Can a Large Not-for-Profit Hospital System be a Monopoly?

Today on its website, Kaiser Permanente discusses the Wall Street Journal's story regarding Carilion Health System, a large not-for-profit hospital system in southwestern Virginia and whether it has created a monopoly for health care services in the area. Read on:

"According to the Journal, not-for-profit hospitals, which account for the majority of U.S. hospitals, receive tax exemptions and "are supposed to channel the income they generate back into operations, while providing benefits to their communities." However, not-for-profit hospitals have "come under fire from patient advocates and members of Congress for "stinting on charity care, even as they amass large cash hoards, build new facilities and award big paychecks to their executives," the Journal reports.In the case of Carilion, the Department of Justice in 1989 filed a failed antitrust lawsuit in an effort to block a merger between Carilion and a local hospital over concerns that the move would create a monopoly on health care services in the area. Almost 20 years later, health care costs in the area are "soaring," and health insurance premium rates in the area have increased from the lowest in the state to the highest, the Journal reports. Carilion charges four to 10 times as much for some health care services as other providers in the area, but, with eight hospitals, 11,000 employees and $1 billion in assets, residents in most cases must seek care through the hospital system or travel outside the area. In addition, although Carilion receives about $50 million annually in tax exemptions, the hospital system spent only $42 million in charity care in 2007 and only $30 million in 2006. Carilion officials maintain that the hospital system does not have a monopoly on health care services in the area because of competition from Lewis-Gale Medical Center, a hospital owned by for-profit chain HCA. In addition, "Carilion says it charges more for certain procedures because it has to subsidize operations such as an emergency department and treatment for the uninsured," according to the Journal. Carilion CEO Edward Murphy also said that the increase in health care costs in the area is part of a national trend and has resulted from overuse of services"(Carreyrou, Wall Street Journal, 8/27).