Tuesday, May 14, 2013

Regulatory Capture and the American "Affordable Care Act"

There are few better examples of "regulatory capture" illustrating how larger incumbents will use regulation to shut out competitors, as the US "Affordable Care Act" (better known as Obamacare). This is, of course, to say nothing of the irony that the Act is supposed to break the cost curve on healthcare (WSJ):

The Affordable Care Act aimed to end a boom in doctor-owned hospitals, a highly profitable niche known for its luxury facilities. Instead, many of the hospitals are wiggling around the federal health-care law's growth caps and even thriving.[...]

The curbs are expected to get fresh attention this week. On Tuesday, about 50 physician owners, represented by the Physician Hospitals of America lobby, plan to descend on Congress. Republican Rep. Sam Johnson of Texas, whose state has about 90 doctor-owned hospitals, expects to introduce a bill to loosen limits on expansions that weren't ready before 2011.[...]
The doctor-owned hospitals seeking to loosen hospital-expansion limits have some favorable statistics to cite as they go into battle: new Medicare measurements showing that doctor-owned hospitals represent about half of the top 100 facilities whose performance will merit bonus Medicare reimbursements because of their cost efficiency and patient satisfaction.

But any effort to undo the expansion limits faces an uphill battle with Democrats, because the restrictions were a deal-breaker for hospitals when the White House sought their support for the law in 2009, industry lobbyists say.
So despite being described in even the Wall Street Journal as being "luxury facilities", these facilities are being highlighted by Medicare for being more cost efficient and having more satisfied patients than their competitors.

It seems insane that any government would attempt to limit what amounts to real cost savings and an improvement in service for patients. A possible clue as to why?
But according to the American Hospital Directory, a private firm that provides data about some 6,000 U.S. hospitals, many physician-owned hospitals have enjoyed 20% to 35% profit margins in recent years. U.S. community hospitals' profits hovered around 7% in 2010, according to the American Hospital Association, an industry trade group.

In 2011, the first year of the law's restrictions, more than half of the 30 largest doctor-owned hospitals showed operating margins that either matched or surpassed their 2010 figures, and some had operating margins of more than 40%. Only a handful showed drops of more than a few percentage points that year, according to American Hospital Directory data.

Robert Kocher, a former National Economic Council health adviser who helped get the provision into the federal health-care law, said he was disappointed such facilities had found ways to grow. "It was not how we saw this playing out, but they are resourceful," he said.

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