Is consolidation in health care delivery best for patients?

There is a current trend for consolidation in our health care delivery system. Medical care in the United States has evolved unlike any other economic activity in the country. Since WW II, employers have provided health benefits for their employees and their spouses. This model now includes 50 percent of the population in the U.S. Starting with Medicare and Medicaid in the 1960s, the government, using taxpayer dollars, is now providing medical benefits for over 40 percent of the population.

This “third-party payer system” has created gross distortions in how health care is financed and delivered in the U.S. Even though co-pays and out-of-pocket expenses continue to go up, the vast majority of medical care is now paid for by someone other than the patient. Coupled with this payer distortion are burdensome regulations, overutilization, ever-increasing costs, and a lack of price transparency on the part of providers. There is essentially no free market in health care in the United States.

The U.S. has the best health care in the world when outcomes for major illnesses are compared to those of other countries. However, the exploding costs are not sustainable. Our current health care system has developed over the past 80 years, and changing the system to a free market model would require a massive undertaking. Consequently, the various industries involved in health care are working within the existing framework and are adapting to ever-decreasing reimbursements.

There is a rapid trend toward hospital consolidation. Hospital mergers and the salaried employment of doctors by hospitals are increasing at a fast rate, leading to fewer doctors with independent practices. Theoretically, hospital mergers should reduce costs by increasing centralized purchasing power. Economic studies, however, now show that reducing competition leads to monopoly-type pricing and less consumer choice, which actually increases costs.

Health insurance companies are not formally consolidating, but they are becoming more involved on the provider side of medicine. The latest trend is vertical integration by insurance companies owning pharmacies, drug distribution organizations, outpatient clinics, and in some cases, employing physicians. The economic motivators for insurance companies are greater profits and greater cost containment, since doctors in many cases drive health care costs by the number of tests and procedures they perform.

This health care consolidation has taken place basically without any government oversight. Mergers in other industries are endlessly scrutinized by various state and federal officials, yet hospitals and insurance companies seem immune to these same standards. Of course, the government controls the payment schedules. As the government ratchets down reimbursements, it appears that officials are willing to accept this consolidation since they created the financial problem in the first place.

The free market has proven to be the most efficient economic model in virtually every aspect of our lives. It allows Americans to obtain food, shelter, clothing, and essentially everything we use in daily living. The free market solution to our current health care problem would be to eliminate the “third-party payer system” and allow patients to control their own health care dollars and make their own medical decisions.

Greater use of health savings accounts and low-cost catastrophic insurance plans, for example, would increase competition, increase innovation, lower costs, assure quality, and improve access to services. Health care consolidation in a free market would only occur if patients saw benefits and if patients were the driving force to demand the mergers.