From a young age Americans are taught through numerous outlets that bigger is better. Bigger Tonka truck. Bigger stuffed animal. Bigger house. Bigger car. Bigger TV. Bigger engagement ring. The list goes on. In some circumstances bigger may be better. In some cases it is not.

Patient Protection and Affordable Care Act

The President’s Affordable Care Act (ACA) follows the theme of “bigger is better.” The ACA hinges on a main idea – bigger hospitals allow for more coordinated, streamlined care that increases quality and reduces costs. Unfortunately this is not the case. As documented in a recent Wall Street Journal article, a man from Reno, NV watched the cost to his insurer for identical tests increase more than four fold. He had received the same test, using the “same equipment, in the same room” six months prior. The only variable in the two scenarios was that a large hospital had just bought his cardiologist’s practice.

The Fundamental Problem

The unfortunate truth with growing hospitals is that, instead of a reduction in costs through more efficient care, costs are increasing due to the hospitals’ increased leverage on insurance companies. The more patients they have under their umbrella of care, the better reimbursement rates they can negotiate from insurance companies.

A Growing Trend

A study conducted by the Advisory Board Co. found the number of specialty physicians who see patients in hospitals jump from 5 percent in 2000 to nearly 25% percent today. This trend is not surprising when you take a closer look at the current situation that a small private practice faces. In this environment of growing hospitals set up by the ACA, small practices are incentivized to join hospitals in two main ways. 

Incentives to Join

The first is the security that a big hospital can offer you. Job security is greater at a large, diversified organization. There is also more security in against lawsuits. In a big organization there are limits to awards in a malpractice suit. In addition, the cost of malpractice insurance is relatively cheaper in a large hospital organization.

The second incentive stems from the network of doctors that large hospitals create in their payment system. Put simply, “If you can’t beat ‘em, join ‘em.” Physicians with growing hospital systems in their market can either decide to be included in the hospital’s network of doctors or they can be excluded.

What Can Be Done?

Hospitals and physicians are not to blame here. Hospitals have the incentive to expand their network of physicians to increase revenue, and physicians are incentivized to join. Instead we must blame the ACA. In order to slow increases in health care costs, we cannot depend on big hospitals to coordinate care more efficiently. In order to incentivize providers to deliver quality care at lower costs we must increase competition in the marketplace rather than watch it be monopolized. By dividing these hospitals giants we can reduce their negotiating power and slow the increase in the cost of healthcare.