Healthcare Consolidation
 
 
 

    Will Health Care Mergers Hurt Competition, or Improve Efficiency?

     

    In recent years, the number and size of mergers in the health care industry—from providers and hospitals to insurance companies—has increased substantially.

    Hospitals, physician groups and other providers have used mergers as a way of dealing with a number of competing demands.  For example, insurers and the federal government have applied increasing pressure on payment rates; requirements for electronic medical records are difficult for small physician groups to meet; and new contracting models, such as Accountable Care Organizations, need large patient populations to achieve necessary scale.
     
    Such mergers might lead to increased efficiency over time, but so far the main consequence in markets where consolidation has occurred is higher prices without significant measured improvement in health care outcomes.

    As a counterweight, insurance companies have also been seeking mergers.  Multiple large proposed combinations are under review with the Department of Justice include a deal between Aetna/Humana and Anthem/Cigna.  Critics contend these mergers will reduce competition and that consumers will face higher premiums and deductibles as a result.   The industry argues that it needs to consolidate to gain leverage in negotiations with hospitals and doctors to bring prices down.  However, whether lower prices will mostly lead to higher profits rather than lower premiums is an open question.


    We asked our experts how they see the consolidation wars playing out, and what will be the likely impact on consumers:


    Paul Ginsburg, Ph.D. points to the importance of leveraging alternate tools to increase competition aside from anti-trust enforcement:

    “Even with solid anti-trust enforcement, health care markets are likely to become more consolidated over time. This increases the importance of other steps to increase the degree of competition. Network strategies, such as narrow networks, tiered networks and reference pricing, are more potent approaches enabling patients and payers to get lower prices than high deductibles with transparency tools.”

    Erin Trish, Ph.D. says give the complexity of health care markets, the impact of consolidation is likely to vary:

    Past evidence suggests that consolidation among insurers has led to higher premiums. However, health care markets are both local and complex. The potential impact of consolidation on negotiations between health insurers and healthcare providers, and ultimately the impact on consumers, is likely to vary across both geographic markets and different types of insurance products. This complexity is what necessitates thorough review by the Department of Justice and other insurance regulators.

    EXPERTS ON HEALTHCARE CONSOLIDATION

    Paul Ginsburg, Ph.D.
    Paul Ginsburg, Ph.D.

    Director, Leonard D. Schaeffer Initiative for Innovation in Health Policy

    Director of Public Policy, Schaeffer Center

    Professor of the Practice of Health Policy and Management, Sol Price School of Public Policy

    Leonard D. Schaeffer Chair, Center for Health Policy at Brookings

    Erin Trish, Ph.D.
    Erin Trish, Ph.D.

    Assistant Research Professor, USC Price School of Public Policy

    Even with solid anti-trust enforcement, health care markets are likely to become more consolidated over time.”
    Paul Ginsburg, Ph.D.
    Director, Leonard D. Schaeffer Initiative for Innovation in Health Policy, and Director of Public Policy, Schaeffer Center

    OF NOTE

    Fostering Competition in Consolidated Markets
    Paul Ginsburg, director of public policy, provides testimony to the California Senate Committee on Health

    How do health insurer market concentration and bargaining power with hospitals affect health insurance premiums?
    — Publication co-authored by Erin Trish, assistant research professor.

    MEDIA CONTACT

    Kukla Vera
    Director of External Affairs
    Phone: 213-821-7978
    kuklaver@healthpolicy.usc.edu

    Leonard D. Schaeffer Center for Health Policy and Economics


    POLICY CONTACT

    Stephanie Hedt
    Policy Communications Associate
    Phone: 213-821-4555
    hedt@healthpolicy.usc.edu