By Debra Friedman
September 11, 2015 at 5:00 am ET
It seems that no matter what direction you look in these days, our healthcare system is consolidating. While this concept is not new in the healthcare industry, the Affordable Care Act has inadvertently spurred a merger frenzy. Horizontally, major hospitals are acquiring their competitors, and giant insurance companies are merging (i.e., Anthem and Cigna as well as Aetna and Humana). Vertically, hospitals are joining with physician practices, and providers are now offering their own health insurance plans.
While those doing the consolidating reap the financial benefits – imagine the leverage a hospital has to set fees if it is the only provider left in a community – the real question is how have these consolidations measured against the stated goals of ACA to increase access to affordable healthcare? Unfortunately, the answer is not good.
There are certainly scenarios where consolidation can make sense – theoretically improving efficiencies or strengthening care coordination – but generally consolidation results in less choice and higher costs for consumers.
A study published by the Robert Wood Johnson Foundation showed that when hospitals merged, the price increase for care can exceed 20 percent, and the quality of service may decrease, due to the lack of competition. Additionally, the increased healthcare costs, which are mostly paid by insurers or self-insured employers, are then passed on to the consumers in the form of higher premiums, reduced benefits and lower wages.[i]
There has been significant legislation over the last 120 years – from the Sherman Antitrust Act (1890) to the Clayton Act (1914) and Celler-Kefauver Act (1950) to deter anti-competitive practices. Currently the Federal Trade Commission is looking into many of the proposed hospital mergers to determine if it will infringe on antitrust legislation.
Massachusetts recently scored a victory for consumers when a Superior County Judge blocked Partners Healthcare’s ability to acquire three additional providers. The judge concluded that the merger would “cement Partners’ already strong position in the healthcare market and give it the ability — because of market muscle — to exact higher prices from insurers for the services its providers render.”[ii]
Unfortunately, victories like these are the exception and not the rule, and the policy response has simply not kept pace with the increased rate of these mergers.
Having options is what allows consumers to be in control, which aligns with more affordable rates and improved health outcomes. [iii]
I lead a member-governed not-for-profit healthcare plan – the only Consumer Operated and Oriented Plan in New York State. As a CO-OP, we were created to drive competition by offering access to affordable quality healthcare. We are not obligated to make a profit or respond to shareholders, which means we have no need to inflate our premiums. Yet when a consolidated hospital/provider network that is the only game in town raise rates, we have little bargaining power. Ultimately, we are forced to pass on these higher costs to our members.
According the Centers for Medicare and Medicaid Services, healthcare spending in the United States currently is one-fifth of our economy,[iv] and is projected to rise further in the coming years outpacing the rate of inflation.[v] Its influence on our country and the health of our population cannot be overlooked. It is imperative that we find a balance that sustains the positive changes brought upon by the ACA without remaking the landscape through large-scale consolidations.
When you are the only game in town, you make the rules, and that adage should not be forgotten when looking at health care. Many hospitals will continue to maintain high-quality standards for care, and insurers will continue to provide quality benefits. However, the price tag attached for both will be higher.
[i] The Robert Wood Johnson Foundation. The Impact of Hospital Consolidation: http://www.rwjf.org/en/library/research/2012/06/the-impact-of-hospital-consolidation.html
[ii] The New England Journal of Medicine. Market-Based Solutions to Antitrust Threats – The Rejection of the Partners Settlement: http://www.nejm.org/doi/full/10.1056/NEJMp1501782
[iii] The Robert Wood Johnson Foundation. The Impact of Hospital Consolidation: http://www.rwjf.org/en/library/research/2012/06/the-impact-of-hospital-consolidation.html
[iv] Centers for Medicare and Medicaid Services. National Health Expenditures 2013 Highlights: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/highlights.pdf
[v] Barbee, Glenwood. “Behind The Numbers: Are Healthcare Costs Really Getting Better? Forbes, January 8, 2015. http://www.forbes.com/sites/castlight/2015/01/08/behind-the-numbers-are-healthcare-costs-really-getting-better/
Debra Friedman is the President and CEO of Health Republic Insurance of New York.