Cost & Quality Problems

Provider Market Power

Provider market power refers to when hospitals, specialists or other providers dominate their local market. When effective competition is absent or minimal, prices tend to be higher and quality can suffer. A 2019 report found that most Americans live in areas with concentrated healthcare markets and consolidation has been increasing.1  

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

  • Being the only provider in a rural area.

  • Horizontal consolidation: providers 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. The government tracks virtually none of the consolidation activity,2 and no entity tracks more informal types of consolidation.

With rising unit prices firmly established as the largest driver of medical trend,3 and market leverage—in turn—a driver of unit prices,4 we need state and federal regulators need to use their anti-trust and other authorities to prevent anti-competitive mergers from accuring and to address consumer harm occuring in already concentrated markets.

Notes

1. Health Care Cost Institute, Healthy Marketplace Index

2. Health Care Consolidation: Which Way is Up, ad Why are We Going There?, Federal Research Bank of Minneapolis

3. Health Care Cost Institute

4. Examinination of Health Care Costs Trends and Cost Drivers, Massachusetts Attorney General (March 16, 2010).

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