Hospitals are Incompetent Monopolists!

By JEFF GOLDSMITH

The health policy community is obsessed with hospital mergers. In a recent paper which I critiqued, the operating thesis was that hospital mergers are conspiracies in restraint of trade, enabling hospitals to extract rent from helpless local employers and patients. This logic leads directly to advocacy (lavishly funded by Arnold Ventures philanthropy) of hospital rate controls as the only way of restraining this abuse of economic power.

The reality is, as you might expect, somewhat different. The following chart, courtesy of healthcare data firm Trilliant Health, shows that hospitals are truly incompetent monopolists. It shows the correlation between hospital operating margins and market concentration for 2023. The hospitals to the far right in this chart have 100% local market shares.

Source: Trilliant Healthcare Analysis of CMS HCRIS files (Hospital Cost Reports), 2023

Do you see a correlation? I sure don’t.

According to Trilliant, the average hospital operating margin in 336 CBSAs (markets) where hospital services are “controlled by a single firm” is -1.7%.This negative operating margin average does NOT include the operating losses on their physician practices, which are not reported on hospital cost reports, so the actual operating losses are likely much greater.

Jeff Goldsmith is a veteran health care futurist, President of Health Futures Inc and regular THCB Contributor. This comes from his personal substack