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Provider and Health Plan Consolidation and Health Prices and Spending

By May 17, 2024May 20th, 2024Commentary

For an extended period of time there has been ongoing massive consolidation of health care providers, health plans and everything else in health care.  Most urban markets have consolidated to just two or three large hospital systems, which have also purchased physician practices and other provider types.  Independent physician groups have also been acquired by venture capital and private equity firms, creating large regional and national practices.  Most Americans are covered by one of a handful of large health plan companies–UnitedHeatlh Group, CVS/Aetna, Cigna, Anthem, Kaiser.  Most health plan markets are oligopolies with little competition.  We also have increasing mixing of the provider and health plan roles–UnitedHealth is the largest employer of physicians.  Many regional health plans also have provider arms.

Multiple pieces of research have laid out the pernicious impacts of all this consolidation and concentration.  One such piece comes from the Kaiser Family Foundation, focusing on consolidation in provider markets.  It provides an excellent background and notes that in the last 25 years there have been over 2000 hospital mergers or acquisitions and that the percent of physicians working for hospitals has risen from 29% in 2012 to 41% in 2022.  The brief sets out data on how this consolidation is associated with higher prices and uncertain and unlikely quality improvements.   (KFF Brief)

This study discussed the failure of antitrust enforcement agencies to meaningful challenge or stop many hospital mergers which were likely to have bad impacts on competition and consumers.  (AER Study)  And this study looks at mergers of hospitals across regions, not in the same city, for example, but between two cities.  Even in this case there is strong evidence that prices increase and there is no positive effect on certain quality measures.  (HSR Study)

The Federal Trade Commission and Department of Justice have recently expressed more concern about the level of concentration among providers and health plans, with DOJ forming a new “task force” to examine these markets.  Too little, too late.  (DOJ Announcement)

Most distressing of all about the massive wave of consolidation which has engulfed the country for decades is that none of the supposed benefits have emerged.  There has been no cost control, no improvement in access and patients’ health status and outcomes are no better.  Meanwhile these extremely large organizations now spend tens of millions of dollars on lobbying and political contributions to prevent any examination of their abuses.  And they do extensive advertising to try to persuade consumers that they aren’t being ripped off.  Legislatures and regulatory agencies should demonstrate some courage, do their jobs and force a restructuring of the industry to create a more competitive environment.

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  • Paul Murphy says:

    The consolidation isn’t being driven by economics/finance – it’s being driven by regulation and litigation. Regulatory compliance – just filing paperwork – became a major cost driver with Obamacare and the medicad expansions. Right now it costs several million a year for a mid size hospital – and because that cost doesn’t change much with size it provides an incentive to consolidation and a barrier to competitive entries. Broadly the same thing applies to litigation: the combo of insurance costs, insurance compliance, and legal is a huge upfront barrier to entry and doesn’t change proportionally with size – meaning it stops competition and provides incentives to consolidation. Note that service quality is not a factor in either case – so you get cost growth and anti-competitive outcomes with no off-setting patient benefits.

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