Hospital Consolidation Is Driving Up Consumer Costs

Hospital Consolidation Is Driving Up Consumer Costs
AP Photo/Jason Redmond
Story Stream
recent articles

The Affordable Care Act was the most radical restructuring of our nation’s health-care system in over 50 years. From hospitals and insurers to physicians’ groups, and pharmacy benefit managers, every facet of the American health-care industry has been affected — and consolidated. 

The architects of Obamacare insisted the law would lead to greater consolidation and, ultimately, a more efficient, streamlined system. For instance, in the Annals of Internal Medicine, Robert Kocher, Ezekiel J. Emanuel, and Nancy-Ann M. DeParle argued that the Affordable Care Act would “unleash forces that favor integration across the continuum of care.”

They were right. The health-care industry has undergone rapid and widespread consolidation. Unfortunately, they were wrong to think consolidation would bring down costs or improve care. In fact, the opposite has happened.

Proponents of Obamacare, who previously promoted industry consolidation, are beginning to recant. One author, writing in the Wall Street Journal, admitted that “having every provider in health care ‘owned’ by a single organization is more likely to be a barrier to better care.” With rising insurance premiums, fewer physician networks, higher out-of-pocket costs, and access to fewer hospitals, most Americans are aware that the Affordable Care Act has, in fact, increased health-care costs and decreased competition and consumer choice.

This consolidation has perhaps been most pronounced across our nation’s hospitals. According to the Heritage Foundation, there were 100 hospital mergers in 2012 alone, two years after Obamacare was signed into law. There is some debate over whether mergers generate savings for hospitals — as these mergers are often less about improving efficiency and more about negotiating better prices with insurers. But it’s clear that mergers definitely do not generate savings for the consumer. Amitabh Chandra, a health economist at the Harvard Kennedy School, makes this point, arguing that while consolidation allows hospitals to “negotiate as a conglomerate” when dealing with insurance companies, it “unambiguously will increase prices” for patients. Those price increases are significant. Martin Gaynor, professor of economics and health policy at Carnegie Mellon University, estimates that when hospitals merge in already consolidated markets, “prices can increase by more than 20 percent.” 

Consolidation is also happening among insurers. Early on, there were efforts by Aetna to merge with Cigna, as well as with Humana. Both of these mergers were blocked by Obama-era courts, which rightly feared mergers would limit competition, drive up consumer costs, and undermine Obamacare. Still, efforts to consolidate have continued. More recently, Wisconsin-based Aurora Health Care Inc. announced plans to merge with Illinois-based Advocate Health Care Inc. Other deals on the horizon include pharmacy giant CVS’s purchase of insurer Aetna. In an already consolidated environment — in 2014, the four largest insurers controlled 83 percent of the market — additional mergers will further reduce competition and increase prices.

If you’ve been to your doctor lately, you may have noticed that the days of small private practices are quickly falling by the wayside. More and more, doctors have joined large group practices as a way of absorbing new costs, including those imposed by Obamacare. In fact, only about one third of physician groups were independent in 2017, compared to almost 60 percent in 2000. There were 117 physician group mergers or acquisitions in 2016 alone — the highest number on record. 

To counter rising prices, health-care companies are trying to cut costs by reducing consumer choice in a number of ways. Narrow insurance networks are now the norm, and some Americans are now being forced to travel dozens of miles to access care, as hospital consolidation leads to fewer local practices. 

This rampant consolidation has now paved the way for activists to advocate for a single-payer system. They argue that the cause of many of America’s health-care problems — the government — is in fact the solution. But competition and free-market forces — not more consolidation and more government — are what we need to incentivize innovation, increase choice and decrease prices for consumers.

Repealing the individual mandate was an important first step toward fixing our broken health-care system. But elected officials in Washington must work diligently in the coming months to further dismantle Obamacare. If Congress doesn’t act, Obamacare regulations will continue to incentivize consolidation across health-care industries, leaving American consumers with fewer choices and higher out-of-pocket costs.

Matthew Kandrach is President of CASE — Consumer Action for a Strong Economy, a free-market oriented consumer advocacy organization.

Show comments Hide Comments