Cost & Quality Problems

Provider Market Power

Research has identified provider market power as a significant cost-driver. Providers amass market power in a number of ways:

  • From being the only provider in a rural area.

  • Horizontal consolidation: providers are seeking to either enter or expand in a given market by acquiring similar providers

  • Vertical consolidation: providers acquire other providers to expand available care services and build larger and broader internal referral loops, like hospitals acquiring physician practices.

  • Other transactions that bring providers together in formal, but less comprehensive ways, leveraging some of the benefits of consolidation without the ownership shift that occurs in a merger or acquisition, ranging from management contracts to joint ventures and long-term leases.

Some have suggested that potential benefits of provider consolidation include streamlined administrative functions, clinical integration, higher quality care and better health outcomes, cost savings and advanced technology acquisition. However, research examining post-merger efficiencies shows minimal improvements. Furthermore, research suggests these potential efficiencies come at the cost of higher prices to consumers and less process innovation. Measuring the full scope of provider consolidation over time is difficult because the government tracks virtually none of the consolidation activity.1 Getting any measure of the last type of consolidation—everything below mergers and acquisitions—is nearly impossible.

With rising unit prices firmly established as the largest driver of medical trend,2 and market leverage—in turn—a driver of unit prices,3 we need state and federal regulators need to pay much closer attention to the impact of provider market power on the prices consumers pay and their choices. Resources on Healthcare Consolidation.

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