Editor’s Note: The authors below suggest that “local governments may want to introduce new policies” in response to hospital consolidation– including policies that would increase healthcare costs for many patients by charging “consumers more for high-priced clinicians and health care centers….” The article’s policy recommendation faces two key areas of resistance. First, consumers may very well perceive regulations which limit their access to preferred health care providers as being anti-consumer, not pro-consumer. Second, the recomendation would create a policy conflict between local regulators seeking to protect consumers from possible effects from provider consolidation and the federal policy officials promoting such consolidation. Increased local-federal regulatory conflicts would likely lead to increased friction in the healthcare market.
David M. Cutler, PhD1; Fiona Scott Morton, PhD2
1Department of Economics, Harvard University, Cambridge, Massachusetts
2Yale University School of Management, New Haven, Connecticut
Hospitals, Market Share, and Consolidation
A large reduction in use of inpatient care combined with the incentives in the Affordable Care Act is leading to significant consolidation in the hospital industry. What was once a set of independent hospitals having arms-length relationships with physicians and clinicians who provide ambulatory care is becoming a small number of locally integrated health systems, generally built around large, prestigious academic medical centers. The typical region in the United States has 3 to 5 consolidated health systems, spanning a wide range of care settings, and a smaller fringe of health care centers outside those systems. Consolidated health systems have advantages and drawbacks. The advantages include the ability to coordinate care across different practitioners and sites of care. Offsetting this is the potential for higher prices resulting from greater market power. Market power increases because it is difficult for insurers to bargain successfully with one of only a few health systems. Antitrust authorities are examining these consolidated systems as they form, but broad conclusions are difficult to draw because typically the creation of a system will generate both benefit and harm and each set of facts will be different. Moreover, the remedies traditionally used (eg, blocking the transaction or requiring that the parties divest assets) by antitrust authorities in cases of net harm are limited. For this reason, local governments may want to introduce new policies that help ensure consumers gain protection in the event of consolidation, such as insurance products that charge consumers more for high-priced clinicians and health care centers, bundling payments to clinicians and health care organizations to eliminate the incentives of big institutions to simply provide more care, and establishing area-specific price or spending targets.