Growing (or Consolidation) Pains – Commentary by Aaron Katz

The American health care system has gone through spasms of consolidation over the years.  In the mid-1990s, various markets around the country experienced mergers of hospitals, a trend which slowed in the early 2000s, giving way to a spate of health plan consolidations.  The mid-2000s also saw medical practices merging into larger single- and multiple-specialty groups.

In Washington state, we have long had a consolidated insurance market, with three plans dominating in most areas.  And in Seattle and a number of communities across the state, the number of independent, free-standing hospitals has dropped, as systems like Swedish have gobbled up other facilities – and with Swedish itself getting absorbed by Providence – and as rural providers have “affiliated” with larger systems like Providence or Peace Health.

The public rationales for this “bulking up” were always the same – we need to be larger to gain efficiencies, to provide better care, to acquire better information systems.  The unspoken reasons also echoed – we need to be larger to better compete and to be in a stronger market position to negotiate better (higher or lower, depending on which side of the table) prices.

Now comes the ACA and its own logic for consolidation, this time among health care providers.  The Act pins a lot of its rhetorical case for controlling health care costs on “accountable care organizations” and “patient-centered medical homes.”  Both require providers to work more closely together to improve patient care and outcomes – hospitals and physicians in the case of ACOs, clinicians from different disciplines in the case of PCMHs.

Although the ACA doesn’t require or explicitly push consolidations, various observers – and the provider organizations themselves – have noted that it’s much easier to “play well together” or to “align incentives” if ownership, leadership, and management are unified.

Here’s the rub.  We have a fair amount of research that shows that consolidations, at least among hospitals, often lead to higher, not lower, prices.  A June 2012 report from The Robert Wood Johnson Foundation’s “Synthesis Project” concludes that hospital consolidation leads to price hikes and does not improve quality.  Hospital-physician mergers, on the other hand, don’t increase prices, but nor do they improve quality.  The study also found that competition among hospitals improves quality, but the evidence was strongest under “administered prices” set by a large payer like Medicare or the UK’s National Health Service that sets (and limits) payment rates.

Of course, everyone is pushing for more payers, not fewer, in the Exchange and under Medicaid – not terribly consistent with the RWJF study.

So, does the ACA push the health care system in the “right” direction?  If alignment leads to improved health outcomes – not strongly supported by research but still heralded by a number of very smart people – maybe yes, but the ongoing trend toward consolidation may be undermining one of the ACA’s main goals – reducing overall costs.