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Tag: Earnings reports

How Much Market Power Do Hospitals Really Have?

Jeff GoldsmithOrginally published June 6th 2014, back by popular demand. – The Eds

Sometimes big game hunters find frustration when their prey moves by the time they’ve lined up to blast it. That certainly appears to be the case with the health policy target de jour: whether providers, hospital systems in particular, exert too much market power. A recent cluster of papers and policy conferences this spring have targeted the question of whether hospital mergers have contributed to inflation in health costs, and what to do about them.

Hospitals’ market power appears to be one of those frustrating moving targets. The past eighteen months have seen a spate of hospital industry layoffs by market-leading institutions, and also a string of terrible earnings releases from some of the most powerful hospital systems and “integrated delivery networks” in the country. These mediocre operating results raise questions about how much market power big hospital systems and IDNs do, in fact, exert.

The two systems everyone points to as poster children for excessive market power-California-based Sutter Health and Boston’s Partners Healthcare, both released abysmal operating results in April. Mighty Partners reported a paltry $3 million in operating income on $2.7 billion in revenues in their second (winter) quarter of FY14. Partners cited a 4.5 percent reduction in admissions and a 1.6 percent decline in outpatient visits as main drivers. Captive health insurance losses dragged down Partners’ patient care results. Sutter did even worse, losing $22 million on operations in FY13 (ended in December), — compared to a gain of $697 million in FY11 — on more than $9.6 billion in revenues.  A 3 percent decline in admissions led to FY13 revenue growth of 0.9 percent (that is, nine-tenths of one percent), against 7.3 percent in expense growth.

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