posted by Federal Affairs
on October 16, 2014
There are a number of private sector and public/private initiatives underway to address affordability by lowering or constraining the growth of the health care costs faced by consumers. These initiatives involve health plans and health care providers, and range from the incremental to the potentially transformational. One development, however, threatens the success of all of these initiatives: the increasing consolidation of hospitals and other providers into systems with outsized market power.
Any effort to address the cost of health care must include, and likely begins with, addressing the cost of hospital care. It is well established that hospital price increases are “the largest contributor to increases in insurance premiums.”1 These price increases are driven by the consolidation of hospital markets, often into systems with significant market power.2 The harmful impact of such systems is not limited to higher prices, but also includes diminished incentives to innovate or improve quality. The passage of the Affordable Care Act (ACA) has heightened attention to the need for innovation to deliver on the goals of greater access, improved quality, and lower costs. Unfortunately, the market power of hospital systems often stands as an impediment to such innovation and such improvements.
While antitrust enforcement provides one avenue for addressing this issue, its impact is necessarily limited by its case specific and, typically, prospective nature in the context of consolidation. Such enforcement should be continued and expanded to prevent the further creation or enhancement of the market power of hospital systems, but alone it will not be sufficient to address such an entrenched problem. It will be necessary to address this challenge in markets, in the regulatory arena, and in policy approaches.