Among the thousands of bills introduced in state legislatures this year, a common goal for many is cost reduction. Governors and state legislators have put forth proposals aimed at reducing the cost of government through income and property tax relief, alleviating the cost of food through sales tax exemptions for groceries and other goods, along with bringing down the cost of energy by exiting cap and trade schemes or preventing their imposition.
In addition to reducing utility bills, food prices, and tax burdens, many state lawmakers continue to pursue policy solutions that rein in rising health care costs. The below chart from the American Enterprise Institute underscores why health care cost reduction, or at least a more modest rate of growth, is such a high priority for state and federal policymakers.
In recent months and years state capitals have provided many examples of Republicans and Democrats coming together to pass reforms that bring down the cost of health care and increase access to health care providers. In fact, state lawmakers have enacted a number of reforms in recent weeks and months with bipartisan majorities that bend the health care costs curve by reducing regulatory costs and impediments.
Take the universal license recognition (ULR) reform movement recently reported on in this space, which has drawn wide bipartisan support in large part because of how ULR laws help expand access to health care by reducing regulatory barriers that have suppressed the supply of care providers, thereby bringing down costs. With Virginia Governor Glenn Youngkin’s (R) signing of Senate Bill 1213 and the passage of ULR legislation in Georgia, more than 20 states have now enacted URL. If the ULR bills pending in Florida and Texas are signed into law by Governors Ron DeSantis (R-Fla.) and Greg Abbott (R-Texas), there will soon be 24 states with URL.
In addition to making it easier for Americans to get to work in their new state of residence, state lawmakers continue to seek the repeal of other regulatory impediments to the provision of health care. On March 28, for example, West Virginia Governor Jim Justice (R) signed Senate Bill 613, legislation that removes the need for hospitals to get state approval in order to provide new or expanded services.
Albert Wright, West Virginia University Health System president and CEO, said enactment of SB 613 “is going to allow hospitals in the state of West Virginia good degrees of freedom to do what they believe is clinically and fiscally responsible within their own campus in their own walls.”
Even with all of the recent examples of bipartisan cooperation on reforms that reduce health care costs, there is still a great deal of of finger pointing going on when it comes to rapidly rising health care costs and who is to blame. Popular targets for blame include insurers, hospitals, drug makers, private equity investors, and consolidation among health care providers.
The Biden administration, some state officials, and various interest groups contend that health care sector consolidations, particularly when it comes to hospital systems, are driving up costs while reducing access to care. Others argue that criticism of consolidation is overwrought scapegoating that, though it may appeal to populist tendencies, is a misdiagnosis of the problem. In fact, there is a case to be made that the rate of hospital closures, as bad as it has been in many states, would’ve been worse had it not been for mergers and acquisitions.
The past decade has seen a record number of hospital closures, with rural areas hit particularly hard. Between 2004 and 2019, more than 150 rural hospitals closed, according to a report from the Center for Healthcare Quality and Payment Reform (CHQPR), leaving many communities without nearby access to emergency and critical care. Even with the massive infusion of emergency federal funding since 2020, 25 rural hospitals closed from 2020-2022.
The CHQPR report shows nearly 30% of rural hospitals are now at risk of closure. Data also indicates that one in four rural hospitals are a high risk for closure. Places with the highest percentage of hospitals at risk of closure include both red and blue states, such as Alabama, Arkansas, Connecticut, Hawaii, Kansas, Mississippi, New York, Oklahoma, Tennessee and Texas.
There is evidence that system consolidation helped stem the closure of rural hospitals. Since 2005, more than 380 rural hospitals merged. These consolidated rural hospital systems closed less frequently than stand-alone counterparts.
Opponents of consolidation say it diminishes competition in the market. But that’s not the case in instances where the choice is between the closure of a rural hospital or its acquisition by another hospital. According to UNC Center for Health Services Research, there have been 147 rural hospital closures since 2010. Preventing more rural hospital closures is a high priority to for policymakers, but government action that prevents hospital acquisitions or makes them cost prohibitive could result in more rural communities lacking a hospital.
Not only can consolidation help keep hospitals open, there are metrics showing that consolidation is consistent with improved health outcomes and improved quality of patient care. IBM Watson Health and Maryland’s Agency for Healthcare Research and Quality published a 2021 report that found rural hospitals saw post-merger improvement in mortality rates for critical conditions like acute stroke, heart failure, hip fracture, pneumonia, and gastrointestinal hemorrhage. Those researchers found mortality rates decreased from 9.4% to 5.0% at consolidated rural hospitals.
“The findings of this study regarding the positive outcomes associated with mergers in rural hospital quality challenge a common argument in prior research that hospital consolidation is likely to result in greater market power and higher prices but poorer quality,” noted the Maryland and IBM Watson Health researchers when their study in JAMA Network Open.
Berger Hospital in Circleville, Ohio, is an operation that continues to serve its community, located approximately 30 miles south of Columbus, following a merger three years ago with a larger hospital system. OhioHealth completed its acquisition of Berger Hospital, which had been a publicly-owned company jointly controlled by the city of Circleville and Pickaway County, in April 2019. Ohio Representative Brian Stewart (R) says that merger has been a success that ensured many of his constituents continue to have access to life saving medical care and hospital services.
“If you have good local leadership, a partnership with or a transition to being part of a larger system can be a big win for your community,” says Representative Stewart, who adds that the acquisition by OhioHealth ensured there will continue to be a hospital in Pickaway County.
“The acquisition of rural hospital by a larger system comes with a lot of financial benefits and increased stability,” adds Representative Stewart. “We got increased care, we preserved the location of our hospital. Our biggest concern going in was, how do we keep this hospital in our county. More important than who owns the hospital is the fact that there is access to care.”
Utilizing increased purchasing power, mergers can allow hospital systems to reduce input costs through economies of sale, generating savings that can be passed along to patients and used for quality of care-improving investments. Consolidated hospital systems also have access to a larger pool of capital that can be tapped for investment in new technologies that improve patient experience and leads to better outcomes.
The Federal Trade Commission is preparing to use anti-trust law as a tool to block prospective hospital mergers. The FTC announced last November that it is broadening its interpretation of a 1914 statute in a manner that will allow the federal agency to more aggressively intervene and file suit to block mergers and other business practices it deems anti-competitive.
Though it has been unconvincing to many, the Biden White House and congressional Democrats decided a while ago there were going to make stock buybacks a scapegoat on which to pin the blame for a host economic ailments. A similar effort now appears underway to make hospital mergers the newest bogeyman to which high heath costs can be attributed.