Study confirms hospital consolidation associated with higher unit costs
January 30, 2025
Source: Li,et al Health Affairs Scholar January 17, 2025.Hospitals and insurers segmented into thirds based on a standard measure of industry consolidation. More consolidation (less competition) is to the right in this graphic.
Researchers have demonstrated for years that increased consolidation of providers increases the amount that insurers pay for each unit of medical services delivered. Mergers of hospitals and provider organizations have continued to escalate and new research shows that consolidation of providers continues to lead to higher prices. Hospitals in areas with the least competition receive about 258% of Medicare from their commercial payers, while those with the most competition receive only 232% of Medicare. This difference is statistically significant.
Researchers used transparency data from almost 2,000 hospital outpatient departments and focused on the costs of 17 high volume services. They defined ‘concentration’ of providers based on hospital systems rather than individual hospitals, as these systems negotiate jointly.
They found much more provider concentration than insurer consolidation. Higher insurer consolidation was associated with lower prices regardless of the level of provider consolidation, although the impact of insurer consolidation is less in markets with highly concentrated providers. Other researchers have found that lower prices in markets with more insurer consolidation did not lead to decreases in health care premiums.
Implications for employers:
Continuing provider consolidation will likely continue to lead to higher unit costs. In many, or even most communities, the level of provider consolidation is already very high.
Member demand for broad networks that offer access to all providers in every community increases negotiating leverage for hospital systems and allows them to obtain higher unit prices.
High performing (narrow) networks that offer access to only the best value providers (lower price and/or higher quality) could help lessen the negotiating leverage of consolidated provider organizations.
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