Rising health care prices have increased concerns about hospital and health system consolidation among policymakers, regulators, employers, and other purchasers of health coverage. Although merging hospitals and health systems claim they can achieve greater efficiencies through their consolidation, the economic literature almost universally finds that hospitals that merge have prices above those of surrounding hospitals. More broadly, markets with increased levels of provider concentration, regardless of the reason, tend to see higher prices. Indeed, increases in hospital prices have been a key factor driving the growth of commercial health insurance costs over the past decade.
As prices have risen, employers have shifted an ever greater share of the costs to employees. Over the past ten years, the average worker contribution for family coverage has increased faster than the average employer contribution (65 percent vs. 51 percent). Indeed, employee contributions have risen almost 300 percent since 1999. High-deductible health plans are now 29 percent of the market (up from 9 percent). The increased negotiating clout of a concentrated provider sector also influences payers’ ability to maximize value-improving practices, such as alternative payment models, quality improvement, and transparency efforts. Insurers—under pressure from employer purchasers and policymakers to keep costs affordable while maintaining health care quality—are thus exploring a range of strategies to counter provider consolidation in their markets. The ability to implement and successfully deploy these strategies can vary significantly, depending on the market in which insurers are operating.
In a series of six market-level, qualitative case studies, we assess the impact of recent provider consolidations and overall provider concentration, the ability of market participants (and, where relevant, regulators) to respond to those consolidations, and effective strategies for constraining cost growth while maintaining clinical quality. Our case studies focus on the commercial insurance market, though we recognize that providers and insurers are often operating in multiple markets, including Medicare Advantage, Medicaid managed care, and the Affordable Care Act (ACA) marketplaces. We do not attempt to quantify the effect of provider consolidation in these markets, such as through provider rate or premium changes.
This interim report discusses findings from three markets studied to date (Detroit, Syracuse and Northern Virginia). A final report will present cross-cutting findings from these and three additional markets chosen to reflect geographic diversity and a range of market dynamics.