Healthcare Consolidation

Concerns Raised by Both the Biden and Trump Administrations

Physician-Owned Hospitals Are a Tool That Can Inject Competition into the Market

While many public policy debates lead to partisan battles, the issue of increasing consolidation in healthcare markets and its effect on price and quality has attracted the same level of concern from left- and right-leaning think tanks and both sides of the political aisle.

A tool that could immediately inject competition into healthcare markets already exists: the expansion of physician-owned hospitals. Click here to read PHA’s stakeholder comments in response to the Health Future Task Force request for information.

The Cost of Consolidation

50%

A Single Hospital System Features 50% of Inpatient Admissions in Most Markets

$

CBO’s 2022 Analysis of Increasing Prices

100%

Hospital acquisitions of physician practices more than doubled from 2012 to 2018.

Higher Prices

The higher prices related to healthcare consolidation typically garner the most headlines.

“The hospitals have argued that consolidation benefits consumers with cheaper prices from coordinated services and other savings.

“But an analysis conducted for The New York Times shows the opposite to be true in many cases. The mergers have essentially banished competition and raised prices for hospital admissions in most cases, according to an examination of 25 metropolitan areas with the highest rate of consolidation from 2010 through 2013, a peak period for mergers.”

The Congressional Budget Office cited a similar finding in January 2022:

“Greater market power among providers consistently leads to prices for commercial insurers that are higher than Medicare FFS’s prices and that vary more widely, both among and within areas. Hospitals and physicians’ groups may have market power because they have a dominant share of the market in an area or because an insurer sees them as essential to its network of providers.”

Quality Is Questioned

Increases in quality are often cited as the impetus for consolidating. However, a growing number of studies are questioning whether an increase in quality is the outcome.

Harvard Medical School took a look at the quality argument as it relates to healthcare consolidation on January 16, 2020:

“The quality of care at hospitals acquired during a recent wave of consolidations has gotten worse or stayed the same, according to a study led by Harvard Medical School scientists published Jan. 2 in NEJM.

“The findings deal a blow to the often-cited arguments that hospital consolidation would improve care. A flurry of earlier studies showed that mergers increase prices. Now after analyzing patient outcomes after hundreds of hospital mergers, the new research also dashes the hopes that this more expensive care might be of higher quality.”

“For many goods and services, Americans are comfortable with the idea that competition leads to lower prices and better quality. But we often think of healthcare as different – that it somehow shouldn’t be ‘market based.’

“What the research shows, though, is that there are lots of ways markets can function, with more or less government involvement. Even when the government is highly involved, as is the case with the British National Health Services or American Medicare, competition is a valuable tool that can drive healthcare toward greater value.”

– New York Times, February 11, 2019.