I recently sat in front of the TV a few extra minutes basking in the Colts victory. Much to my delight, the venerable 60 Minutes teaser announced they’d profile the civil anti-trust case of Sutter Health in Sacramento California. This reporting should be interesting to Hoosiers and their elected leaders. Here’s why.
Since the Affordable Care Act was passed, healthcare systems in the United States have been rapidly acquiring independent hospitals. They have also bought up physician practices and specialty care clinics. This potentially limits patient choice of hospitals and monopolizes the stream of patients flowing into their facilities. Hospitals around the country have also structured contracts that force bundles of services on employers.
Anyone who had a good American history course in high school might remember that these are textbook examples of those business practices that were prohibited by Gilded Age Anti-Trust laws. The landmark case was U.S. v. Standard Oil, which set the stage for modern anti-trust. Today, you can replace ‘oil company’ with ‘hospital system,’ ‘independent oil producer’ with ‘physician office’ and a tuxedoed John D. Rockefeller with a smiling CEO/physician in a lab coat, and you have much of today’s healthcare markets. It is a problem ripe for litigation.
Almost one year ago, Sutter Health was sued by the State of California for anti-trust violations like those listed above. Sutter settled the case an hour or so before stepping foot into the courtroom. They agreed to pay $575 million to the State of California, submit to a special pricing oversight for the next ten years and end their anti-trust practices. They got off lightly.
What should surprise and anger Hoosiers is much of Indiana suffers healthcare markets that are more monopolized market areas than Sacramento California. In fact, close to one-half of Indiana’s healthcare markets as defined by the Affordable Care Act are more monopolized than the one in which California brought suit against Sutter Health. There are a lot more issues that should trouble us.
California residents pay 16.2% of their incomes for healthcare, while Hoosiers pay 20.8%. Since 2000, California residents saw their cost share of health spending grow by only about half the rate of Indiana families. Today Indiana’s hospital monopolies are financially damaging to Indiana’s economy and Hoosier families.
The 60 Minutes story also highlighted the vast cost differences that exist between hospitals in the highly monopolized and more competitive regions of California. Their example was on a childbirth, which is twice as expensive in the Sutter Health region as in a nearby city. That prompted me to check the data for Indiana.
I chose my community because I live near a hospital in one of the most monopolized healthcare markets in the United States. As it turns out, a normal delivery at my local hospital in Muncie was priced at $19,488. The closest hospitals outside this healthcare market was in Anderson. The prices for the same procedure were $7,386. The closest hospital inside the same healthcare market charged $21,305 for the same procedure, and of course that was part of the same not-for-profit healthcare company.
Now, just to be clear, these aren’t my data. The hospital pricing data are those submitted by these hospitals to the federal government. Nor are the monopolization data sets mine; they come from a study funded by the IHA to discredit my work. Oddly enough, the IHA-funded study actually reported levels of monopolization that are above the U.S. Department of Justice threshold to trigger anti-trust intervention in every single Indiana healthcare market. It is also worth noting that in 2018 and 2019 Sutter Health was less profitable than Indiana’s top four largest hospital chains. As a painful reminder, all of these hospital chains are not-for-profit firms.
Of course, the defenders of hospital monopolies will argue that the price differences have real causes. They’ll say operating costs are different, or they’ll sponsor some public health researcher to claim there are vast differences between the behavioral health characteristics in these two places. They will claim that these factors account for a normal delivery in Muncie to be a bit more than twice the cost of Anderson. After all, John D. Rockefeller made the same arguments.
Now, I’m sure this column will prompt another round of op-ed pieces by monopoly apologists complaining about my biases and general ignorance of economics. Again, that is right out of John D. Rockefeller’s playbook, and if you are going to run a successful monopoly, he provided a superb example.
Of course, I should remain silent about the upcoming attacks and whining letters to my employer. After all, I’m unlikely to be a good judge of my own shortcomings. But, I will say this much in defense of the dozens of hospital monopoly studies. When it comes to hospital pricing and profits, you may believe either what they tell you in newspapers, or what they tell the IRS and other federal agencies; you cannot believe both.
Oh, and there’s one more interesting twist on the Sutter Health case and its implication for hospital monopolies around the country. California’s attorney general, Xavier Becerra, who brought suit against Sutter Health, has been nominated to head the U.S. Department of Health and Human Services. I am so looking forward to 2021.
Michael J. Hicks is the director of the Center for Business and Economic Research and an associate professor of economics in the Miller College of Business at Ball State University. Send comments to [email protected].