Hospitals Disdain Competition

 

Competition is a good thing. It brings out the best efforts in people and the best products and lowest prices in business. It improves quality and service wherever it is allowed to flourish.

Competition is a fact of life – unless you can create a monopoly. For big businesses, monopolies were outlawed by the Sherman Antitrust Act of 1890, which broke up Standard Oil. But for hospitals, “certificate of need” laws still preserve monopolies in some communities.

Case in point is the opening of the first new hospital in Loudoun County, Virginia in over a century! You might assume the community is small and had no need for another hospital – and you would be wrong. Loudon County abuts the Potomac River and includes the rapidly growing suburbs of Washington, D.C. The population has tripled but still remained dependent on one hospital until now.

Eric Boehm, regulatory reporter for Watchdog.org, reports this sordid tale in The Wall Street Journal. In December, 2015, Hospital Corporation of America (HCA) opened the doors of StoneSprings Hospital Center after a 15 years struggle to gain approval. HCA began talks to open a new hospital in 2001. But because of the “certificate of need” laws in Virginia, and the opposition of the only other hospital in the community, Inova Health System, the process took this long.

HCA actually received its first approval in 2004 after a two-year process. Then Inova began a series of legal challenges to that approval, despite the fact that the Federal Trade Commission blocked its attempt to acquire another independent hospital in Northern Virginia, saying that Inova already controlled roughly 75% of the market in Northern Virginia and further consolidation would be anti-competitive. When Inova lost its case it appealed all the way to the Virginia Supreme Court, which declined to hear the case in 2008.

Undaunted, Inova tried to pressure local officials to stop StoneSprings with zoning rules. Mailings and newspaper advertisements portrayed HCA as a carpetbagging mega-corporation. The Washington Post also reported in January 2009 that Inova sent direct mail to residents of Loudoun County and gave $20,000 to a grass-roots movement that opposed the new HCA hospital. County officials responded by twice voting to block construction of the new hospital, only granting approval in 2010 after HCA agreed to build in a different location, farther away from the Inova hospital.

 

Why such opposition?

Inova is a not-for-profit hospital and HCA is a for-profit corporation. But don’t let those labels fool you. Not-for-profits are just as concerned with making money as any other business. Instead of dividends to their stockholders, they raise salaries of their management personnel, expand services, and build bigger buildings to make even more money. They fight competition because it forces them to lower prices and be held accountable.

There’s a direct correlation between prices and competition in any business – and hospitals are no exception. In a paper released in December, economists with Yale, Carnegie Mellon and the London School of Economics evaluated claims data from Aetna, Humana, and UnitedHealth. They found rates were 15.3% higher, on average, in areas with one hospital, compared with those serviced by four or more. In markets with a two-hospital duopoly, prices were 6.4% higher. Where only three hospitals compete they were 4.8% higher.

Of course, not-for-profit hospitals have a different point of view. They deny that competition lowers prices and they extol the virtues of their system by pointing to providing indigent care. Inova spends more than $100 million per year treating patients who are unable to pay. Yet Inova is far from poor. In 2014 the system had $2.7 billion in operating revenue and a 2013 report filed with the IRS shows about two dozen Inova executives making more than $500,000.

ObamaCare has contributed to this problem by outlawing new construction of physician-owned hospitals. Yet there is mounting evidence that these for-profit hospitals actually offer lower prices, save the government money, and contribute even more to the care of the uninsured than not-for-profit hospitals (Physician-Owned Hospital Deliver Quality and Value).

No industry should be exempt from competition. The American people deserve the highest quality healthcare available at the lowest possible cost. Stifling competition through “certificate of need” laws, ObamaCare, or anything else makes it harder to meet that goal.

 

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