“There is Broad Agreement that Provider Consolidation is a Major Driver” of Health Care Costs

A new report by the Catalyst for Payment Reform looks at how provider consolidation increases costs.

From the report:

  • “While there are many factors that affect health care costs, among health care economists there is broad agreement that provider consolidation is a major driver, and is associated with significant payment variation across and within markets for both hospital and physician services.”
  • “Numerous studies have linked increased utilization and higher unit prices to the increased consolidation and market power of both for-profit and nonprofit hospitals.”
  • “Although a number of factors can drive unit prices and utilization higher, increasing provider concentration and the stronger provider negotiating leverage that results appear to be major factors. Research (as described in Section 3) clearly demonstrates enhanced provider market power drives prices and revenues higher, as the rate of price increase in consolidated hospital markets typically exceeds the underlying cost contributors, such as drugs or medical equipment.”
  • “Over the last 20 years, hospital capacity in the United States has become highly concentrated as hospitals have steadily shifted away from independent status and merged with other competing facilities or integrated with multi-hospital systems.”
  • “The major concern, therefore, is that hospitals will use enhanced market power to raise prices inappropriately to weaken the effects of or stifle competition.”

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