Provider Consolidation: Boon or bane?

April 7, 2014

medicalThe legislative intent of the Affordable Care Act (ACA) centers on three main goals: increased access, increased quality of health care, and cost control.  With many hospital associations, researchers, and other industry experts linking coordination among health care providers with more efficient and higher-quality health care, ACA implementation increases the demand for provider integration.  This demand is, in turn, creating increased consolidation within the health care industry.

Consolidation Can Improve Quality of Care

A recent study, reported by The Boston Globe, concludes that hospital consolidation is a boon for both patients and communities.  The study, funded by the Federation of American Hospitals and prepared by the Center for Healthcare Economics and Policy, indicates that hospital consolidation creates more integrated health systems that are better equipped to control costs and improve patient care.

Chip Kahn, president of the Federation of American Hospitals, told The Globe, “Only the larger institutions with integrated services can meet the tremendous accountability that’s required by hospitals today by Medicare, Medicaid, and private payers.”

Similarly, following the approval of a merger between Mount Sinai Medical Center and Continuum Health Partners, Dr. Kenneth L. Davis, chief executive of Mount Sinai, stated that the Mount Sinai-Continuum consolidation would allow the hospitals to “be more efficient at what they do” and produce “an integrated system that can take care of the patient for the whole life cycle for all degrees of problems.”  The consolidation of these two hospitals will create one of the country’s largest nonprofit systems.

Consolidation Can Create Harmful Monopolies

While health care industry experts can positively link consolidation with the quality aims of the ACA, the link between the cost control aims of the Act seems tenuous.  In fact, many experts believe increased consolidation may lead to negative consequences, including higher costs and lack of consumer choice.  PricewaterhouseCooper’s Health Research Institute recently reported that the ongoing consolidation of hospital ownership into fewer and larger health care systems can lead to higher consumer costs.  The study cites, for example, that one-third of Massachusetts hospitals “have merged, acquired, or partnered with another system in the past three years, and prices have remained among the highest in the nation.”  The report further explains that a consolidated hospital system often assumes the higher payment rates of the two after a merger; and that physician groups that join a hospital system frequently command higher payment rates than they would otherwise receive in an independent physician’s office.

Relatedly, a federal district judge recently ordered the unwinding of a merger between a large hospital system and a physician group practice due to antitrust concerns.  In the ruling, the court lauds the hospital’s efforts, stating that the hospital “is to be complemented on their foresight and vision” and “to be applauded for its efforts to improve the delivery of health care.”  Despite this praise, the court reasons that “[a]lthough possibly not the intended goal of the Acquisition, it appears highly likely that health care costs will rise as the combined entity obtains a dominant market position which will enable it to (1) negotiate higher reimbursement rates from health insurance plans that will be passed on to the consumer… ”Consequently, the court concludes that the merger would have “anticompetitive effects” and ordered the unwinding of the merger.

Delinking Coordinated Care from Monopoly

The link between efficient and higher quality health care system and increased levels of coordination among providers lends support for health care providers’ march toward increased consolidation.  However, health care providers’ increased market power following consolidation can drive up costs for consumers.  Hence, the implementation challenge of meeting ACA’s reform goals lies in encouraging coordinated care while simultaneously discouraging supracompetitive pricing that drives up costs.  Some suggested solutions include regulations that would restrict merging hospitals from making pricing decisions that negatively impact consumers and incentivize the adoption of cost saving policies.  Also, health care providers may consider separating consolidation from coordinate care.  Consolidation may not be a required component of coordinated care.  Hospitals and other health care providers could, instead, look to other informal partnership options to coordinate care.

As ACA implementation shifts the health care providers toward a more consolidated system of care, providers and their regulators must craft regulatory and policy strategies that strike the balance between quality and cost control.