Hospitals price power probed

The Obama administration, which has focused its attention on waste as a way of holding down costs in the new national health care program—called the Affordable Care Act (ACA)—is under growing criticism from analysts for ignoring hospital mergers and consolidations, which drive up costs, and hospital purchases of medical practices, both of which have been factors in the Reno/Sparks market.

In a February Time magazine cover story, Steven Brill described the consolidation and acquisition problems. Last week Eduardo Porter wrote about them in the New York Times. Columbia Journalism Review health care reporter Trudy Lieberman wrote last week, “And the ACA indeed did not tackle a hard one—the growing concentration and power of hospital systems and the physician practices they increasingly own, which gives them the leverage to control the price of care.”

Renown Hospital in Reno was formerly a publicly owned free-standing hospital. It is now privately owned. St. Mary's Hospital, once a local Catholic hospital, is now owned by Prime Healthcare, another out-of-state chain.

“If there is one thing that economists know, it is that market concentration drives prices up—and quality and innovation down,” Porter wrote. “Research by Leemore S. Dafny of Northwestern University, for instance, found that hospitals raise prices by about 40 percent after the merger of nearby rivals. Other studies have found that hospital mergers increase the number of uninsured in the vicinity. Still others even suggest that market concentration may hurt the quality of care. Indeed, for all the emphasis on curbing waste, recent evidence suggests that health care costs are not being driven by intensive use of high-tech procedures as much as by rising prices for even the most humdrum treatments, which are today among the most expensive in the world.”

In Reno after Renown bought out two cardiac practices and put their surgeons on hospital staff in 2010 and 2011, the hospital controlled nearly all the cardiac surgeons in the valley. The Federal Trade Commission found that “competition for adult cardiology services was effectively eliminated” in this market and last year ordered Renown to release some of its staff cardiologists from “non-compete” contracts and allow them to join outside practices. Before acquiring the practices, Renown had no cardiologists on staff.

But there is not likely to be a remedy like that for most private practice acquisitions because most acquisitions are of family care practices. One prominent Reno physician said, “It's very common. Yes, yes, it's happening all over the place. The most of them are primary care practices and Renown has picked up a bunch, and Saints [St. Mary's] has done some. Carson Tahoe's done a bunch.”