On May 17, the Buckeye Institute released the policy brief, “How Higher Hospital Costs Lead to Higher Prices.” Georgia and Ohio have certain regulatory differences when it comes to their healthcare landscape: Ohio has expanded Medicaid coverage under the Affordable Care Act unlike Georgia, while the only certificate of need (CON) requirements in Ohio are for long-term care beds and facilities. But one significant similarity is the amount of hospital consolidation both states have experienced in recent decades.
Take Piedmont Healthcare in Georgia, for example. Twenty years ago the system consisted of just two hospitals in Atlanta and Fayetteville. By the end of the decade, Piedmont would acquire Mountainside Medical Center in Jasper (2004) and Newnan Hospital (2007). Today, Piedmont is the largest health system based in the state, with 24 hospitals spanning from Columbus to Macon and from Athens to Augusta.
It is not just Piedmont. Wellstar Health System currently has 11 hospitals – despite closing two in recent years – and stretches from LaGrange to Griffin to Augusta.
In Georgia, the four largest health systems currently account for 51.6% of hospital beds available statewide.
As the brief’s author Rea Hederman observes, “One reason hospitals can charge insurers and patients exorbitant prices stems from a lack of market competition. Hospital consolidation has reduced the number of hospitals that must price their services competitively, which insulates pricing from competition. And hospitals have acquired private physician groups, bringing them in-house, as another way to limit competitors. Demand for healthcare rises, but the number of care providers declines, allowing the remaining consolidated providers to charge higher rates.”
The brief also notes that “In sum, hospitals ultimately pass along their capital costs to patients, employers and taxpayers. A recent RAND study found that Ohio hospitals already charge commercial insurers 276.62% of what they charge Medicare for the same services and the Congressional Budget Office found that rising costs get passed on to commercial insurers which ‘may lead to higher premiums, greater-cost sharing requirements for patients, reductions in the scope of benefits, or other adjustments to plans.’”
Unfortunately, that same RAND study holds even worse news for Georgians.
On average, Georgia hospitals charge commercial insurers 344.73% of what they charge Medicare for the same services. This result makes Georgia the worst in the nation when it comes to overcharging privately insured individuals.
For comparison’s sake, Arkansas experienced the lowest rate in the country at 164.28%. It was also one of only five states under 200%. Meanwhile, Georgia was one of seven states above 300%.
It is important to note that gaining health insurance through your employer represents a tradeoff when compared to other employer-provided benefits, primarily wages. Since World War II, when the federal government determined that benefits were not taxable, employer-provided health insurance has been the main source of commercial health insurance in this country. As the cost of healthcare continues to rise, employers often scale back not only coverage, but salary increases needed to keep pace with inflation.
While proponents of hospital consolidation argue that this allows for better economies of scale and thus increases quality and the scope of services offered, the lack of competitors in a marketplace removes any incentive to provide competitive pricing. Consider what has happened in Southwest Georgia with a monopolistic health system: high costs and a limited choice of providers.
Consolidation on the insurance side has also placed strain on consumers. Former Gov. Nathan Deal was once forced to mediate a contract dispute between Piedmont Athens Regional and Blue Cross Blue Shield, the state’s largest health insurer and administrator of the state health benefit plan, when hundreds of thousands of state employees suddenly found their providers out of network.
Unfortunately in Georgia, most of the damage to a competitive landscape might already be done. In this era of consolidation, we are continuously trending towards a field of haves and have-nots. The have-nots are typically the remaining independent hospitals in rural communities.
What is perhaps more worrisome is that even the state’s largest health systems might not be immune to acquisitions. This could result in mergers on an even larger scale, such as the attempted merger between Wellstar and Emory in 2015. Or we could see continued acquisitions by health systems outside of Georgia, such as the acquisition of Navicent Health and Floyd Health by Charlotte-based Atrium Health, or the purchase of three hospitals in Northwest Georgia by AdventHealth in Florida.
While federal and state regulators can – and should – be more vigilant prior to approving these consolidations, some local governments are fighting back. In Western North Carolina, multiple cities and counties and now even the state’s Attorney General are engaged in lawsuits against HCA Healthcare after its acquisition of Mission Health in 2018.
In his pretrial ruling earlier this year, Chief U.S. District Judge Martin Reidinger noted that HCA’s alleged scheme of reducing outpatient service availability and quality in the outlying regions, which increased cost in those areas and compelled patients to travel and receive services at HCA’s Asheville facilities, was sufficient enough for the case to proceed.