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Trump's 'secret weapon' in the Obamacare wars

A customer speaks with an insurance agent as he signs up for Affordable Care Act in Miami.
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A customer speaks with an insurance agent as he signs up for Affordable Care Act in Miami.

Three pieces of news from the Trump transition team this week are providing solid proof that repealing Obamacare and preparing a quick replacement for it is more than just an empty campaign promise.

The first is President-elect Trump's decision to choose longtime Obamacare critic and replacement plan architect Rep. Tom Price to be Secretary of Health and Human Services.

Second, is Vice President-elect Mike Pence's statement on FOX News last night that repealing Obamacare will indeed be the first thing the new administration intends to achieve right out of the gate.

The third sign is more subtle, but the Trump team's decision to bring in one particular antitrust lawyer might be the most potent move of them all in the battle to reduce American health care costs. Call it a potential "secret weapon" if you will.

Pence's bold promise to replace the Affordable Care Act right away needs no further explanation. So, let's start with the decision to name Price Secretary-designate of HHS. As a longtime practicing orthopedic surgeon, Price breaks the sad mold of the previous 22 HHS secretaries who have been more likely to be lawyers and bureaucrats than doctors.

That's right, Price will be just the third M.D. to hold the position of senior federal official in charge of U.S. health care. That's three out of 23 total, or just 13 percent. By contrast, imagine if only 13 percent of America's Attorneys General had legal training. Yeah, that's mind boggling. Sure you don't have to be a doctor to understand health care and health care costs, but it helps. Price will be the first M.D. to hold this position in 24 years and it's about time.

But in addition to being one of the many doctors who have disliked and suspected government-managed health care for years, Price has a publicly released plan to replace the Affordable Care Act. His plan wisely invests heavily in the best public policy that also happens to be the worst politics: Personal responsibility.

Telling the public they should take more responsibility for their own health won't win a guy a lot of votes. But Price's push to provide people with more tax credits and increase health care savings account maximums is exactly the kind of thing that properly rewards people for acting more responsibly.

And the last time anyone checked, more responsible citizens are always a net plus for society. But Price's plan also includes money to help those with the kinds of serious pre-existing conditions that can't be helped just by a better diet, exercise, and regular checkups.

Plenty of critics say the money his plan would raise wouldn't be enough to cover those people, and that's a legitimate debate to have. But anyone making a stink about that needs to also acknowledge that the ACA's existing plan is simply not drawing enough money from young and healthy Americans to pay for the older and sicker people in America either. In fact, that's been one of the biggest failures of Obamacare from the beginning.

"No matter what President Trump and his team do with their grand plan to repeal and replace Obamacare, it will fail unless the voters see a difference where it really counts: Their medical bills."

Price's tweaks would help, but for an Obamacare replacement effort to really work it can't rely on cold statistics like how many people get insurance coverage without necessarily getting care.

People don't want coverage per se, they want affordable care. One of the mistakes so many people continue to make when they talk about the ACA or any replacement plan is they call it "health care" reform when it's really just health insurance reform. And as anyone who's had Obamacare insurance "coverage" but still been forced to pay a $6,000 deductible before getting any care can tell you, health insurance and health care are two very different things.

Bottom line, if Tom Price and the Trump administration don't do something to get the cost of health care down, nothing they do to change the way we get coverage will matter practically or politically.

All of the above is the big set up for that subtle third move the Trump team made this week that signals where Price and the rest of the administration could — or simply should — be going when it comes to tackling the health care cost conundrum. That would be the hiring of antitrust expert David Higbee, an attorney who understands where the real price inflation in health care comes from: Hospitals.

Higbee's exact role in the Trump administration hasn't been announced, but he is now a prominent member of the transition team. Most experts believe he will hold a leading role in Attorney General-designate Jeff Sessions' Justice Department. Since Higbee was a part of an antitrust team under President George W. Bush that was much more lenient about mergers than the Obama administration has been, many experts assume his addition to the Trump team casts doubts on Trump's more populist threats about breaking up monopolies like Amazon.

But Higbee is also someone with a history of interest in what anti-competitive forces do to health care costs. And anyone who really knows about that issue knows that hospital consolidation, which has been on steroids for almost two decades now, is the real culprit. In 2004, Higbee was part of a massive DOJ report on how too much consolidation and not enough competition at all levels of health care in America were driving up prices.

Hospitals weren't singled out as harshly as they should have been in that report, but it did clearly connect higher medical prices with the increased pace of hospital consolidation. An antitrust expert like Higbee would have to be more than legally blind not to notice that massive consolidation has only accelerated over the past decade.

Since 2010 alone, we've seen an average of six major hospital mergers per year with values of $1 billion or more, according to researcher Kit Kamholz, managing director of Kaufman Hall. And those are just the biggest ones. From 1998 to 2012, the 5,000 or so hospitals in the United States saw 1,133 mergers and acquisitions, according to the Heritage Foundation.

Remember that hospitals control the price of health care and every procedure and drug connected with it much more than the insurance companies or even the government can. In many areas, they are the only game in town when it comes to providing health care. And that gives them leverage over their "suppliers" like the insurance companies in Walmart-like proportions.

In fact, hospitals get paid more than private practice facilities for just about every service they provide which conveniently puts them in a dominant position against any possible contender. And it's also a huge reason why so many hospitals have been buying up private practices to not only reduce their competition, but also enjoy the pleasure of charging more for the same procedure, performed by the same doctor, often in the same office.

The only difference is that now that the office is officially owned by the hospital, it can charge Medicare and even insurance companies more. A 2014 study of more than 150 hospital-owned and physician-owned health care providers in the Journal of the American Medical Association found that patient costs are 19.8 percent higher for physician groups owned by hospital systems compared with private practices.

Sounds like nice work if you can get it, no? And thanks to Obamacare, the hospitals have been getting much more of that work since the ACA was passed. The added regulations and other hassles that come with Obamacare are often a major reason why doctors in private practice decide to throw up their hands, get bought out by a hospital network and let them handle the added paperwork and costs.

Those costs and regulations have also induced hospitals to accelerate their already blistering merger pace. The lesson from Economics 101 on how to fix this problem is to not only eliminate those added regulations from Obamacare by repealing it, but also helping to bring down consumer pain by breaking up hospital monopolies.

Price, with his experience on every side of the health care issue, a plan in place and a GOP Congress in tow, is the right guy to do the first part of the job in dismantling the price inflation that comes from Obamacare.

Higbee, with his antitrust chops and knowledge of hospital-based health care price inflation, is the right guy to handle the second part of the job in weakening the hospital monopoly. If the existing conglomerates can't be broken up, future big mergers and private practice acquisitions could be discouraged.

And HHS will also need to reduce the existing barriers to entry at all levels of American health care. Getting more doctors to address the simple law of supply and demand would be a good start. We simply make it too costly and annoying to become and remain a doctor in this country. That's something a doctor-turned-politician like Price should know a lot about, but he'll need help in that area.

It's too early to tell if Price and Higbee are indeed being tasked to work together on health care. But we do know that both of their unique talents will be needed to attack both a cost problem that the ACA hasn't come close to solving. And cost has to be the focus, because no matter what President Trump and his team do with their grand plan to repeal and replace Obamacare, it will fail unless the voters see a difference where it really counts: Their medical bills.

Commentary by Jake Novak, CNBC.com senior columnist. Follow him on Twitter @jakejakeny.

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