Fix That.

Consolidation in hospital markets is one cause of rising healthcare costs.


In some parts of America, it can take up to 34 minutes to drive to the nearest hospital. With more than 100 rural hospitals having shuttered since 2010, that problem is only getting worse.

Fewer hospitals mean a lack of competition and, as a result, higher prices for patients. There's not a single cause for the decreasing level of competition among hospitals—particularly in rural areas—but experts point to a combination of factors, including a rise in hospital mergers and government regulations that protect large hospitals from competition.   

The rise of regional hospital monopolies is "the most important driver of higher prices for hospital care," writes Avik Roy, conservative health care scholar and founder of the Foundation for Research on Equal Opportunity. Those monopolies have allowed hospitals to "persuade the government to give them financial and regulatory advantages over competitors and taxpayers," Roy writes.

Some of those advantages include Certificate of Need (CON) laws, which require potential new providers to prove that there is a "need" for a new provider in an area that already has a hospital. In practice, these regulations, fervently supported by established hospitals, help protect the monopoly power (and high profits) of large hospitals, and raise prices for patients. Another regulation that has helped exacerbate hospital market consolidation is the Affordable Care Act's ban on new physician-owned hospitals, smaller competitors of large hospitals.

What's to be done about all this? Rep. Jim Banks (R–Ind.) has a few ideas.

Banks' Hospital Competition Act seeks to bring down the cost of health care by improving competition in the world of health care providers. Banks' bill would incentivize states to repeal CON laws—as 15 states already have—and repeal the ban on new physician-owned hospitals. The bill also includes other provisions to lower costs through competition, such as requiring hospitals to share the costs of their 100 most frequently performed procedures and quadrupling Federal Trade Commission staff on hospital consolidation issues.

In a video posted to Facebook, Banks described the bill as "an ambitious first step towards expanding competition in the hospital sector, which has protected for too long by special interests."

The bill would also make hospitals in highly concentrated health care markets accept Medicare reimbursement rates, which are lower than private insurance rates, from commercial payers.

Still, some lawmakers and hospital industry groups argue that CON laws help prevent duplicative, unnecessary, and costly health care facilities, which is why the federal government once incentivized states to enact CON laws, but the laws have instead raised costs and reduced access, particularly in rural areas. There's also evidence that hospital mergers do lower administrative costs, but those cost reductions are seldom passed on to patients in the form of lower prices.

The New York Times found that, in metropolitan areas that experienced a major hospital merger, the cost of the average hospital stay rose between 11 and 54 percent more than costs in the rest of the state from 2010 to 2013. Other studies, from a Health Affairs paper on California's hospital services to a study from the progressive Center for American Progress, support the conclusion that hospital consolidation spurs rising patient costs, while failing to provide better quality care.

On the whole, the bill takes a much more coherent view of antitrust policy than many wannabe trust-busters in Congress have. The bill focuses on clear consumer harms created by market concentration—namely higher prices—which are the traditional justification for intervening in the case of monopoly, as opposed to an amorphous concept of "bigness." And given that mergers do often reduce administrative costs, monopolistic hospitals should be able to absorb lower reimbursement rates.

The Hospital Competition Act is by no means a comprehensive solution to America's sky-high health care costs. However, the bill would allow for more competition in health care, bringing the U.S. closer to an affordable market system that could serve people of all income levels a little better.

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  1. Still, some lawmakers and hospital industry groups argue that CON laws help prevent duplicative, unnecessary, and costly health care facilities,

    How can anyone say this with a straight face? Did this statement come out of a time warp from 1935? If private healthcare facilities are costly or excessive, why is that not just the owner’s problem, like in every other industry?

    1. They are not honest

    2. Its the same with physician-owned hospitals, typically progressives are all for employee-owned businesses. But in this case its a business the government hopes to own, to they want to squeeze out competition

      1. In general it seems the goal is to foster centralization in a few corporate hands, from which the entire sector could be dictated. Their greatest fear is decentralization (possibly also explaining why they detest contract work and the “gig economy”).

        1. In general it seems the goal is to foster centralization in a few corporate hands

          For the corporations, yes. For their left-wing dupes it’s the notion that a monopoly is okay as long as it is kept on a tight leash by a democratically controlled government. I think this is what is meant by “democratic socialism.”

          1. I’m not sure its the notion that a monopoly is OK so much as the knowledge that a monopoly makes it easier to justify an ever tighter leash, and, eventually, nationalization

          2. It is also the definition of fascism; (alleged) private ownership of the means of production, but government control if the economy.

    3. How can anyone say this with a straight face?

      You inundate yourself with CNN. I’ve heard this argument straight-faced from my mother’s husband – obviously two hospitals cost more to run than one hospital. Therefore, if you only have one hospital, you will have achieved maximum efficiency. Having a second hospital just means having to have two of a bunch of things you don’t need two of. Inefficient.

      1. Why do you need another restaurant? There is already a restaurant in your town. Not many people go there because of its long waits, poor service, and bland food. Your certificate of need is denied

        1. Exactly. And he understands that principle in that context perfectly well. But rather than make that analogy, he will instead put his mental effort into finding reasons why healthcare is different, somehow.

        2. All restaurants are Taco Bell.

      2. Two or more hospitals foster competition for customers. The increases in efficiency when large hospital groups merge go right to CEO salary and other slush funds which don’t benefit the consumer at all. Why should they. Maximization of profit is the goal. There are large regions of the country only served by one hospital group? Mergers often don’t increase efficiency anyway, they simply group together entities that have different administrative practices, computer systems etc. Nope, nope, nope. Consumers get no cost benefits from monopolies.

  2. “Federal Hospital Regulations Are a Competition-Killing Mess.”

    This should come as no surprise.
    The federal government want all us chillun to stay on Uncle Sam’s kind and benevolent plantation, and the best way to do that is through healthcare.
    Just ask Lenin.

  3. I live in Damnearalabama, Georgia and I’m within half an hour of three different hospitals. Well, not completely different hospitals, they’re all owned by the same “healthcare system”, which also owns a couple other hospitals and 10 or 12 clinics of various sorts. So it’s kind of like when you complain that there’s only one restaurant in town so the owners of the one restaurant open a second location.

  4. This whole argument begins with the asinine premise that the simplistic capitalist model of competition can be in any case, all the time, without nuance. Just slap some competition on it, m’boy, and you’re good!

    Utterly stupid. Healthcare is a prime example of the limits of capitalist models. First and foremost, consolidation consistently drives up costs and reduces services, government intervention be damned. Anyone know why anti-trust laws were first created? Anyone suffered under the “increased services and lower prices” of the latest Comcast acquisition?

    Second, and more importantly, what business in its right mind would build a service in an economically depressed area? And yet, and yet, these are the areas that are often most in need of care. Deregulating healthcare will NOT help those areas. Other businesses have moved out; why would a healthcare operation stay?

    Third, there are about a million other reasons why healthcare doesn’t belong in a capitalist model, such as a) people who are dying don’t tend to make rational decisions about which hospital to be taken to, b) what happens to people who can’t afford care or insurance?, c) etc.

    The fundamental ethical (not economical) question here is this: to what degree are we responsible for supporting those in our society equitably? If it’s that we should strive to provide close to the same level of care, then we need a service model based on providing the best care for the best price. But care comes first. If it’s that we should provide care based on what patients can afford, then we should use capitalism. Oh, and we’re fucked as a country.

    1. What happens to people who can’t afford food or housing? Those are even more basic needs. Capitalism, while not prefect, is a damn sight better than “top men” deciding which health care services to offer and how much.

      1. I agree, but healthcare is different than food and shelter because options that fill your needs for food or shelter are incredibly greater than for a healthcare need. Any individual can grow, harvest and prepare their own food without any formal education; you can eat ramon noodles or lobster, whichever you can afford. And shelter can be as little as a tent or weekly motel room, to trailers, renting a room, a small apartment or a large house, ect. But when you find yourself ill or in pain, beyond a few home remedies, you need to see a professional. Your headaches could be due to eye strain, allergies, blood pressure or a brain tumor. Chances are you will need a professionally administered test, and you can’t get a cheaper urinalysis instead of the MRI because that’s what you can afford. And even when you can select from multiple drugs at different prices, you may have a physical reaction that only leaves the most expensive medicine to treat your problem.
        The other issue that comes up with healthcare is that there is little economic incentive to open business in low population areas, let alone a competing business, even though those people still have medical needs and no greater resources to pay. Chances are that economic incentive will only generate from government intervention at some level, similar to utilities.

    2. Very true.

      It is not a box of cornflakes.

      The consumers have little choice. Nothing to do with cost. The demand is inelastic.

      Big systems buy up community hospitals and practices. I know about those and often could just not keep up and were poorly run.

      We are not fucked. Far from it. In medicine just deal with the situation and resources available.

      “At a cardiac arrest first procedure is check your own pulse”

      House of god Sam Shem

  5. The new bill does not eliminate regulations; it replaces stupid regulation with more stupid regulation. So it will not fix the problem.
    Now if the new bill forced the legislature, at the state and federal level, to drop their gold plated medical plans, and buy into the federal program, then it might have some small beneficial impact.

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