Consolidation of Hospitals During the COVID-19 Pandemic: Government Bailouts and Private Equity
RICHARD M. SCHEFFLER & LAURA ALEXANDER (Millbank Quarterly 7/20/21)
On May 19, 2021, Senator Amy Klobuchar (D-MN), chair of the US Senate Subcommittee on Competition Policy, Antitrust, and Consumer Rights, held a hearing on hospital consolidation and its impact on hospital prices. Expert testimony indicated that prices have increased. Other members of Congress emphasized the misaligned incentives between private equity’s goal of profits and the societal focus on patient care. Against the backdrop of rapid hospital consolidation over the last decade, virtually all studies demonstrate increased prices with no measurable improvement in quality, according to Professor Martin Gaynor. Most hospital markets meet the FTC/DOJ guidelines definition of being highly concentrated and, as a result, are not likely to exhibit competitive levels of prices, quality, or innovation.
Yet, the COVID-19 pandemic is shaping the financial outlooks of large and small hospital systems in a manner that is expected to further fuel this consolidation trend. As reported in May 2020, 20 large hospital systems had received more than $5 billion in federal grants while sitting on more than $100 billion in cash. At the request of Xavier Becerra, the current Secretary of Health and Human Services and California Attorney General at the time, the Petris Center at the University of California, Berkeley conducted a study of provider relief payments to hospitals in California. Findings revealed that, in addition to the vast majority of the funds going to hospital systems with large reserves, the clear exercise of market power by hospitals in raising prices also resulted in higher relief payments.
