Market Concentration in Health Care

By September 12, 2017 Commentary

As regular readers know, the pernicious effect of the growing concentration of markets in health care is a subject near and dear to my heart.  Health Affairs’ current issue is largely devoted to this topic, including a big picture article reviewing trends.   (HA Article)   As the article points out, our largely private health system, particularly on the provider side, relies on competition to keep costs down and to improve quality.  Many of our health care markets now simply have little to no competition, according to this new study, which looked at the period 2010 to 2016.  From 2010 to 2016, the average score on the index used to measure market concentration rose over 5% across hospitals and common physician specialties.  Over 90% of Metropolitan Statistical Areas have highly concentrated hospital markets.  The most alarming trend is the degree of concentration in primary care, which is largely driven by hospital acquisitions of multiple practices.   Primary care market concentration increased by 29% in the study period and 40% of MSAs now have highly concentrated primary care markets.  Insurer and specialist physician market concentration, while high, remained relatively stable over this time period, although in both cases well over 50% of MSAs are very highly concentrated.  By any measure, we have allowed our health care markets to become far too concentrated, with no evidence of any offsetting value to consumers and patients.

It is absolutely 100% obvious that the degree of concentration on the provider side is very bad for consumers.   Research has shown no quality benefit, and potentially quality declines, from consolidation.  It has driven unit prices up, created large health systems that provide less work satisfaction for the physicians and other clinicians that patients rely on, and lessened incentives to create patient satisfaction and improve quality.  Health care in much of the country is dominated by large systems, which like all large organizations are spectacularly poorly run and inefficient, but which do well by using their market power to extort excessive prices and raise those prices at an impressive rate.  Policymakers have implemented anemic, at best, responses, in part because some of them want to see the current system fail and be replaced with nationalized health care, and in part because most of them are regularly bribed, through political contributions, to look the other way.  The solution, as I keep saying, is obvious.  Break up the large hospital systems and forbid them from buying physicians and other care providers.  Nationalize providers ability to practice, where appropriate, by telehealth.  Don’t allow mergers of the same provider types if it would result in less than five effective providers in a geographic market.   And on the health plan side, where too much consolidation has also been allowed, partly to offset provider concentration, similarly the goal should be at least 4 or 5 effective competitors in a geographic market.  And plans should be very limited in their ability to own provider assets.  These structural remedies are the only alternative to the very bad remedy of price regulation, which creates all kinds of market distortion.

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