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Hospital Consolidation Costs Us All

By July 16, 2012Commentary

It has been a while since we have reinforced the clear finding of research that hospitals are largely responsible for health spending increases, that their unit price raises are not justified by cost increases and that more consolidation only means higher prices and not better quality.  A recent Robert Wood Johnson brief updates this line of research.    (RWJ Brief)   First the researchers note several studies finding that increasing the concentration in a hospital market increases prices.  These higher prices become embedded in the cost of coverage and are borne by consumers and workers in the form of higher insurance premiums, lower wage increases and often lower benefits.  More concentrated hospital markets also appear to have ongoing larger rates of price increases, in addition to very large, usually over 20%, price rises at the time of completion of the consolidation.

More startling is research suggesting that all this consolidation and concentration may actually reduce quality.  It makes sense if you realize that quality is one dimension of consumer choice and a basis for competition–when there is less competition, there is less incentive to improve quality.  On the other hand, demonstrations that sought to force competition between hospitals on the quality dimension generally lead to better outcomes.  In addition to consolidation between hospitals, the researchers looked at the effect of hospital/physician consolidation; i.e., hospitals owning physician practices or employing doctors; a strongly increasing trend.  So far the evidence suggests that this form of consolidation does not lead to either cost reduction or clinical improvement.  This is why we are so dubious about the ACO concept; its most likely outcome will be less competition, higher prices and likely no better quality.  It is not enough to stop any further hospital consolidation; regulators should break up existing large systems.

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