'Examining the Impact of Health Care Consolidation' Statement before the Committee on Energy and Commerce, Oversight and Investigations Subcommittee, U.S. House of Representatives

26 Pages Posted: 13 Dec 2018

See all articles by Martin Gaynor

Martin Gaynor

Carnegie Mellon University; National Bureau of Economic Research (NBER); Leverhulme Centre for Market and Public Organisation

Date Written: February 14, 2018

Abstract

• The U.S. health care system is based on markets. The system will work only as well as the markets that underpin it.

• These markets do not function as well as they could, or should. Prices are high and rising, there are incomprehensible and egregious pricing practices, quality is sub-optimal, and the sector is sluggish and unresponsive, in contrast to the innovation and dynamism which characterize much of the rest of our economy.

• Lack of competition has a lot to do with these problems.

• There has been a great deal of consolidation in health care. There have been 1,519 hospital mergers in the past twenty years, with 680 since 2010. The result is that many local areas are now dominated by one large, powerful health system, e.g., Boston (Partners), Pittsburgh (UPMC), and San Francisco (Sutter).

• Insurance markets are also highly consolidated. The two largest insurers have 70 percent of the market or more in one-half of all local insurance markets.

• Physician services markets have also become increasingly more concentrated. Two-thirds of specialist physician markets are highly concentrated, and 29 percent for primary care physicians. There have been a very large number of acquisitions of physician practices by hospitals, so much so that 33 percent of all physicians, and 44 percent of primary physicians are now employed by hospitals.

• Extensive research evidence shows that consolidation between close competitors leads to substantial price increases for hospitals, insurers, and physicians, without offsetting gains in improved quality or enhanced efficiency. Further, recent evidence shows that mergers between hospitals not in the same geographic area can also lead to increases in price. Just as seriously, if not more, evidence shows that patient quality of care suffers from lack of competition.

• This is causing serious harm to patients and to the health care system as a whole.

• Policies are needed to support and promote competition in health care markets. This includes policies to strengthen choice and competition, and ending distortions that unintentionally incentivize consolidation.

• These include:

– Focus and strengthen antitrust enforcement.

– End policies that unintentionally incentivize consolidation.

– End policies that hamper new competitors and impede competition.

– Promote transparency, so employers, policymakers, and consumers have access to information about health care costs and quality.

Keywords: health care, competition, markets, consolidation, mergers, antitrust

JEL Classification: L4, I11, K21

Suggested Citation

Gaynor, Martin, 'Examining the Impact of Health Care Consolidation' Statement before the Committee on Energy and Commerce, Oversight and Investigations Subcommittee, U.S. House of Representatives (February 14, 2018). Available at SSRN: https://ssrn.com/abstract=3287848 or http://dx.doi.org/10.2139/ssrn.3287848

Martin Gaynor (Contact Author)

Carnegie Mellon University ( email )

H. John Heinz III School of Public Policy
and Management
Pittsburgh, PA 15213-3890
United States
412-268-7933 (Phone)
412-268-5338 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Leverhulme Centre for Market and Public Organisation

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United Kingdom

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