Trend of Hospital Concentration Likely Increases Costs, Study Finds

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March 18, 2014; Bridge – The Center for Michigan


A core tenet of free market economics is that competition between producers of a product or service tends to reduce consumer costs and increase quality.  An ongoing Robert Wood Johnson Foundation (RWJF) study of U.S. hospital consolidation appears to support this economic principle.  

The RWJF study’s conclusions are illustrated in an unrelated Wall Street Journal article from 2008 that analyzed the increased hospital charges in Roanoke, VA after the community’s two hospitals were reduced to only one. The Federal Trade Commission (FTC), with the aid of the U.S. Supreme Court in one case, has stopped some hospital consolidations for antitrust reasons, finding them to be harmful to consumers.

The description of the study as “ongoing” is important, as the healthcare delivery landscape is in the midst of significant transition.

The Affordable Care Act, or Obamacare, includes a major change in how hospitals, doctors, and other providers are paid for delivering services. Rather than relying for payment solely on a fee-for-service model, they will be incentivized to keep patients healthy. This requires providers to “capture” groups of patients and be their comprehensive healthcare resource, centered in “health care home,” usually primary care physicians.  A report summarizing Michigan hospital mergers and acquisitions offers one example of how this concentration is occurring across the U.S. In order to become the integrated healthcare delivery systems envisioned by the ACA, providers need to grow large enough and broad enough to serve many patient needs for many patients.  

By definition, hospital consolidation is anticompetitive in nature. The fewer hospitals there are in a community or area, the fewer choices most patients have when they need healthcare. In addition, if a patient is tied to a specific provider network, he or she is not free to choose providers and services without incurring significant financial penalties for “out of network” care.

The RWJF study includes data gathered from the time prior to passage of the ACA. Though healthcare provision and reimbursement systems have been heavily regulated, rather than traditionally “free market,” for decades, the ACA’s new regulatory model leaves open the question of whether the traditional free market economic model will still apply to healthcare as the ACA’s provisions are implemented nationally.—Michael Wyland