Local economies pay the price when hospitals charge more

Even small increases in hospital prices affect local economies, with lower- and middle-income populations disproportionately feeling the impact, according to a new working paper series from the National Bureau of Economic Research.

Using insurance claims data from the Health Care Cost Institute (HCCI), the paper examines the consequences of rising healthcare prices in the US, especially as a result of recent hospital merger and acquisition activity. Hospital mergers and acquisitions have been linked to higher prices without apparent improvements in quality or utilization.

The paper finds that a 1% increase in healthcare prices led to about a 0.37% reduction in payroll across employers outside the healthcare industry. Employers also reduced their workforces by an almost equal amount in response to the price pancreases, the study shows.

Reductions in the workforce have left some Americans completely separate from local labor markets, too.  At the county level, this increase in prices also reduces per capita labor income by approximately 0.27%, increases flows into unemployment by approximately 0.1 percentage points (1%), lowers federal income tax receipts by 0.4% and increases unemployment insurance payments by 2.5%.

Researchers emphasize that the increases in unemployment tend to be concentrated among works earnings between $20,000 and $100,000 a year.

They also estimate that a 1% increase in healthcare prices results in a 1 per 100,000 population increase in deaths from suicides and overdoses, implying that about 1 in 140 people who become completely unemployed after price hikes die from suicide or drug overdose.

Healthcare price increases are creating a serious problem for the US economy, the paper suggests. During the paper’s study period (2010-2015), prices for inpatient and outpatient hospital care grew by 42.3% and 25.1%, respectively, for the privately insured. Over half of Americans are covered by private plans through their employers.

Forthcoming research from the paper’s authors also shows price increases of 1.2% within two years of an average hospital merger. Their estimates reveal that a single hospital merger could lead to 39 job losses, about $6 million in forgone wages and a $1.3 million reduction in federal income tax revenue.

“Ultimately, this work highlights that health care price growth is generating severe macroeconomic and social consequences in the US,” the paper’s authors write. “In the absence of concrete steps to address health care price growth, rising health spending will raise labor costs and reduce business dynamism outside the health sector, put pressure on the federal budget, and exacerbate income inequality. Rising health care spending will also precipitate suicides and overdoses.”

However, the American Hospital Association (AHA) told The Wall Street Journal in response to the working paper that mergers also generate efficiencies and enhance operations for newly merged organizations.

“The fact is, individual hospitals affiliating with a health system can bring a range of benefits for patients and communities,” said Molly Smith, a policy executive at the AHA. Mergers also often expand services and support struggling hospitals to avoid closure, the group told the newspaper.

In a statement emailed to RevCycleIntelligence, Smith, group vice president for policy, said:

Hospitals and health systems provide life-saving care to patients 24/7. This report disregards this basic truth and instead is rife with many of the same issues that plague the authors’ prior work and demonstrates their and their funder’s anti-hospital bias. The authors go to great lengths to thread together extremely limited and disparate data to try to link hospital consolidation and a whole host of negative health and societal outcomes, even including suicide rates. This is particularly unconscionable given the lengths hospitals and their caregivers go to in order to save the lives of those suffering acute behavioral health crises – which are driven by a multitude of societal factors. The fact is, individual hospitals affiliating with a health system can bring a range of benefits for patients and communities. This is particularly true in rural and underserved areas, where these partnerships can keep hospitals open and protect access to care

Unsurprisingly given their past research partnerships, the authors ignore the role that corporate insurers, drug companies and their middlemen play in growing health insurance premiums and health care prices. In addition, the authors fail to adequately control for broader economic trends or geographic and demographic shifts that exert considerable influence on labor markets. Finally, while the authors signal support to cut hospital payments, they do no analysis to test the impact that these cuts would have on access to care or labor markets. This is notable given that hospitals support millions of quality jobs across the nation and reductions in hospital payments would directly lead to employment losses.

Still, hospital merger and acquisition activity is under the microscope as federal, state and local policymakers take aim at rising healthcare costs.