What would Teddy do? bust hospital trusts

“Corporations engaged in interstate commerce should be regulated if they are found to exercise a license working to the public injury.” President Theodore Roosevelt. (He filed anti-trust actions against 44 corporations while in office.)

Flash forward 120 years. Today, we consumers of health care have come to understand that mergers of hospital corporations have a primary goal: higher prices by the merged companies. That’s the main reason behind consolidations that have been rampant in the last decade in Wisconsin.

We are cynical enough to know that the major beneficiaries of the mergers are the executives in the C-Suites for the deal-making companies. They get big raises for big exit packages. In a new study of health care executive compensation released this week by the Medical Group Management Association, Wisconsin ranked highest in the country for health care executive compensation. Following the mergers, executives get big raises or fat exit packages.

It’s also common knowledge that soaring health costs for families — as much as $30,000 per year, and $25,000 average price for a hospital admission — have become the major cause of personal bankruptcy in the United States.

We cringe when we learn that other western countries are spending half of what we spend.

We in manufacturing know that health care costs are our third biggest cost of doing business, behind only wages and raw materials. They make us less competitive in global markets.

What we didn’t know until now was the damage to communities from the higher costs post-merger. That revelation recently made the front page of the Wall State Journal. The article was based on a high-level analysis by four top economists, including Craig Stuart from the University of Wisconsin – Madison.

They looked at 1164 mergers in the country from 2010 to 2015, of which 20% were deemed anti-competitive and led to price increases of 5%.

They further concluded in their paper — to be published in the National Bureau of Economic Research — that employers respond to the hyper-inflation (my word) by laying off workers. The “head costs” of higher post-merger health costs are offset by layoffs.

Layoffs, of course, hurt community economies. Hospital spokespersons always talk defensively about how consolidations bring greater efficiencies; but they never promise accompanying lower prices in their deal announcements from the savings.

Wisconsin has been ranked as the fourth highest state in hospital costs by Rand Corporation. We are one of the most consolidated states, especially after recent multiple mergers involving Aurora-Advocate and Atrium; Gunderson and Bellin; and Froedtert and Theda Care.

The four economists — with echoes of Teddy Roosevelt and his contemporary Robert LaFollette of Wisconsin, a Progressive governor and U.S. senator — homed in on the absence of antitrust laws and enforcement in the hospital sector. “We conclude,” they wrote, “that there appears to be under-enforcement.”

From 2002 to 2020, the Federal Trade Commission took enforcement actions in only 13 mergers.

A piece of local history: Washington County was almost monopolized when St. Joseph Community Hospital, which had been moved out of the city to a farm field close to its competitors, became insolvent in 2008. Aurora was its leading buyer until business people asked Froedtert Health to step in, and it made the winning acquisition. A duopoly was saved.

What’s the take-home from these new findings about the negative impacts of the emerging monopolies, duopolies or triopolies in health care?

In the absence of market disciplines, isn’t regulation the obvious answer?

That’s how things work in the concentrated energy sector in Wisconsin. Our Public Service Commission (PSC), which dates back to 1907 in the Progressive Era, approves power company price increases before they are put in place.

“We need to be doing more to preserve competition in the U.S. hospital market,” said Zack Cooper of Yale, one of four authors.

What would Teddy Roosevelt or “Fighting Bob” do if they were governor of Wisconsin? They would bust the health care trusts, like Teddy did with steel and oil corporations. They would create a PSC  to regulate Wisconsin hospitals, which operate collusively like trusts. They even own their customers, namely health insurance companies.

The absence today of political interest in controlling health costs in Wisconsin, given our antitrust history, is puzzling. Neither Democrat Gov. Tony Evers and Attorney General Josh Kaul, nor GOP legislative leaders, have taken up the cause for consumers.

They must have forgotten that consumers are also taxpayers and voters. Strange.

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