More on the Effects of Consolidation on Health Spending

A health spending expert writes in a Health Affairs blog post an outstanding exposition of how consolidation among health providers (and health plans) has been the major factor in driving up health care spending.   (HA Blog)   Spending is a composite of units used and price per unit.  While spending growth slowed significantly just before and following the recession, it has always been above, usually well above, the rate of inflation, the rate of GDP growth and the rate of personal income growth.  For our national health spending overall, prices account for at least half, and generally much more than half, of the spending increases in recent years.  Remember that Medicare and Medicaid essentially dictate prices and those prices have seen little growth, but in the commercial sector price increases have been dramatic, and have more than offset the actual declines in utilization that are occurring in private health coverage, so that all the growth in private health plan spending is attributable to prices.  Why are prices rising?  A major factor is consolidation, especially among hospitals, with over 1200 mergers since 1994 and 457 just in the period 2010 to 2014.  Even major urban areas now often have three or fewer hospital systems.  It addition to consolidation between hospitals, they have also been rapidly acquiring physician practices and other provider types.

Hospitals can rationalize this behavior any way they want; the reality is that is driven by a desire to gain market power and to raise prices.  And when the number of competitors falls, especially when it gets to three or less, price behavior changes, and not in a positive way.  The rationalizations of better care, more care integration, etc. are frankly just so much BS, there is no evidence to support any of them.  There is plenty of evidence that hospital systems have achieved their goal of raising prices, often by double digits.  And consolidation on the health plan side does not act as a very effect counterweight; in fact once you have oligopolies in both the hospital and health plan markets, they basically act in concert to drive up the prices that employers and consumers pay, making more money for both health plans and hospitals.  What is the solution–the same thing I always say; you have to stop the consolidation with no exceptions and you have to reverse it–force divestitures.  That is the only way to get back to a truly competitive market.  And the reason legislators and policymakers don’t do this, aside from being bought off by lobbyists and campaign contributions, is that some of them see this consolidation as a step to a single-payer or even a nationalized provider system.  That would truly be a disaster for patients and taxpayers.