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Health care consolidation: the good, the bad and the ugly

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When the House Ways and Means Health Subcommittee held a hearing Friday morning, there was a weird moment of bipartisan agreement on health policy: increasing consolidation in the health industry is bad for patients.

The three-hour hearing probed the health industry consolidation that has increased for the past two decades or so. As a way to increase market clout, hospitals have been buying up physician practices, insurance plans have been merging and health systems are growing larger. Both the Health Subcommittee’s chair, Republican Rep. Wally Herger, and ranking member, Democratic Rep. Pete Stark, repeatedly warned of the negative impact of health consolidation, with larger market clout leading to increased prices and less choice for patients.

“It is refreshing to see our majority raise concerns about competition in the marketplace and how it may result in outcomes that are bad for consumers and for Medicare,” Stark said at the hearing.

But one potential silver lining of health consolidation went unnoticed: more mergers, particularly in the insurance industry, may drive down coverage costs.

A study published this week in Health Affairs confirmed one of the legislators’ fears: hospital concentration did indeed drive up price of care. But it also found a brighter side to consolidation. Increased concentration of health plans has the opposite effect: it lowered hospital prices by 12 percent, compared to those with more competitive insurance markets. Insurance plans with more subscribers likely give carriers more bargaining clout to bring down the price of care.

“Our results show that more concentrated health plan markets can counteract the price-increasing effects of concentrated hospital markets,” the study concludes.

What it doesn’t conclude: that those lower hospital prices trickle down to insurance subscribers. It would have been interesting for this study to include data on what insurance premiums look like in these markets but, unfortunately, it doesn’t. Still though, it’s an interesting look at how the different market dynamics can effect how much we spend on health care.

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