One of the often cited reasons for high costs in US health care is fragmentation. For example, say I am ‘patient x’ and I visit my primary care physician (PCP) about an acidic feeling in my throat. After exhausting all possible options, the PCP might send me to a gastroenterologist, who in turn, might send me to an ear nose and throat specialist. If all these doctors work in separate practices, then each visit requires a separate payment, additional paperwork, and a lot of time that extends the healing process.
To combat fragmentation, many health care policy groups, like the Commonwealth Fund, advocate for more coordination among physicians in the delivery of health care. Arguments favoring coordination have been around for a long time, but federal policy under the Affordable Care Act has pushed the issue back to the forefront. With ongoing experiments like Accountable Care Organizations in Medicare, which provides incentives for specialists and primary care practitioners to join together in a formal structure to care for patients, the federal government is hoping to create a more efficient health system in the long term.
One of the side effects of promoting coordination is that it favors consolidation among hospitals and physician groups. Like in most industries, consolidation among health care providers can be horizontal, merging or acquiring another hospital or health system, or vertical, such as a hospital purchasing a physician practice. From 2009-2012, the number of mergers and acquisitions doubled from 50 to 105. While a seemingly small number in terms of the overall market (approximately 5000 hospitals), many of these transactions include entire health systems merging together (multiple hospitals), so the number of acquisitions understates the overall effect on local markets. Furthermore, industry watchdogs, like Booz & Co, predict that this wave of mergers and acquisitions will continue, especially for stand-alone hospitals that have been operating on razor thin margins.
One of the biggest criticisms about this recent wave of consolidation, and consolidation in general, is that it can easily lead to increased prices for health care in a community. Since 2006, The Robert Woods Johnson Foundation, a private nonprofit health care research organization, has published a number of articles on the impact of hospital consolidation on prices. They argue that consolidation is really about gaining leverage over the insurers in a regional market so that the hospitals can charge more. This, in turn, is passed along to the consumer in the form of higher premiums, or for those with less valuable insurance, higher prices.
Other organizations, like FTI consulting, a growing global consultancy, are not convinced that hospital consolidation is such a bad thing for consumers. In a recent report on this issue, the authors have three reasons justifying mergers and acquisitions from a consumer perspective. First, consolidation allows hospitals to retain services that would be cut and avoid closure. Second, the authors attack the studies linking increased price to consolidation, arguing that these studies used data that is too specific to individual cases, making it inapplicable to the whole market. Lastly, the authors argue that the Federal Trade Commission, which monitors this market, brought less than 2 percent of hospital mergers to court from 2007-2011.
All of these uncertainties lead to a confusing place for the future of health care. On the one hand, federal policy, particularly in Medicare, is trying to move hospitals and physicians to develop a more efficient system in which health care providers integrate to reduce costs. On the other hand, the Federal Trade Commission does not want providers to be too concentrated in a market, making the delivery of health care uncompetitive, and most likely increasing prices for consumers. As one recent case in Idaho demonstrates, the conflict between integration and market consolidation will continue to draw the attention of all health care observers as providers, consumers, and government agencies wade through this tricky issue.
Image Credit: Jonathan Hillenbrand via Wikimedia Commons