Mercy Hospital System Shows Dangers of Health Care Monopolies

Rea S. Hederman Jr. Jul 27, 2023

Mercy Hospital System and the health insurance industry remain deadlocked in on-going contract negotiations over how much insurers reimburse hospitals for their care. Mercy cites inflation to justify higher prices and demand higher reimbursements, while health insurers accuse the hospitals of charging unreasonable rates and exploiting vulnerable patient populations as a bargaining chip.

Unfortunately, if the two sides fail to compromise by the deadlines, those most likely to get hurt by this game of chicken are the 60,000 Cincinnati-area patients who could face unexpected and unaffordable hospital bills or lower-quality medical care. Whether they reach a deal or not, Mercy Hospital’s high-stakes negotiations epitomize the risks of monopoly and consolidation in health care.

Hospital systems in the U.S. increasingly behave like monopolies, eliminating competition and severely restricting consumer choice and price options. Sector consolidation has already reduced the number of hospital systems and, according to experts, 90 percent of American’s major urban areas like Cincinnati have little hospital competition at all.

By reducing competition, monopolistic consolidation allows hospitals to charge patients and insurers more money for the same services. And, unsurprisingly, they do. Money spent on hospital visits accounts for almost one-third of the nation’s total healthcare spending—more than Americans spend on dental services, prescription drugs, and nursing home care combined. 

Even worse, as the research shows, limited health care competition reduces the quality of patient care, with patients often complaining of worse experiences at hospitals that enjoy the privileges and immunities of monopoly.  Higher prices for a lower quality service—what’s not to love? 

And it is not as though these results should come as some great surprise. Hospital systems and health-care markets function much like every other market insofar as competition reduces consumer prices and raises service quality. All businesses in competitive markets—and hospitals, whether we like it or not, are businesses—must attract new and improved talent, prioritize more innovative products and services, and find ways to limit waste and inefficiency, while charging customers a price they can afford. Monopolies don’t. 

Instead, monopolies are immune to the market-induced pressures to improve, innovate, and offer affordable services. So, it is no wonder that monopolies (and hospital systems that act like them) hide the prices for their goods and services from their customers. It is hard to haggle over the bill or go searching for more affordable alternatives if the health care menu has no prices. The Ohio General Assembly passed a law that rightly requires health care providers to disclose their prices. Ohio hospitals sued to block it, making their intentions clearer than their pricing. 

At the national level, the Federal Trade Commission has tried to promote health care competition by blocking some hospital mergers, but states can pursue pro-competition, free market remedies, too. For example, some hospitals and health care providers charge different amounts for the same service or treatment depending on where the treatment is provided. State law can change that and require “site-neutral billing” so that the charges remain consistent regardless of the care setting. That would make patient bills more predictable and transparent, and encourage more care in smaller, less expensive facilities. State policymakers can also look to repeal bureaucratic regulations that protect that health care monopoly such as rules that prevent doctors from running clinics that perform outpatient procedures and compete with larger hospitals.

In the short term, Mercy Hospital System’s current contract dispute with insurance companies threatens the quality and affordability of care for tens of thousands in the greater Cincinnati area. But Ohio can learn a valuable lesson from the feud and take commonsense steps to make hospitals and health care providers more competitive and more transparent for all their patients in the long run.

Rea. S. Hederman Jr. is vice president of policy at The Buckeye Institute.