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Wednesday, October 27, 2010

Obamacare Fosters Oligopoly


Well, now. It seems Obamacare is increasing concentration in the medical industry. From yesterday’s Wall Street Journal:

The turn toward consolidation among insurance companies is not new, and neither is it among doctors, hospitals and other providers. Yet the health bill has accelerated these trends, as all sides race to anticipate and manage political risk and regulatory uncertainty. This dynamic is leading to much larger hospital systems and physician groups, and fewer insurers dominated by a handful of national conglomerates. ObamaCare was sold using the language of choice and competition, but it is actually reducing both.

As new insurance mandates are handed down, the costs of which cannot be passed along directly to the insured, marginal insurers will either go out of business or merge with other firms, increasing concentration and reducing even the little competition that exits today in the 50 state regulatory fiefdoms.

The same thing will happen to stand-alone and community hospitals—always a precarious business. Nearly a third of U.S. hospitals are currently operating in the red and will get steamrolled by ObamaCare, and many of them will be annexed by national chains and larger local systems.

This is already happening.

The Journal goes on:

Though it received little attention over a year of debate, ObamaCare actively promotes provider consolidation. Writing this summer in the Annals of Internal Medicine, Nancy-Ann DeParle and other White House health advisers argued that “The economic forces put in motion by the Act are likely to lead to vertical organization of providers and accelerate physician employment by hospitals and aggregation into larger physician groups.”

Obama certainly didn’t trumpet that “benefit” publicly. (Ed Schultz, what do you think now?) Bigger is better in the eyes of Obamacare’s architects. This isn’t an antibusiness policy. It’s a pro-Big Business policy, which is what Progressive corporatism has always been. Sure, the suppression of competition has a regulatory price tag, but Big Business has always been willing to cut that deal. (See the history of public utilities.) Anything but the freed market!

Across the country, providers are building giant hospital systems and much tighter doctor alliances like multispecialty groups to get out ahead of a concept known as “accountable care organizations,” or ACOs. To modernize the delivery of medical services, ACOs would encourage doctors to work in teams to use resources more efficiently, streamline treatment and improve quality. The model is the Mayo Clinic and other large integrated systems.

At the moment ACOs are only a gleam in some bureaucrat’s eye, and no one has a clue how they’ll operate in practice until the government releases a working regulatory definition next year. Yet the percussive effects are already being felt across medicine.

The result will be even less competition and higher prices. That’s not change. It’s more of the same.


  • Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.