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Provider consolidation – higher prices, better outcomes

Over the last few years, there’s been increasing consolidation among health care providers – hospitals buying physician practices, health care systems merging, hospitals ‘partnering with’ other hospitals. Overall, consolidation of providers has led to better health outcomes but had also increased prices.
That would be the sound bite, but like all sound bites it misses much of the context and nuance.
First, as noted above this consolidation takes many forms, and these different forms have different ‘results’. A study on provider market consolidation just released by the Robert Wood Johnson Foundation found:
increases in hospital market consolidation lead to increases in the price of hospital care. this is especially true when the consolidation occurs in already-concentrated markets where the price increase can be north of 20 percent.
– “Prices paid to hospitals by private health insurers within hospital markets vary dramatically”
– There is a “growing evidence base that competition leads to enhanced quality under administered prices.” This refers to studies of Britain’s National Health Service, which introduced competition among hospitals for patients as part of the 2006 reforms, as well as previous analyses of Medicare’s impact.
– There’s also evidence that competition improves quality where markets determines pricing, although that evidence isn’t as strong.
To date, there’s no clear evidence that physician-hospital integration improves quality. The pace of integration has increased dramatically over the last two years however this could lead to increased market power – and thus higher prices.
What does this mean for you?
We are in a very dynamic market. This is really unexplored territory, so payers would be very wise to carefully monitor pricing and quality measures in specific markets, paying close attention to those that already have high levels of provider concentration (e.g. Boston, Twin Cities)

One thought on “Provider consolidation – higher prices, better outcomes”

  1. Use of outcome information to foster competition is a critical factor in lowering health costs. Several services now put pricing and quality information in the hands of the consumers. Also,use of analytics by insurers uses market forces to reward effective providers and steer away from others.

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Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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