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Vertical Consolidation of Health Care Providers Is Not Cost-Saving

By September 13, 2023Commentary

Large health systems have widely acquired providers of other types, mostly physician practices, but also home health care and skilled nursing companies.  The primary justification for these acquisitions, no matter what the hospital system says, is to force referrals into the hospital and to enhance market power to allow for higher prices.  And that is exactly what happens following such acquisitions according to the research, including this new study in JAMA.  The study was conducted in Massachusetts and compared acquired practices to those that remained independent.  The study examined referrals and prices after a health system acquired a primary care physician practice.  The consequences of the acquisition included more specialist referrals, ER visits and hospitalizations within the health system; and higher total patient spending, about $350 a person a year or around 6%.  By one measure of quality, hospital readmissions, there was no change.  So while the acquisition didn’t negatively affecte quality, it didn’t improve it either, and such quality improvement is one justification hospitals use for these acquisitions.   (JAMA Article)

My belief is that the health system is better off with a truly competitive situation in which there are multiple hospitals in an area and those hospitals are not allowed to purchase other provider types.  This likely lowers prices and spending and improves quality by giving patients and payers more choice.  While there are limits to consumers ability to make informed health care choices, most people if given the right data can understand and use it.  And payers certainly can help their members with those choices.  To me an obvious remedy to control health spending is to force the breakup of these massive horizontal and vertical health systems.


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  • Rob says:

    Seems to me the Certificate Of Need states have limited competition to the point that the established companies have such market power that they make offers to independent practices that can’t be refused. They can’t open new hospitals but they can expand existing ones, the few independent ones are left with a disproportionate amount of indigent patients and either get swallowed up or close. And in Illinois there is a cottage industry of lawyers who sue hospitals and have figured out that if they sue up to a certain amount the hospital will not fight them because the expense of fighting in court is more than the settlement amounts; either way the independents either lose so much money this way they can no longer operate they either close or beg a larger system (with deeper pockets and a larger legal staff) to take over.

    Illinois is a Certificate of Need state. Four of the six 6 major health systems in the Chicago metro are now trying to open facilities in northern Indiana which is not a Certificate Of Need state. (Indiana is CoN for nursing homes only.) Whenever a legislator in Illinois proposes solutions like Kevin proffers – including doing away with Certificate Of Need – the large systems fight it like crazy, yet those same systems are happy to operate in non-CoN states.

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