The Double-Edged Sword of Health Care Integration: Consolidation and Cost Control

Abstract

The average family of four in the United States spends $24,671 per year on health care. American health care costs so much because we both overuse and overpay for health care goods and services. The Affordable Care Act's cost control policies focus on curbing overutilization by encouraging health care providers to integrate to promote efficiency and eliminate waste, but largely ignore prices. This article examines this overlooked half of health care cost control policy: rising prices and the policy levers held by states to address it. We challenge the conventional wisdom that reducing overutilization through health care integration will effectively reduce health spending. We argue that vertical integration - bringing together disparate providers from hospitals to physicians - is a double-edged sword, with the potential to reduce wasteful and unnecessary use of services, but also downside risks of increasing market consolidation and health care prices. Due to already highly concentrated health care markets and the limits of federal antitrust enforcement of vertical health care integration, states have both an opportunity and an obligation to supplement federal antitrust efforts to control rising health care prices stemming from health care integration. The way to manage the double-edged sword of health care integration is to require price and quality oversight to avoid harm to competition. We offer a menu of six policy initiatives for states to choose from ranging from data collection to rate regulation. If we are to control our personal and national health care spending, states have a critical role to play in overseeing health care integration and private health care price increases.

Keywords: health care, health law, state regulation, health care prices, health care costs, cost control, Affordable Care Act, health care integration

JEL Classification: I11, I18, K23, K32