Improving Value

Increase Competition Among Providers

Research has identified provider consolidation as a significant cost-driver. While hard to quantify, there appears to be consensus that provider consolidation leads to higher prices and only minimal gains, if any, in efficiencies, with most of the research focusing on hospital providers.

Some have suggested that potential benefits of provider consolidation include streamlined administrative functions, clinical integration, higher quality care and better health outcomes, cost savings and advanced technology acquisition. However, research examining post-merger efficiencies shows minimal improvements. Furthermore, research suggests these potential efficiencies come at the cost of higher prices to consumers and less process innovation.

Possible Solutions to Negative Effects of Provider Consolidation

Several approaches exist to prevent anticompetitive practices in provider consolidation:

• Antitrust reviews by the Federal Trade Commission, the Department of Justice and sometimes state attorney general examine proposed mergers to see if they are anti-competitive. These processes often provide avenues for advocates to weigh in.
• Reference Pricing—this provider payment strategy can put downward pricing pressure on high price providers but is only suitable for a limited number of services that are considered “shoppable.”
• Provider Payment Reforms such as Bundled Payments can incentivize providers to provide more value by making them responsible for a bigger bundle of care and for quality outcomes.
• Narrow Networks/Tiered-Provider Networks/Selective Contracting—Narrow and tiered networks have the potential to steer consumers to high value providers and lower premium costs, but sufficient consumer protections must be in place to realize these benefits.

Conclusion

Provider mergers are a significant driver of health care costs. Advocates should urge their state AG, the FTC, and the DOJ to carefully scrutinize proposed provider mergers. In addition, research is needed to better understand the impact of newer consolidation models on prices, innovation and consumer choice.