Why Health Care Has Consolidated

August 6, 2014

American health care is becoming more and more consolidated. Christopher Pope for the Heritage Foundation explains one reason why this has happened:

  • Third party payment systems separate health care consumers from the real cost of their care. Hospitals can demand higher prices from insurers when they lack competitors in the area, so many hospitals have merged in order to dominate the local market.
  • Between 1998 and 2012, the United States saw 1,113 hospital mergers and acquisitions concerning 2,277 hospitals. There are 5,000 hospitals today.
  • By consolidating, hospitals have grown in power and reduced price competition in their respective regions. Without competitors to drive down prices, hospitals can negotiate higher fees from third party payers.

The efficiencies that would normally come from consolidation have not been passed on to consumers in the form of lower prices. According to research, hospital mergers in concentrated markets increase prices by 20 percent.

The Affordable Care Act consolidates health care markets even further, explains Pope, because it hinders the ability of insurance plans to compete with one another. Obamacare regulates prices and health insurance benefits, leaving little room for competition.

Source: Christopher Pope, "How the Affordable Care Act Fuels Health Care Market Consolidation," Heritage Foundation, August 1, 2014.

 

Browse more articles on Health Issues