The king of investors, Warren Buffett, decreed that if you want to make a fortune, buy companies that have a competitive moat. A competitive moat, in the investment world, is a company surrounded by barriers to stop the enemy from entering its market. Big Hospital systems have huge competitive moats.
In the 1960s, the “certificate-of-need” concept started showing up around America. These laws gave favorable treatment to major medical centers and other existing hospitals by limiting competition. This is a huge competitive moat now being employed by Big Hospital systems.
I first noticed that the financial ethics of hospitals was not cricket when I noticed that my largest competitor, Xerox, was paying 18 percent less for its employees’ healthcare than I was. My insurance agent told me this was because I had to pay for the emergency care of the homeless. This told me that hospitals were charging different prices to different people for the same service.
In an article titled “A Regulation That Protects Big Hospital Monopolies,” The Wall Street Journal details how, by restricting construction of new medical facilities, certificate-of-need laws drive up healthcare costs. It has an example of two highly regarded obstetricians in Cartersville, Georgia, that were denied the right to construct a second room at their one-room surgery center by the Georgia Department of Community Health through a certificate-of-need regulation supported by the three large hospitals in the area. Thankfully, Utah is not one of the 35 states that have the certificate-of-need regulation.
Another example of a competitive moat is Big Hospital systems owning their own insurance companies. Both Intermountain Healthcare and the University of Utah Health Sciences have in place their own insurance companies. This practice is like the fox guarding the henhouse.
If you need a doctor, medication, clinic or hospital that is not in the insurance companies’ preferred provider network, you pay more. I have had relatives and friends who have not been part of IHC’s preferred provider network and their potential earnings were restricted. This is a classic example of how not to run a free market economy.
In the movie “Margin Call,” actor Jeremy Irons asked a young colleague, “Maybe you could tell me what is going on. And, please, speak as you might to a young child or a golden retriever.” In the recent Republican effort to overhaul our healthcare system, the politicians are not speaking to me as if I was a young child. They are purposely speaking gobbledygook.
I believe that Congress does understand that by eliminating the individual mandate, it will be a formula for disaster for the healthcare insurance companies. The individual mandate, to all us golden retrievers, is not only unpopular, it is also restraint of trade. The insurance carriers’ lobbyists in Washington have been pocketing a lot of silver and gold in the past six months.
The healthcare industry lobbyists also got Obama and his cronies to put into the Accountable Care Act excessive benefit mandates that drive up the price of coverage and shift the cost from Obama-favored groups to the young, healthy and non-poor who obviously do not want to buy it.
This problem — Big Hospital system monopolies — should be simple to solve. Just like any other monopoly, there are very few institutions involved. And there have been many federal laws passed to accomplish this, beginning with the Interstate Commerce Act of 1887, followed by the Sherman Antitrust Act of 1890, the Clayton Antitrust Act of 1940, the Federal Commission Act of 1914, the Robinson-Patman Act of 1936 and, finally, the Celler-Kefauver Act of 1950.
Our job as responsible citizens of America is to make sure our elected officials just follow the law. An effective way to get elected officials to do the right thing is to man the barricades. Protest marches and strikes are the big guns that we can use. Martin Luther King Jr. was an expert in using these tactics to get elected officials to enact the Civil Right Act of 1964.
“Underlying most arguments against the free market is the lack of belief in freedom itself.” - Milton Friedman
Robert Pembroke is chairman of Pembroke’s Inc. and fancies himself as being on a permanent sabbatical. He can be reached at pembroke894@gmail.com.