by Katherine Restrepo
Director of Health Care Policy, John Locke Foundation
The number of mega-deal hospital merger and acquisitions hit an all-time high last year, and one of those multi-billion dollar transactions features the proposed partnership between UNC Health Care and Carolinas HealthCare System. If the partnership is finalized, North Carolina could be home to one of the largest hospital behemoths in the nation. On a combined $14 billion operating budget, the two systems manage 50 hospitals and employ 90,000 people.
The public has lots of questions, and they have every right to be informed because UNC Health Care is a state-owned entity. How will this mega-marriage impact its workforce? Will UNC patients have access to services they didn’t have beforehand? Will Carolinas HealthCare patients enjoy access to treatments that were previously unavailable? How will the partnership benefit rural areas?
Also, what about costs? That seems to be the big-ticket question right now.
In many cases, mergers achieve greater efficiencies and reduce prices for consumers. In the health care industry, however, an overwhelming amount of evidence suggests otherwise. In fact, highly consolidated hospital systems charge as much as 40 percent more for procedures compared to smaller hospitals. The larger the health system, the more bargaining power it has to negotiate higher reimbursement rates from third-party payers.
Yet, mergers themselves are not the cause as to why patients are burdened by high health care costs. Rather, it’s the vast number of regulatory barriers that make it difficult for potential competitors to enter the health care space. Limited competition is what brings about artificially inflated prices.
One of the most severe market entry barriers to scale is Certificate of Need (CON). CON laws require hospitals and other medical professionals to ask the state permission if they want to buy major medical equipment, such as an MRI machine, or expand a hospital wing to add more patient beds. Only the government can give the go-ahead to parties who want to build a new adult care home center, surgery center, or kidney dialysis unit.
These ‘asks’ requires lots of time and money. Each CON application costs a minimum $5,000 and can total as much as $50,000, depending on the size and scope of the proposed medical investment. If a hospital wishes to pursue an expedited review process, there’s a premium for that, too. Factor in preparation consulting and public hearing fees and the initial market entry price tag for some applicants could top off at over $5 million.
In 2017, North Carolina’s Division of Health Service Regulation reviewed 146 CON applications, 17 percent of which were denied. As for the remainder of applicants who received the state’s blessing to pursue their capital projects, competitors can still stymie the process from moving forward – all of which involves more time, money, and lawyers.
Meanwhile, seven states have thrown up market barriers to protect optometrists from Opternative, a telemedicine start-up that offers online eye exams and issues prescriptions for contacts and glasses. South Carolina, for example, recently passed the Eye Care Consumer Protection Law, which states that patients can update their contact or glasses prescription during an in-person appointment only. Although Opternative clearly states that its services do not include a comprehensive exam that fully measures the health of the eye, optometrists nevertheless have denied patients a cost-effective and convenient health care alternative. Fortunately, North Carolinians have access to Opternative. Let’s keep it that way.
Telemedicine runs into interstate market-entry barriers in other ways, too. As current rules stand, the definition of telemedicine is tied to where the patient is located, not the physician. That means that, if a North Carolina physician wanted to expand his care through telemedicine to patients in South Carolina, he would need to acquire a separate medical license to practice in South Carolina. However, if the definition of telemedicine were changed to it taking place where the physician is located, not where the patient is located, then physicians would need to comply with only their home state’s medical practice guidelines. In turn, interstate obstacles would be lowered, prices for telemedicine services would become even more competitive, and patients would have more options in seeking virtual care.
These are just a few of many, many other examples of how market entry barriers – not mergers –increase the cost of health care. With fewer competitors in the field, it’s easier for the big players to get bigger.
In the meantime, stay tuned for more developments on the Carolinas-UNC partnership.