Ten Issues to Know About Consolidation in Well being Care Supplier Markets | KFF

Nationwide well being spending totaled $4.5 trillion in 2022—17% of gross home product (GDP)—and is projected to develop quicker than GDP by way of 2031, contributing to greater prices for households, employers, states, and the federal authorities. As policymakers think about a wide range of methods to make well being care extra inexpensive, they’ve been more and more attentive to consolidation in well being care markets—together with mergers and acquisitions of well being care suppliers—and the potential results of consolidation on the associated fee and high quality of care and different outcomes. Consolidation might permit suppliers to function extra effectively, and will assist struggling suppliers maintain their doorways open in underserved areas, but additionally usually reduces competitors. A considerable physique of proof has discovered that consolidation has led to greater costs, however the proof on high quality is unclear.

In response to considerations in regards to the results of consolidation and lowered competitors on costs and high quality, the Federal Commerce Fee (FTC) lately authorized a lawsuit to dam a hospital acquisition in North Carolina. And, simply final month, the FTC, Division of Justice, and Division of Well being and Human Companies issued a request for information (RFI) in search of enter on the results of consolidation involving well being care suppliers and associated services as a part of a broader effort to clamp down on anticompetitive practices.

This difficulty transient identifies ten issues to find out about consolidation in well being care supplier markets, bearing on subjects such because the several types of consolidation, developments, methods through which consolidation could be useful or dangerous for sufferers and different shoppers, some key findings from present analysis, and coverage choices for growing competitors. This transient focuses on consolidation amongst well being care suppliers, slightly than well being insurers, and builds on a 2020 KFF issue brief on supplier consolidation. More moderen analysis has not altered the important thing takeaways pulled from that transient.

Efforts to advertise extra aggressive supplier markets might assist tackle well being spending and affordability points, but additionally entail a variety of challenges, provided that many markets are already extremely concentrated and that some areas can not help aggressive markets. Some have thought-about more direct regulation of costs and spending, and the 2 approaches might play complementary roles when addressing rising well being care prices, resembling by encouraging suppliers to compete on high quality when costs are regulated.

1. Consolidation in well being care markets can take many kinds and contain varied kinds of suppliers

Well being care consolidation usually refers to situations the place hospitals and different well being care entities be part of collectively underneath frequent possession by way of both a merger or acquisition (known as “mergers” on this transient). There are three primary kinds of mergers:

• Horizontal mergers happen when there’s consolidation between entities that supply the identical or comparable companies, resembling when a well being system acquires a hospital or when two doctor practices that present overlapping companies merge. As an illustration, in August 2023, Oregon Well being & Science College and Legacy Well being—two of the most important well being methods within the Portland space—introduced plans to merge.
• Vertical mergers happen when there’s consolidation between entities that supply totally different companies alongside the identical provide chain, resembling when a hospital or well being plan acquires a doctor observe. As an illustration, in May 2023, the well being system HCA Healthcare introduced a deal to accumulate 41 pressing care facilities in Texas, the place HCA already had a big presence. Some mergers might entail each vertical and horizontal consolidation (e.g., if a well being system acquires a doctor observe that gives companies provided by the system’s present doctor group).
• Cross-market mergers occur when there’s consolidation between two suppliers that function in numerous geographic markets for affected person care. For instance, in March 2024, Kaiser Permanente closed its merger with Geisinger Well being by way of a brand new group referred to as Risant. These methods function in numerous areas of the USA, with Kaiser Permanente working in 5 states within the West (together with California) and Georgia, Maryland, Virginia, and DC and Geisinger working in Pennsylvania.

Other than merging, well being care entities can kind other types of affiliations with out essentially altering possession, which can even have implications for affected person care. Examples embrace the creation of accountable care organizations (i.e., teams of medical doctors, hospitals, and different suppliers who kind partnerships to collaborate and share accountability for the associated fee and high quality of care delivered to their sufferers) and joint ventures (i.e., agreements to collaborate on a selected purpose, resembling a well being system and group observe that work collectively to create a brand new ambulatory surgical procedure heart). These affiliations can elevate similar issues as mergers and are typically known as “smooth” types of consolidation.

2. There was a considerable amount of consolidation in supplier markets over the previous 30 years

Supplier markets have change into more and more consolidated over the previous 30 years. Following a wave of consolidation within the early- and mid-Nineteen Nineties, there have been 1,573 hospital mergers from 1998 to 2017 and one other 428 hospital and health system mergers introduced from 2018 to 2023. The share of neighborhood hospitals which are half of a bigger well being system additionally elevated from 53% in 2005 to 68% in 2022 (see Determine 1). Relatedly, the share of physicians working for a hospital or in a observe owned no less than partially by a hospital or well being system elevated from 29% in 2012 to 41% in 2022.

Consolidation has additionally contributed to the emergence of large health systems. For instance, the ten largest well being methods (see Desk 1) accounted for about one in 5 (22%) of nonfederal common acute care hospital beds in 2022. These methods are the dimensions of huge companies. For instance, HCA Healthcare, which operates the most important variety of nonfederal common acute care hospital beds within the nation, had higher working revenues than every of Netflix, Uber, and Starbucks in 2023. AdventHealth, the smallest of the ten largest well being methods by way of beds, had higher working revenues than Zoom and Lyft mixed in 2023 (as did Neighborhood Well being Techniques, the smallest of the ten largest methods by way of working revenues). Consolidation, which frequently happens between suppliers primarily based in the identical area, has additionally contributed to extremely concentrated markets the place sufferers have restricted choices amongst giant supplier organizations.

In the present day, many supplier markets are extremely concentrated, notably markets for hospital care. One study estimated that the overwhelming majority (90%) of metropolitan statistical areas (MSAs) had extremely concentrated hospital markets in 2016, whereas another estimated that the share of metro areas with extremely concentrated hospital markets elevated from 71% to 77% over the interval from 2017 to 2021 (variations in magnitudes throughout these research possible replicate their distinct strategies, together with market definitions). The previous additionally discovered that almost all MSAs (65%) had extremely concentrated specialist doctor markets in 2016, and almost two in 5 (39%) had extremely concentrated markets for major care physicians. Doctor markets might have change into extra concentrated lately as a result of ongoing developments in consolidation described above.

3. Firms resembling CVS, Amazon, and UnitedHealth and personal fairness corporations have lately acquired many doctor practices

Along with hospitals and well being methods, different kinds of entities have additionally been concerned in a lot of acquisitions lately:

• Company patrons. Firms that haven’t historically specialised within the provision of well being care companies—together with giant nationwide firms resembling CVS, Amazon, and UnitedHealth—have acquired many physician practices lately. The share of physicians employed by company entities increased over a three-year interval from 15% in January 2019 to 22% in January 2022. Optum, a division of the insurer UnitedHealth, now employs or is affiliated with about 10% of all practicing physicians. Some policymakers have expressed concern in regards to the position that giant company patrons might have in growing consolidation and lowering competitors, which might result in greater prices and lowered high quality, though proof shouldn’t be but obtainable on this development.
• Personal fairness corporations. Personal fairness is a type of company possession that usually entails counting on loans to accumulate a enterprise, taking it non-public (if not so already), and making an attempt to extend its worth with the purpose of promoting it at a revenue in three to seven years. One frequent technique is to consolidate suppliers by way of a collection of mergers and acquisitions. Personal fairness supplier acquisitions have elevated by a big quantity since 2010—e.g., with doctor observe offers growing more than six-fold from 2012 to 2021—although offers have slowed considerably since a peak in 2021. Some policymakers have expressed concern in regards to the position of personal fairness in consolidation and the impact of the short-term revenue motive of personal fairness corporations on the costs, high quality, and monetary standing of acquired suppliers. 

4. A considerable physique of proof exhibits that consolidation has led to greater costs, however the proof on high quality is unclear

Consolidation might in precept profit shoppers in some situations and be dangerous in others. On the one hand, consolidation might permit suppliers to function extra effectively, resembling by acquiring provides at steeper reductions (by buying them in higher quantity); sharing assets (resembling medical imaging tools); and attaining the dimensions essential to take part in value-based cost applications. These potential efficiencies might in flip profit sufferers, for instance, in the event that they result in greater high quality care or lowered prices (e.g., if suppliers share financial savings by way of decrease costs), and the latter may benefit well being plan enrollees extra usually to the extent that it results in decrease plan spending and premiums. However, consolidation usually reduces market competitors and subsequently the strain on suppliers to decrease costs or put money into high quality enchancment. Critics have additionally questioned the extent to which mergers permit suppliers to function extra effectively. Efficiencies may depend, partially, on the diploma to which suppliers combine their operations, which could be advanced and will or will not be a precedence.

The next dialogue describes key findings from the analysis.

A considerable physique of analysis exhibits that consolidation has led to greater well being care costs, as famous in a 2020 KFF issue brief on supplier consolidation. The proof that consolidation results in greater costs is strongest for hospitals, although research which have evaluated doctor and hospital-physician consolidation have additionally tended to search out that they’re related to greater costs. Research which have seemed particularly at consolidation amongst nonprofit hospitals—which account for 58% of all neighborhood hospitals—have discovered value will increase as effectively. A RAND Company review from 2022 (which additionally informs different sections of this transient) discovered that estimated value will increase related to hospital mergers have ranged from 3 to 65 %. The massive variation in estimated value will increase might replicate variations within the kinds of mergers that have been evaluated (e.g., the extent to which they lowered competitors), the context of those mergers (e.g., the competitiveness of native insurance coverage markets), and methodology. Along with will increase within the costs that industrial insurers pay suppliers, consolidation can even result in greater Medicare reimbursement charges, as this system usually gives higher reimbursement for a given service when supplied in a hospital outpatient division versus a freestanding doctor workplace (see dialogue of site-neutral cost reforms beneath).

Relatedly, research have usually discovered that consolidation results in greater well being care spending, which might enhance prices for households, employers, states, and public applications, like Medicare and Medicaid. A number of research have found that consolidation results in greater spending, which displays each the worth and quantity of care. This contains research evaluating hospital consolidation and hospital-physician consolidation. Solely a small variety of research have evaluated doctor consolidation, with combined outcomes. Will increase in well being care spending could be handed onto well being plan enrollees by way of greater premiums and staff with employer-sponsored insurance coverage by way of decrease wages. Notably, a couple of studies have discovered an affiliation between consolidation and premium will increase, and one study discovered that hospital mergers led to decreases in wages amongst non-health care staff with employer well being plans.

The proof on the impact of supplier consolidation on the standard of affected person care is unclear. The proof on the influence of horizontal and vertical consolidation on high quality has been combined, as described in a 2020 KFF issue brief and 2022 RAND Company review. For instance, a lot of the analysis on horizontal hospital consolidation has discovered no distinction in or a damaging influence on high quality. Amongst different analyses, one study discovered that elevated market focus was related to greater risk-adjusted one-year mortality charges for coronary heart assaults and another discovered that hospital mergers have been related to a small lower in affected person expertise measures and no modifications in 30-day readmission and mortality charges (with inconclusive findings relating to medical course of measures). Nonetheless, some research have included combined or constructive findings referring to hospital consolidation. For instance, a study funded by the American Hospital Affiliation discovered that mergers have been related to decreases in 30-day readmission charges however no change in 30-day mortality charges (although an earlier model of the research discovered decreases in mortality charges as effectively).

The proof can also be combined on the results of vertical hospital-physician consolidation on high quality. For instance, one fairly recent study discovered that medical course of and affected person expertise measures have been “marginally” greater for sufferers when their major care doctor was a part of a system, another study discovered no distinction in sufferers’ 30-day readmission charges when their major care doctor was half of a giant system, and a third study discovered that issues following colonoscopies have been greater for sufferers when their gastroenterologist was a part of a system (although the proof was much less clear for medical course of measures).

Decoding the proof on high quality is further complicated by the truth that there are a lot of dimensions and measures of high quality which were or may very well be used to evaluate the results of consolidation and that it might take time for modifications in high quality to materialize. Moreover, it’s possible that the results of consolidation differ primarily based on the extent to which suppliers have built-in their operations and throughout totally different affected person populations.

5. Mergers between hospitals and well being methods can result in greater costs even when entities function in numerous markets

Whereas policymakers and regulators have traditionally targeted on consolidation throughout the identical area, many mergers have occurred between hospitals and well being methods that function in numerous areas, as mentioned in a KFF issue brief, together with a number of multi-billion greenback offers over simply the previous couple of years. The small number of studies which have targeted on cross-market mergers have estimated value will increase starting from 6% to 17%, although these offers entail hospitals and well being methods that aren’t competing in opposition to one another in the identical space. There are a couple of the reason why cross-market mergers may result in value will increase. As an illustration, a mixed well being system with suppliers in, say, totally different areas of a state might be able to use its dominant place in a single market to barter greater costs in one other when contracting with a given well being plan (e.g., a state worker plan with enrollees that reside in a number of markets). As one other instance, a big system that, say, acquires a small hospital might have extra experience in bargaining with insurers, which it might use to barter for greater costs.

6. The influence of consolidation on the supply of well being care companies for rural and different underserved sufferers is unclear

Consolidation might in precept have combined implications for entry to care. For instance, it’s conceivable that the acquisition of a small, financially struggling, rural hospital by a big well being system primarily based in one other area might enhance the supply of companies locally in some situations and scale back it in others. On the one hand, being acquired may benefit the hospital financially—resembling by offering entry to a variety of assets, managerial experience, and capital—which might assist the hospital maintain its doorways open and keep or broaden the companies it affords. However, the system that acquires the agricultural hospital could also be much less conscious of the wants of the local people, resembling when deciding whether or not to close the hospital or to cease providing sure companies, resembling maternity care (an final result supported by some analysis, as described beneath).

A small variety of research have evaluated the affiliation between consolidation with rural hospital closures and repair eliminations, with combined outcomes. Two studies discovered that rural hospitals that merged with different hospitals or well being methods have been extra more likely to get rid of sure service strains, resembling obstetrics care, and another study discovered that unbiased hospitals (city and rural) that joined a well being system have been extra more likely to cease providing inpatient pediatric companies. One study discovered that system affiliation was related to a decrease probability of closing amongst rural hospitals with weaker funds however a better probability amongst these with stronger funds.

A small variety of research have evaluated the affiliation between consolidation and entry to care amongst Medicaid sufferers, additionally with combined outcomes. On the one hand, two studies discovered that doctor practices have been extra more likely to settle for Medicaid sufferers after changing into affiliated with a well being system. This can be as a result of the broader system has a dedication or obligation to deal with sufferers no matter their capacity to pay (e.g., for emergency care) or as a result of efficiencies permit suppliers to deal with extra sufferers. However, one study discovered that will increase in hospital market focus have been related to fewer Medicaid admissions and a shift in care from nonprofit to public hospitals. This may very well be as a result of will increase in industrial costs ensuing from higher market focus might lead non-public hospitals to focus extra on industrial versus Medicaid sufferers. Another study discovered that system affiliation was related to a lower in Medicaid as a share of all hospital discharges, though that research additionally discovered that the variety of beds in a hospital or well being system was related to a rise in Medicaid discharges as a share of the full.

A small variety of research have evaluated the impact of consolidation on hospital charity care and whole neighborhood advantages, with combined outcomes. For instance, one study discovered no affiliation between the acquisition of unbiased hospitals and charity care or whole neighborhood profit spending total however a lower within the latter when specializing in hospitals acquired by an out-of-state system. Another study discovered that the affiliation of upper market focus with hospital charity care assorted relying on the tactic used, with a rise underneath one strategy and no distinction underneath one other. One study discovered that greater market focus was related to greater earnings thresholds for charity care eligibility, which successfully will increase the variety of sufferers who might qualify for charity care in a hospital.

7. Hospital consolidation can result in decrease wages for some expert staff, resembling nurses, however the broader proof on employment and compensation results is proscribed

Consolidation might in precept have each advantages and disadvantages for well being care staff. On the one hand, consolidation might enhance the negotiating leverage of hospitals and their capacity to extract concessions from staff. For instance, in 2023, a coalition of labor unions filed a complaint with the DOJ that UPMC, a big well being system in Pennsylvania, had used its market energy to suppress the wages of nurses and different well being care staff, enhance workloads, and prohibit the flexibility of well being care staff to hunt higher employment elsewhere. Mergers might additionally result in layoffs, for instance, to the extent that suppliers consolidate their workers and operations. However, well being care staff may benefit from hospital mergers in some situations the place consolidation permits hospitals to stay open and function extra effectively. For instance, the acquisition of a struggling rural hospital by a well being system might assist the ability maintain its operations in sure circumstances, which might defend jobs and probably bolster wages.

A few research have discovered that hospital consolidation has led to decrease wages for some expert staff, resembling nurses, although the implications of different research on well being care employee wages are much less clear. For instance, one study discovered that hospital mergers have been related to decrease wages for nurses and pharmacy staff and for expert nonmedical staff following mergers that triggered giant will increase in market focus (however not for unskilled staff). Analysis from the Middle for Financial and Coverage Analysis additionally found that will increase in hospital market focus have been related to decrease wages for nurses in small metropolitan statistical areas. An earlier study didn’t discover constant proof when evaluating nurses’ wages however did discover that hospital mergers in California have been related to higher work effort (as measured by affected person caseload). A small variety of research that seemed extra broadly on the monetary influence of consolidation, together with common compensation throughout all hospital staff, have produced mixed results.

Some research discover that hospital consolidation has led to reductions in staffing, although others haven’t, and the proof is unclear on whether or not mergers avert closures, which might protect jobs. A small variety of research have analyzed the results of hospital consolidation on employment, with some finding an affiliation with lowered staffing ranges. For instance, one study evaluating unbiased hospitals in New York discovered an affiliation between becoming a member of a system and a discount in employment, particularly amongst workers with overhead and help capabilities. Nonetheless, other studies have discovered no variations or inconsistent or unclear outcomes. Moreover, as famous above, there isn’t a clear proof relating to the impact of mergers on hospital closures. If mergers result in efficiencies that forestall closures, they could assist protect jobs.

8. The FTC, the DOJ, and state antitrust companies every play a job in difficult consolidation and different doubtlessly anticompetitive practices

Federal and state antitrust companies every play a job in difficult consolidation and different doubtlessly anticompetitive practices of well being care suppliers and different companies, as described in a KFF issue brief. On the federal degree, the Federal Commerce Fee (FTC) and the Division of Justice (DOJ) share duty for implementing federal antitrust legal guidelines, together with the Sherman Act, the Clayton Act, and the FTC Act. State attorneys common (AG) places of work even have the authority to carry motion underneath federal antitrust regulation, in addition to underneath state statutes, which typically broaden upon federal regulation. Antitrust companies problem mergers, acquisitions, and different practices which will hinder competitors (resembling the usage of anticompetitive contract clauses). They accomplish that to advertise aggressive markets, usually for the good thing about shoppers (resembling sufferers and well being plan enrollees).

There are no less than a couple of challenges which will restrict the flexibility of the federal authorities and states to foster aggressive supplier markets by way of antitrust enforcement:

• It’s troublesome to interrupt up mergers after they’ve already occurred, and plenty of supplier markets are already extremely concentrated. Breaking apart a merger after suppliers have already consolidated could be troublesome. On the identical time, regulating the habits of merged suppliers—resembling by way of restrictions on the costs they cost—could also be troublesome to observe and implement on an ongoing foundation.
• Some areas can not help aggressive supplier markets. As an illustration, rural communities might not have sufficient residents to help a number of suppliers that supply the identical service.
• Antitrust litigation could be advanced and costly. With out satisfactory funding, it might be impractical to problem a lot of supplier enterprise practices that elevate anticompetitive considerations.
• Antitrust companies might have issue staying forward of market developments. For instance, it might take time for the federal government to develop sturdy tips for difficult vertical or cross-market mergers and to build up sufficient proof to persuade courts that these practices hurt competitors. Within the meantime, these mergers will possible proceed.
• The advantages of aggressive supplier markets for people with medical insurance will rely partially on the competitiveness of medical insurance markets. One study estimated that almost all MSAs (57%) had extremely concentrated insurance coverage markets in 2016. When insurance coverage markets usually are not aggressive, price financial savings from aggressive supplier markets won’t be totally handed alongside to shoppers.

The FTC and DOJ have lately signaled an curiosity in increasing their scrutiny of several types of mergers. For instance, in December 2023, the companies launched updated merger guidelines that point out that they could problem a broader vary of offers. Amongst different modifications, the rules broaden the definition of extremely concentrated markets, depend on a decrease threshold for figuring out giant modifications in market focus, think about the mixed impact of a collection of acquisitions (e.g., of a well being system buying a number of small doctor practices over time), add an express dialogue of the companies’ views on how staff could also be negatively impacted when their employers merge, and contact on cross-market mergers.

The FTC and DOJ have additionally indicated an curiosity in difficult supplier acquisitions by non-public fairness corporations and personal payers. As an illustration, the companies, together with HHS, particularly talked about a majority of these entities in a March 2024 request for info on the results of transactions involving well being care suppliers and associated services. Additional, in September 2023, for the primary time, the FTC challenged a standard technique of personal fairness corporations that entails amassing market energy by way of a collection of doctor observe acquisitions.

9. Web site-neutral cost reforms, if enacted, might scale back incentives for vertical consolidation by reducing the charges at which acquired suppliers invoice Medicare

Policymakers have expressed curiosity in aligning Medicare reimbursement charges for outpatient companies throughout care settings by way of “site-neutral cost reforms,” which might straight decrease program prices and scale back the inducement for hospitals to purchase up doctor practices. Below present cost guidelines, Medicare reimbursement is usually greater for a given outpatient service when supplied in a hospital outpatient division versus a freestanding doctor workplace or ambulatory surgical heart. Two studies have discovered that these cost variations are related to a rise in hospital-physician consolidation, which may permit suppliers to invoice Medicare at greater charges.

By laws and rulemaking, Medicare has aligned funds for workplace visits throughout freestanding doctor places of work and off-campus hospital outpatient departments—which frequently resemble doctor places of work—in addition to for different companies for comparatively new off-campus amenities. Policymakers have thought-about different site-neutral reforms with varying scope that will prolong to further websites of care and companies. Proponents of those reforms assert there aren’t any grounds to pay totally different quantities for a similar service primarily based on website of care (doctor workplace or outpatient hospital division) whereas hospitals and different opponents counter that sufferers handled in hospital outpatient settings have higher wants than sufferers in doctor settings and that their price construction justifies greater cost charges.

10. Policymakers have thought-about a variety of choices to extend the competitiveness of supplier markets

A number of insurance policies have been proposed to rein in supplier consolidation or enhance the competitiveness of supplier markets in different methods:

• Strengthen antitrust enforcement. This strategy would make it simpler for the FTC and DOJ to implement antitrust regulation. Particular insurance policies embrace: requiring extra suppliers to report deliberate mergers, reducing the authorized requirements by which mergers are deemed anticompetitive, and mandating that suppliers obtain approval from the federal government earlier than merging. Different proposals to strengthen antitrust enforcement embrace: eliminating state Certificate of Public Advantage (COPA) legal guidelines (which some states use to defend mergers from federal antitrust challenges in trade for state regulation), growing the scope of antitrust regulation (resembling by giving the FTC full authority to manage nonprofit suppliers and outlawing anticompetitive contracting clauses), and offering higher assets to companies that implement antitrust regulation.
• Cut back incentives for well being care suppliers to consolidate. This might embrace site-neutral cost reforms (as described above), modifications to the 340B program (which at the moment permits sure suppliers acquired by a 340B entity to buy medication at a considerable low cost), and efforts to cut back the executive burden of presidency rules on suppliers (which can incentivize small practices which have issue shouldering these necessities to merge with different suppliers).
• Improve value transparency. Larger value transparency might assist sufferers, plans, and employers store for well being care suppliers (e.g., to obtain care from or embrace in supplier networks) and will in flip encourage higher competitors amongst suppliers. As mentioned in a KFF issue brief, details about hospital and different well being care costs stays elusive, regardless of latest federal transparency guidelines.
• Enable extra suppliers to enter the market. This might embrace reforming state Certificate of Need (CON) statues (which can be utilized to restrict, for instance, the development of latest well being care amenities) and scope of observe legal guidelines (which regulate what work varied well being care professionals, resembling nurse practitioners, are allowed to carry out).

Every of those proposals would contain tradeoffs that will be vital to think about.