There is an increasing trend occurring in the healthcare industry that should concern all Americans. Hospitals are consolidating, buying out their competitors. Healthcare insurers are consolidating, merging two or more companies into one. Pharmaceutical companies are doing the same thing.
Recently, Advocate Health Care and Aurora Health Care finalized their $11 billion merger deal to form the nations’ 10th largest tax-exempt healthcare system. Dignity Health and Catholic Health Initiatives are currently moving toward a $28 billion merger. These are hospital consolidation mergers.
Then there are healthcare providers insurers purchasing healthcare providers. Optum, a subsidiary of United Health Group, is purchasing DaVita Health Group, a large group of physicians and clinics, for nearly $5 billion. Medicare insurance giant Humana just bought the 22 clinic Family Physicians Group in Central Florida.
And then there is consolidation of insurers with pharmaceutical suppliers. Aetna is slowly but surely moving toward merger with CVS Health Corp. In a reverse of this move, Walmart is considering buying Humana.
According to a recent report by Kaufman Hall, mergers were up 13% last year. Bloomberg reports mergers are off to their fastest start ever in 2018. Over $156 billion in deals had been completed by the end of the first quarter alone.
When healthcare companies merge, what happens to patients?
Marni Jameson Carey, writing for Medical Economics, says this is driving up the cost of healthcare, especially for Medicare. She cites a recent report by Physician Advocacy Institute, that says hospitals buying doctors is the leading cause of rising Medicare expenses. Carey says, “Between 2012 and 2015, Medicare costs rose $3.1 billion due primarily to the 49 percent uptick in hospital-employed doctors that occurred over the same period. And that study only looked at four procedures. Imagine the tally if all procedures were accounted for.”
The impact on healthcare prices can be dramatic. Martin Gaynor, Carnegie Mellon economist, submitted a report entitled Examining the Impact of Healthcare Consolidation, to the Committee on Energy and Commerce Oversight and Investigations Subcommittee of the U.S. House of Representatives in February of this year. He says prices increase 20 to 30 percent when hospitals merge. In some cases they increase as much as 50 percent. He says this often leads to poorer healthcare outcomes for patients, especially in areas where there is less competition.
Here are some statements from his report:
- The two largest insurers now have 70% of the market or more in ½ of all local insurance markets.
- 33% of all physicians and 44% of all primary care 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.
If your doctor retired recently, as mine did, you probably had difficulty finding a new primary care physician who was not employed by a hospital. This is a trend that bodes poorly for future healthcare outcomes and costs. Competition leads to lower prices and higher quality. Lack of competition can be expected to produce the opposite.