Tuesday, November 23, 2010

Yet Another Way the Health Care Law Will Raise Costs

The New York Times had a story on Sunday outlining how “the health care law could worsen some of the very problems it was meant to solve – by reducing competition, driving up costs, and creating incentives for doctors and hospitals to stint on care, in order to retain their cost-saving bonuses.”  The front-page article outlines how the new law has sparked “a growing frenzy of mergers involving hospitals, clinics, and doctor groups eager to share costs and savings, and cash in on the incentives.”  Consumer advocates and others fear that the newly merged entities will use their market clout to demand higher prices; the article also interviews the chairman of the Federal Trade Commission about the potential antitrust implications of the new law.

The article concludes that the increase in mergers, and potential increase in prices for consumers, is largely a direct result of government involvement in health care brought on by the new law, yet several of the quotes in the piece imply that the “solution” to the problem is…yet more government involvement, through antitrust enforcement and regulations.  Some may find it baffling that government can solve problems its own perverse incentives and myriad regulations have created.  For instance, Kansas insurance commissioner Sandy Praeger recently noted that that as a result of new regulations on insurance companies, “There will be some companies that I think will decide, they have a very small book of business in a state and they’ll decide maybe it’s not worthwhile to stay in the state.”  Such a development will give LESS choice to consumers, resulting in higher premiums for insurance.

Creating a few large group medical practices and hospitals organized under the aegis of accountable care organizations to negotiate with a few select insurers who will remain once the law’s new regulations have taken effect is not a recipe for competition and lower costs, as the Administration asserts.  It’s a recipe for higher costs and less market choice for individuals and businesses alike – and it’s yet another reason why the health care law falls short of its promises.