The planned opening next week of a new, $200 million hospital in Summit, Wis., has some worried that the inevitable competition created could drive up healthcare costs in the area to the point that costs will rise faster than the national average for hospital care, reports the Milwaukee Journal Sentinel. Such a situation would be similar to one that took place seven years ago in Oshkosh.
In the five years after Aurora Healthcare opened Aurora Medical Center in Oshkosh in 2003, the combined revenue of that hospital and one that already was in place--Mercy Medical Center--increased at a rapid pace: 41 percent faster than the national average, to be precise. According to the Journal Sentinel, had rate increases been on par with the national average, it would have cost both employers and government health programs about $18 million less in 2008 alone for hospital care.
While Aurora's new facility has yet to open up, there already appear to be some similarities between Oshkosh situation and the one in Summit. ProHealth Care, a competing health system in that area, recently spent $58 million on a new wing for Oconomowoc Memorial Hospital, bringing the cost of healthcare system investments in Western Waukesha County to more than $250 million--all at a time when nationwide rising healthcare costs are looked at skeptically.
Robert Town, a health economist and professor at the University of Minnesota, believes that the theory referred to as "Roemer's Law"--named after doctor and health policy researcher Milton Roemer--comes into play in this situation. Roemer's Law, also known as "supply-induced demand," states that "a hospital bed, once built, will be filled."
"There is pretty good evidence that it exists," Town told the Journal Sentinel.
This thinking appears to fall in line with the thinking of an old study that concluded that competition and technology tend to drive hospital costs higher, similar to an "arms race."
For more information:
- read this Milwaukee Journal Sentinel article