States should take on corporate cronyism, starting with the hospital industry

The Patient Protection and Affordable Care Act (ACA) is one obvious reason the health care industry does not operate by free-market principles, but cronyism that predates the 2010 law also contributes to the industry’s problems with cost and quality. And unlike the ACA, states can readily do something about that.

In recent years, advocacy groups have focused attention on the favors state governments give to select corporate interests. Through these acts of favoritism, which include tax incentives, states empower large corporations and that results in unfair playing fields, limited or restricted competition, higher costs and raw deals for taxpayers. There is, perhaps, no better example of such policies than those protecting hospitals. It is time for lawmakers across the country to force hospitals to become accountable to taxpayers.

{mosads}Avik Roy, a Michigan native and health care policy expert, recently explained: “Hospitals are merging into larger hospital systems, and using their market power to demand higher and higher prices from the privately insured and uninsured.” Using numbers from the Centers for Medicare and Medicaid Services, he shows the result in dollar terms. Americans now spend $1.2 trillion, or $9,200 per median household, for hospital care. That’s more than the average family paid in 2018 in income and payroll taxes, and it’s more than the U.S. spends on national defense. CMS estimates that by 2026, hospital costs will rise to nearly one-fourth of an average family’s income.  

As hospitals continue to demand higher prices from patients, they also have perverse incentives to protect their taxpayer-funded revenue streams and are willing to spend considerable sums to keep the money coming. In Michigan, hospitals have become a powerful lobby to preserve the state’s no-fault auto insurance law. Under that law, hospitals can charge people who are injured in automobile accidents more than they charge patients who bring other insurance policies — up to four times more.

And such political spending by hospitals is not unique to Michigan. In fact, hospitals represent one of the most powerful lobbying coalitions nationwide. Roy reports that in 2017, hospitals and nursing homes spent $101 million on lobbying, “more than was spent by the automotive industry ($70 million), the defense aerospace industry ($69 million), and commercial banks ($67 million).”

One of the most powerful tools used by hospitals is state certificate of need laws, often dubbed CONs. These laws require health care providers to get government permission before opening or expanding services, which includes purchasing equipment or even increasing the number of beds. Under CON laws, applicants must prove their proposed expansions are a community necessity. And there’s an even higher hurdle: Existing providers (often the state’s largest hospitals) are invited to challenge their potential competitors’ applications.

We have seen the ill effects of CONs throughout Michigan. A recent article in Crain’s Detroit Business reported that patients seeking beds in psychiatric hospitals face lengthy wait times, a trend found throughout the country. The Crain’s article noted that some patients in Southeast Michigan wait days to be admitted as an inpatient from the emergency room. One hospital reportedly had 16 ER patients who waited more than 48 hours each because the hospital had no available beds and could not find another facility to take them.

In Wayne County, some classes of patient wait an average of 21 hours before a bed becomes available. Because many of these patients are waiting for “boarding,” they often are left without access to provider oversight and care. In fact, Crain’s cites the American College of Emergency Physicians, which found that “61 percent of hospitals [nationwide] did not have psychiatric staff caring for the ER patients while they waited.”

These are alarming statistics, both for consumers concerned about how to afford hospital care and for patients concerned about the availability of quality care. State lawmakers across the country should move immediately to end CON laws and other cronyism policies that contribute to the unsustainable rising costs of access and care. Mercatus Center research finds that Michigan could nearly double the number of hospitals throughout the state simply by repealing CON requirements.

In short, states that stop empowering large corporate interests at the expense of taxpayers and patients will do much to promote financial and human health.

Lindsay Killen is vice president for strategic outreach and communications at the Mackinac Center for Public Policy, an educational and research organization based in Midland, Michigan.