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How Hospital Consolidation Hurts Americans

posted by AHIP

on August 26, 2021

Every American deserves high-quality, affordable health care. Today, health care is unaffordable for too many families. One of the main drivers of health care costs is increasing consolidation among hospitals and hospital systems.  

As the Director of Public Affairs for the Federal Trade Commission articulated in a statement earlier this month: “Too many hospital mergers lead to jacked up prices and diminished care for patients most in need.” 

Lower hospital competition equals higher health care costs 

Everyday Americans bear the brunt of hospital consolidation. Hospitals in highly concentrated markets can charge higher prices for medical services and have greater leverage to negotiate higher prices from health insurance providers, leading to ever-increasing health care costs for individuals and families.  

According to one study, hospital concentration has been linked to average annual Marketplace insurance premiums that are 5% higher than those in less concentrated areas. Another study looked at hospital prices for those with employer-provided health coverage. It found that hospitals that do not have any competitors within a 15-mile radius have prices that are 12% higher than markets with 4 or more competing hospitals. When looking at the average amount of Americans’ premium dollars that go to hospitals – a whopping 42% – that 12% hospital non-competition surcharge results in an average increase of over $1,000 per year for families and over $370 per year for individuals enrolled in employer-sponsored health plans.* 

Diminished quality of care 

Arguments in favor of hospital consolidation often tout higher quality of care or other benefits for consumers. A number of recent studies have found this to be untrue. According to a study on hospital mergers and acquisitions in 2009-2013, “Hospital acquisition by another hospital or hospital system was associated with modestly worse patient experiences and no significant changes in readmission or mortality rates.”  

Another study found that unlike insurance market concentration hospital market concentration has a negative impact on patients’ care experience. In one specific case, Federal Trade Commission economists looked at whether a hospital merger in Evanston, Illinois resulted in improved clinical quality as part of legal action challenging the merger. Based on comparisons of a variety of clinical outcomes measures, there was little evidence that the merger caused improvements in quality of care. Consistently with this analysis, the Administrative Law Judge in the case found “no evidence of improvement in overall quality of care relative to other hospitals.” 

Increasing trends in hospital consolidation 

Hospital consolidation is not a new phenomenon and even continued during the COVID-19 crisis, bolstering the anticompetitive power and practices of large hospital chains. This made a bad situation worse. Before the pandemic, a 2020 report from MedPAC found that 90% of hospital markets would be deemed highly concentrated by Federal Trade Commission (FTC) standards, and in most markets, a single hospital system had more than a 50% market share of discharges.  

Even worse than concentrated markets is the absence of any choice at all for consumers. Another study on hospital markets found that between 2007-2017, 19% of markets – representing 11.2 million Americans – were served by only one hospital system. Concentrated markets were found to take place in poorer areas and have lower physician supply than areas with lower levels of hospital concentration. 

Looking ahead, this trend appears likely to continue to worsen without increased government enforcement and other changes. Hospital consolidations are virtually unrestrained, allowing large hospital systems to capitalize on their anticompetitive behavior at the expense of American patients. A set of common-sense checks and balances is critical to ensuring that every patient and community has access to high-quality care and control over their health care choices. 

We need to work together to lower health care costs for every American. That means increasing competition in the free market, and giving everyone greater choice and control over their health care. Health insurance providers support more government challenges of anticompetitive hospital mergers, increased enforcement by those agencies of the ways that hospital systems abuse their market power, and other remedies to ensure increased competition and lower health care prices for every American. 

Click here to learn more about the dangers of provider consolidation.

*Based on AHIP analysis of Kaiser Family Foundation 2020 Employer Health Benefits Survey and AHIP 2020 Health Care Dollar.