Standing Athwart Federal Attempts To Equalize Healthcare Costs

Reader A finished Fyodor Dostoevsky’s Crime and Punishment last night, while Reader B completed Llama Llama Learns to Swim. Did Reader A and B do the same thing? Well, didn’t they? Both read a book, after all.

The odd comparison from above comes to mind as healthcare types go to the federal government in search of price equality in the face of hospital consolidation. A recent piece in RealClearHealth by Lee Gross noted with glee that “members of both houses of Congress on both sides of the aisle are working to stop the existing incentives for hospital consolidation and monopoly pricing in healthcare and increase transparency.” Ok, let’s stop right there.

There’s a popular notion that so long as business consolidations improve “consumer welfare,” they’re ok. If not, they’re not ok. The view is nonsense. Who in government is qualified to judge whether a business combination is good or bad for the consumer? Tick tock, tick tock…It’s just a reminder that a government plainly incapable of planning economic activity similarly isn’t capable of deciding in what form hospitals should operate, and what prices they should charge. Put another way, leave it to hospitals and their owners to decide whether they merge or are acquired, not the political class.

To which some, including Gross, might reply that government must step in to ensure that consolidated hospitals allegedly empowered by consolidation don’t raise prices paid by consumers. In fact, Gross writes exactly that. He cites a study that says a doctor visit “at a physician practice that is part of a hospital is 21% more expensive than the same visit at an independent office.” Gross adds that chest x-rays are 258% more expensive at the hospital practice. Hmmm. Something’s missing here.

On its face it should be said if the price disparity between doctor visits at independent offices and physician practices within hospitals is this great, then let markets work, right? Gross cites a 2018 study showing that hospitals were acquiring physician practices at “record levels” and “raising prices on average 14%.” Yes, if hospital-owned doctors’ offices are jacking up prices, their margin exists as the opportunity for the physician practices not owned by hospitals. As Gross himself notes, “over a third of doctors work directly for a hospital,” which means a majority of doctors don’t work directly for a hospital. There’s their opportunity.

From there, Gross elides crucial differences between a doctor visit at a hospital relative to a standalone doctors’ office visit. It brings us back to a read of Crime and Punishment relative to Llama Llama. There’s quite a difference, no? Well, what’s true about book reading is true about physician visits. In particular, admission at a hospital connotes emergency qualities not remotely associated with a routine trip to the doctor. Readers no doubt get this. We generally go the hospital when we’re genuinely hurt or genuinely very sick, while we frequently visit doctors when we’re perfectly healthy. A hospital visit indicates a desire for access to a much greater menu of services and diagnoses than the typical annual checkup, which renders the cost differential decried by Gross as rather obvious.

What about Gross’s stat about chest x-rays? Oh well, he employs a seemingly glaring statistic while leaving out that chest x-rays conducted at hospitals are much more likely related to emergency situations than are the x-rays conducted by doctors amid routine examinations at the doctor’s office. Figure that most of us get x-rays every other time we get our teeth cleaned at the dentist. If you’re at the hospital, a chest x-ray is possibly conducted in life and death situations. That there would be a price disparity reads as very logical.

Instead of acknowledging the rather evident difference between hospital and routine doctor visits, and how prices would logically reflect the difference, Gross claims that the price disparities are a consequence of government intervention meant to “subsidize these higher rates.” About the government’s role in healthcare or any industry, in an ideal world there would be none. Still, we frequently must live with the world as it is, not as we want it to be. And as is, the price disparity between a hospital and doctor visit would logically exist whether government were a buyer or not. In short, Gross’s blaming of the government here is a bit of a non sequitur.

Worse, Gross’s problem with government apparently isn’t the intervention as much as he feels government isn’t intervening in the right way. That’s too bad. Indeed, Gross is cheering legislation in the House and Senate (the one in the Senate led by Bernie Sanders…) that would limit hospital consolidation, plus it would implement “site neutral” policies whereby the federal government would provide “the same reimbursement for outpatient care regardless of the location or owner of the physician practice.” In other words, Gross aims to fix government intervention with government intervention.

No thanks to that, and no thanks to government decreeing equality in pricing. Just as novels are different and require different levels of commitment, so are doctor visits.

Republished from RealClear Markets

Author

  • John Tamny

    John Tamny is a popular speaker and author in the U.S. and around the world. His speech topics include "Government Barriers to Economic Growth," "Why Washington and Wall Street are Better Off Living Apart," and more.

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