There is plenty of evidence that hospital consolidation drives up hospital prices. Hospital consolidation is not new. One estimate puts the number of hospital mergers at nearly 1,200 between 2000 and 2020. Another estimate claims that between 1998 and 2021 there were 1,887 hospital mergers, according to the AMA. By 2021 the ten largest health care systems controlled about one-quarter of the hospital market.
Hospital executives and their lobbyists argue that consolidation improves efficiency, reduces costs and boosts quality. Yet, the data does not bear this out. Lower quality is associated with hospitals in more concentrated markets. Moreover, if consolidation increases efficiency and reduces hospital costs, that does not translate to lower prices. Quite the opposite. With less competition hospitals have even less incentive to price products competitively. The Federal Trade Commission tried to block hospital mergers back more than 30 years ago. The following is from a University of Pennsylvania Health Economics’ virtual seminar:
If you go back to the 1990s,” said Seidman, “the FTC and the Department of Justice really had a very hard time blocking hospital mergers. Judges seemed skeptical that hospitals would ever act anti-competitively—that those institutions would ever raise prices, or reduce services to their patients, especially with nonprofit hospitals. So, the FTC took a step back as economists studied the effect of hospital mergers on prices and were able to show empirically that even nonprofit hospitals took advantage of the market power when they could. That history led to a resurgence in hospital merger enforcement.
The Washington Post has finally discovered hospital consolidation inhibits competition and boosts prices, saying:
A federal disclosure rule is offering new insight on the effect of health care mergers on pricing.
While many factors affect the price of a medical procedure, hospitals with few competitors can charge more, health economists say.
Perhaps it is unfair to beat up on WaPo for stating the obvious like it is breaking news. Recent requirements that hospitals publish prices has made it easier to identify large prices differences by region. However, it should have been assumed that hospitals consolidate market share and merge with rivals because it facilitates higher prices, increasing profits.
Health insurers have long complained that hospital consolidation raises prices. Examples from the Washington Post:
- A knee surgery in Hickory, North Carolina is about $16,000 while the same procedure in Ashville is around $40,000.
- Knee replacement at Holmes Regional Medical Center (Melbourne, Florida) is about double the same procedure two hours north.
- Banner North Colorado Medical Center charges $20,000 more for knee replacement than in Greeley, an hour away.
Making hospital consolidation worst are contractual provisions that large hospital systems tend to require that inhibit competition:
All-or-nothing Clause: a requirement that an insurer contract with all facilities in a health system if they want to include any facilities in the plan. Provider organizations typically use all-or-nothing provisions to leverage the status of their must-have facilities.
Anti-tiering/Anti-steering Clause: a contractual requirement that an insurer place all physicians, hospitals, and other facilities associated with a hospital system in the most favorable tier of providers (i.e. anti-tiering) or at the lowest cost-sharing rate to avoid steering patients away from that network (i.e. anti-steering). Also known as anti-incentive clause.
Exclusive Contracting Clause: a contractual agreement in which a provider prevents the insurer from contracting with other competitive providers. Under the umbrella of exclusive contracting are exclusive dealing provisions and tying arrangements.
It is not clear whether federal and state laws could prevent hospitals from demanding these anti-competitive provisions in network contracts, but it is worth a try. Banning anti-steering/anti-tiering is especially important if insurers are to implement proven cost-saving provisions like reference pricing where patients have financial incentives to select lower-cost providers. In addition to mandatory price transparency, the federal government should look for ways to encourage health plans to create incentives and provide the tools to help patients shop for better prices. Lawmakers should also attempt to prevent hospitals from thwarting these efforts.
Finally, the Federal Trade Commission should aggressively block hospital mergers and acquisitions that reduce competition. Lawmakers tend to show deference to hospitals due to their role in local economies. However, it is a mistake to view hospitals as economic development initiatives. A significant reason medical prices are outrageous is because Congress and state lawmakers (and employers) tolerate unreasonable prices.
Read more at:
Washington Post: How hospital monopolies are driving up the cost of your health care
KFF Health News shared the story: Same Knee Surgery, Twice the Price: Hospital Monopolies Push Up Healthcare Costs
UCSF College of Law: Key Issues: Provider Contracts | The Source on Healthcare Price & Competition