How Hospital Monopolies Drive Up the Cost of Care.

• Author: Brownlee, Shannon
• Position: David Dranove and Lawton R. Burns' "Big Med: Megaproviders and the High Cost of Health Care in America"

Health care mergers were supposed to bring lower prices and higher guality. They've done the opposite. Time to try regulation.

Big Med: Megaproviders and the High Cost of Health Care in America

by David Dranove and Lawton R. Burns

University of Chicago Press, 336 pp.

Anyone who drives through Pittsburgh, Pennsylvania, cannot help but notice the black tower that looms over the confluence of the Monongahela and Allegheny Rivers. Originally built as the headquarters of U.S. Steel, the tower now houses the corporate offices of the University of Pittsburgh Medical Center, or UPMC, the largest employer in what was once known as "Steel City." From a single hospital in 1990, UPMC has grown into a medical colossus, with 40 hospitals in the region and revenue in 2017 of $16 billion. That's what Whole Foods made that year nationally.

The UPMC hospital system, which has been written about before in these pages, is hardly alone in both its monopoly of hospital-based medical care in a single region and its national-corporation-sized revenue. Northwell Health, on Long Island, New York, with 12 hospitals in the Long Island region, took in $9 billion in 2017, on par with Adobe Systems. The Sutter system, which operates more than two dozen hospitals in Northern California, made $12 billion that year, as much as Tesla. The top 10 hospital systems raked in nearly $90 billion, rivaling Boeing, Hyundai Motors, IBM, and Johnson & Johnson combined.

These numbers are both alarming and unsurprising. Care delivered by hospitals accounted for 31 percent--about $1.2 trillion--of the $4.1 trillion we spent in total in the U.S. last year. That's up from $882 billion for hospitals a decade ago. The cost of health care keeps going up, bankrupting families and depressing wages for average workers, and a major reason for its meteoric rise is the giant hospital chains that have come to dominate the health care landscape.

Fifty years ago, most hospitals were stand-alone institutions, fixtures of the local community that served as sources of pride as well as medical care. Today, more than half of hospitals are part of regional systems, many of them with a dozen or more hospitals. Maybe you have one or two of these behemoths in your city or town. Their names are often familiar and respected; less well recognized is their monopolistic behavior and their effect on how much we pay for health care. With the publication of Big Med, the authors David Dranove and Lawton R. Burns offer an exhaustive--if occasionally exhausting--analysis of the consolidation of U.S. hospitals and the effect it has had on both the cost and the quality of health care.

BigMed traces the rise of what Dranove and Burns, longtime experts in hospital organization and business strategy, have dubbed "megasystems." Few if any hospital systems existed in 1965, when the passage of the Medicare Act kicked off an escalating price war in health care that continues to this day...