Consolidation: Less Competition in Health Care

“Continuing consolidation in the health industry has enabled providers to raise their prices without improving the quality of their services…….. The resulting lack of competition among hospitals and other providers allows those providers to monopolize the market and charge higher prices…….health insurance compounds the problem….”

At an AEI event on Friday, a panel of economists and lawyers discussed the economic and legal causes of the concentration among health care providers and insurers and its pernicious effect on health costs.

Martin Gaynor of Carnegie Mellon explained the existing evidence corroborating rising consolidation, noting that the hospital sector has seen over 1,000 merger and acquisition deals from 1994 to the present. The resulting lack of competition among hospitals and other providers allows those providers to monopolize the market and charge higher prices. These higher prices, Robert Murray of Global Health Payment LLC explained, contribute significantly to growth in health spending.

Health insurance compounds the problem, Barak Richman of Duke University School of Law emphasized. Because most patients have insurance, often financed in part by their employers and the federal government, they are not sensitive to the cost of their care; therefore, their demand for care does not decrease as its cost increases.

Although the absence of competition in the health industry is a long-standing issue, the panelists agreed that the incentives in the accountable care organizations created by the Affordable Care Act may exacerbate the issue by encouraging further consolidation.
–Catherine Griffin

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