October 01, 2020
Consistent with many earlier studies, recent research shows that provider consolidation often leads to higher prices (MedPAC, 2020). Specifically, MedPAC found that hospital consolidation is significantly associated with higher profit margins on non-Medicare patients, and that both Medicare and private pay patients’ prices increase with hospital integration of physician practices. Moreover, a recent study using data from 2017 and 2018, confirms earlier research that greater horizontal (health system acquisition of hospitals) or vertical (health system ownership of physician practices) integration is not generally associated with better quality (Fisher, et al., Health Affairs, 2020).
Provider consolidation activity, already at high levels, has increased in recent years. By 2017, in most markets, a single hospital system had more than a 50% share of hospital discharges and by Federal Trade Commission (FTC) standards, 90% of hospital markets were highly concentrated (MedPAC, 2020). In 2018, more than half of US physicians and 72% of hospitals were affiliated with vertically integrated health systems (Furukawa, et al., Health Affairs, 2020). The COVID-19 pandemic has heightened concerns about further consolidation as some physician practices and hospitals may find it difficult to remain independent if they experience significant revenue losses (Kaiser Family Foundation, 2020). The pandemic creates an opportunity to aid independent and smaller group practices with near-term financial support and a glide path to move toward Value Based Payment models and affiliation with like-minded providers over health systems still largely wedded to volume-driven fee-for-service (FFS) payment models.
Business Group on Health strongly recommends the following:
Federal Trade Commission (FTC) Antitrust Enforcement
- Ensure that the FTC has sufficient funding and authority for effective health care antitrust activities.
- Heighten scrutiny of planned consolidation, increase monitoring and evaluation of post-merger market impacts, and strengthen enforcement actions where anti-competitive harms occur.
- Given the increasing rate of hospital and health system acquisition of primary care practices, consider lowering the threshold for mandatory reporting of planned transactions above a certain value (currently $90 million) given that most of these transactions fall below the current threshold, particularly if the health system has more than a 30% or other appropriate percentage of the primary care market in a given service area.
Medicare Payment and other Federal Policy
- Reiterate support for across the board site neutral payments for physician services in Medicare. The current payment policy encourages health system acquisition of physician practices.
- Do not inhibit the use of reference pricing, selective networks, and other policies that promote provider price competition in the federally subsidized state exchanges.
- Provide federal assistance to independent and smaller group practices facing significant revenue shortfalls due to the pandemic that are committed to and making progress toward moving away from FFS toward VBP models, prioritizing care innovations that promote care coordination, infrastructure to support telehealth and home-based care, more convenient access, patient engagement tools, better outcomes, and less costly approaches to effective care.
- Increase funding for health care antitrust enforcement, monitoring and scrutiny of provider consolidation.
- Reevaluate Certificate of Need regulations and Certificate of Public Advantage processes for anti-competitive impacts.
- Do not inhibit the use of reference pricing, selective networks, and other policies in insurance markets that promote provider competition.
- Review laws and contracting practices among providers for anti-competitive impact and take action to prohibit them (anti-tiering, any willing provider, all or nothing requirements, exclusivity requirements, most-favored-nation clauses, gag clauses, etc.).
Why It Matters
- The total cost of health benefits is expected to rise 5.3% in 2021. The total cost of health care is estimated to be $14,769 per employee this year, and is projected to rise to an average of just over $15,500 in 2021, according to Business Group on Health’s 2021 Health Care Strategy and Plan Design Survey. Extra costs for employees and employers due to undue market leverage from provider consolidation in highly concentrated markets without clear evidence of improvement in quality contributes to higher costs for employers and employees.
- Business Group on Health’s survey of large employers found that 52% of respondents felt that provider consolidation would have either no impact or make it harder to control costs, while only 12% felt that controlling costs would be easier. Similarly, those who felt that provider consolidation would have no impact on quality or consumers’ experience outnumbered those who thought that either would improve (Business Group on Health 2019 Large Employers’ Health Care Strategy and Plan Design Survey).
- As noted above, provider consolidation has accelerated in recent years, research on its impacts show adverse financial impacts, and there is no clear evidence that it improves quality.
- The pandemic has likely made it more difficult for independent physician practices and hospitals to remain so and made it more attractive to join a larger system.