Bloated General Hospitals: One Problem Obamacare Would Make Worse

Cross-posted from Critical Condition on National Review Online.

As I recounted in an earlier post, Democrats have attempted to portray health insurers as greedy and cruel as a way of building political support for their health-care legislation. The implication has been that insurers, ever hungrier for profits, have jacked up rates in order to exploit vulnerable Americans.

But Democrats have a strong political incentive to distract the public from one of the real villains of rising health-care costs: bloated general hospitals.

In an excellent article in today’s Wall Street Journal (subscription required), Avery Johnson and Suzanne Sataline describe how hospitals have demanded dramatically higher reimbursement rates from insurers — as much as 54 percent — and routinely threaten to cut off patients covered by those insurers if they don’t get their way. Because many large hospitals have monopolistic positions within their local areas, they usually do get their way.

Health insurers are fighting demands by hospitals for sharply higher reimbursement rates by threatening to drop the hospitals from their health-plan networks, and blaming them for higher insurance premiums.

“We’ve never seen the kind of increases we’re seeing right now” from hospitals, says Aetna Inc. President Mark Bertolini. Five years ago, a typical rate increase was about 5 percent, but this year Aetna granted 50 “must have” rate increases of more than 20 percent, Mr. Bertolini says.

In a fresh battle, Stellaris Health Network, a four-hospital system in Westchester County, N.Y., just asked a unit of health insurer WellPoint Inc. to increase its payments by 16 percent this year-in part, so that Stellaris could fund a new cancer center, according to the insurer...

Hospitals argue that low Medicare rates and cuts to Medicaid mean that hospitals have to get money from elsewhere, and increasingly that is private insurers. Rising ranks of uninsured Americans have led to more uncompensated care and have swelled the rolls of Medicaid, exacerbating the problem.

But insurers contend that in recent years big hospital systems have been buying up smaller medical centers and using their dominance in a region to demand big rate increases. America’s Health Insurance Plans, a trade organization, points to data showing hospital markets are 47 percent more concentrated than they were 13 years ago...

Even tense negotiations usually result in a last-minute accord, but in some cases they fall apart. In 2008, Saint Luke’s Health System, based in Kansas City, Mo., with 11 locations in Missouri and Kansas, initially asked UnitedHealth for a 54 percent increase over four years, the insurer said. Last year, the contract ended without an agreement. UnitedHealth lost the hospitals from its network.

While it is true that hospitals are increasingly burdened by underpayments from Medicare and Medicaid, they regularly attempt to get others to bail them out of their own inefficient practices. Hospitals are the largest employers in many congressional districts, and they use their political sway to squash entrepreneurial competitors, such as specialized, physician-owned hospitals.

Indeed, the Senate bill would bar the construction of new physician-owned hospitals and would restrain existing specialty hospitals from expanding. These specialty hospitals, by focusing on a specific disease area such as heart surgery, usually offer better-quality care at lower prices than do their larger counterparts. Those lower prices translate into lower health-care costs, and thereby lower insurance premiums, and thereby broader access to health care.

Instead, by protecting large hospitals from competition and innovation, the Senate bill will increase health-care costs and insurance premiums, and thereby even further squeeze those individuals, families, and employers who struggle to afford health insurance.