Council on Health Care Spending and Value Tackles Consolidation as a Driver of Prices
August 17, 2020
A year and a half ago, the Health Affairs Council on Health Care Spending and Value was formed, gathering 22 experts to explore elements of a critically important question: why do Americans spend so much on health care?
This month, as part of its “Considering Health Spending” series, Health Affairs summarized the group’s recent deliberation on market consolidation, which has long been an established source of increased prices. The Council’s discussion centered on an extensive literature review that makes a compelling case that hospital mergers and the acquisition of private physician practices leads to higher prices.
Most recently, Yale’s Zack Cooper and co-authors examined more than 300 hospital mergers and found that when the hospitals were close to each other, prices rose 6%. In cases where the hospitals were farther apart, the effect disappeared. Two papers from Stanford’s Laurence Baker and collaborators showed that physician group prices, too, was correlated with market consolidation.
While rising costs due to consolidation has been a growing concern, the Council emphasized that discussing the issue has taken on new urgency as the health system responds to COVID-19. Experts believe that the financial strain of the pandemic – hospitals are losing more than $50 billion a month, and physician practice losses are estimated at more than $15 billion – will prompt an acceleration of mergers and acquisitions.
Despite the connection between consolidation and higher prices, the summary of the Council’s deliberations made clear that the subject is complicated by questions of whether the higher prices are justified because higher-value care is delivered. If consolidation, for instance, leads to higher quality and better clinical integration, less unnecessary care may be performed, and overall costs could fall. Similarly, economies of scale – fusing administration and other shared services – could save money overall even if per-service prices increased. But there is little evidence to suggest the positives of consolidation outweigh the increase in prices.
The Council then explored the question of how consolidation-related price increases can be blunted. The group suggested that antitrust enforcement may not be the “answer to rapid price growth.” Instead, policymakers should look at rate regulation or prohibitions against powerful post-merger hospitals refusing to participate in insurance networks.
But those solutions, the group acknowledged, are likely “beyond the capacity” of current laws and regulations and would require “a new advisory or regulatory body” to address the issue.
Despite the difficulties in eliminating consolidation-related price increases, especially during the disruption of COVID-19, the Council noted that the pandemic should be seen as an opportunity to carefully study the impact of mergers and acquisitions, helping make clear what tools may be needed to ensure that stakeholder are “equipped to push back when prices are out of line.”
The Health Affairs Council on Health Care Spending and Value and the Considering Health Spending Series are funded by the National Pharmaceutical Council, a Going Below The Surface Forum partner, and Anthem, Inc.