Quality suffers, costs rise as hospital systems consolidate

Consolidation will continue to drive up healthcare costs and reduce quality of care unless lawmakers and regulators push policy reforms and rules aimed at increasing competition, according to new research.

As providers increasingly look to consolidate in order to lower operating costs and create economies of scale, the Center for Health Policy at the Brookings Institution and Carnegie Mellon University’s Heinz College last week said the trend has led to a dearth of competition. That’s why the healthcare industry sees rising prices, price variation and uneven quality of care, according to the groups’ white paper.

The authors urge policymakers and enforcement agencies to increase scrutiny of mergers, restrict anticompetitive practices, lift barriers to entering healthcare markets and help independent physicians remain financially viable. Consumers should be able to access cost and quality data, and providers must accurately identify in-network providers.

The past 15 years have seen significant consolidation in hospital, physician and insurance markets, and that trend is expected to continue.

Providers say they must merge to adapt to changes in federal policy that create a financial incentive for hospitals to control more of the market.

The CMS can spark competition by reforming Medicare policies that encourage consolidation. One example is the new payment system for physicians initiated by the Medicare Access and CHIP Reauthorization Act of 2015, or MACRA, which can boost or cut payment depending on quality measures that are difficult and costly to gather for smaller practices.

The states have work to do as well, the experts said. States should eliminate certificate-of-need regulations. And state licensing boards should facilitate practices such as telehealth that promote competition and innovation.

Glenn Melnick at the University of Southern California’s Schaeffer Center for Health Policy & Economics analyzed Blue Shield of California payments and found the average price for hospital admissions in California increased 70% from 2004 to 2013, from $9,183 to $15,642. The jump was even more significant for the state’s biggest hospital chains, where the price for average admissions increased from $9,183 to $19,606, or 113%.

Without effective competition, hospitals can secure higher price concessions in their negotiations with insurers, the Brookings and Carnegie Mellon experts said. Hospitals with fewer than four local competitors are estimated to have prices nearly 16% higher on average—a difference of nearly $2,000 per admission, researchers found.

As for quality, less competition can lead to worse patient outcomes, especially when prices are set by regulators, as in the Medicare program, according to the paper. Medicare beneficiaries who experienced a heart attack had a 1.46% higher chance of dying within one year of treatment if they were treated by a hospital that faced few potential competitors, research shows.