America's Benefit Specialist August/September 2023

POLICY SERIES

REDUCING THE COST OF HEALTHCARE: PROVIDER CONSOLIDATION THE PROBLEM Consolidation of care has become a prominent issue for patients and health plans over the last two decades. As more hospital systems merge, patients’ care options decrease—and the price they pay for care increases. As of 2021, just 10 health systems controlled 25% of the national market. A wide body of research has shown that provider consolidation leads to high er healthcare prices for those covered by private insurance. For example, when looking at the metropolitan areas with the highest rates of hospital consolida tion from 2010 to 2013, a University of California study found that the average cost of a hospital stay increased between 11% and 54%. Despite the negative correlation between hospital consolidation and price, a total of 1,887 hospital mergers were announced between 1998 and 2021—reducing the number of hospitals nationwide from about 8,000 to just over 6,000. In rural areas, where patients already have a limited number of care options, hospital consolidation has an even starker impact. A Health Affairs study found that obstetric and surgical inpatient services significantly declined among rural hospitals that underwent a merger. The impacts of consolidation are not limited to for-profit hospitals; these troubling patterns hold true even when looking at non-profit hospitals, which exercise market power in the same way. A 2019 Kaufman Hall report found that 66% of all health-system mergers and acquisitions involved a non-profit entity purchasing another non-profit entity. • As of 2021, 10 health systems controlled 25% of the national market. • In metropolitan areas with the highest rates of hospital consolidation, the average cost of a hospital stay over a three-year period increased between 11% and 54%. • Private equity firms acquired 355 physician practices from 2013 to 2016. Those private equity-acquired medical practices charged 20% more, on average, per insurance claim. While hospital mergers are the main cause of provider consolidation, private equity firms also play a significant role. Private equity firms invest in businesses by purchasing a majority stake with the goal of increasing the value of the busi ness and potentially selling it at a profit, and physician practices have proven profitable for many. A JAMA study found that private equity firms acquired 355 physician practices (including 1,426 sites of care and 5,714 physicians) from 2013 to 2016, and the speed of these acquisitions increased over the study period, with 59 practices acquired in 2013 and 136 practices acquired in 2016, respec tively. Those private equity-acquired medical practices charged 20% more, on average, per insurance claim. THE SOLUTION In 2021, President Biden signed an executive order that directed relevant federal antitrust agencies to crack down on consolidation in several areas, including hospi tal consolidation and consolidation within the prescription-drug sphere. While this action was important, NABIP believes more can be done to decrease the rate of provider consolidation, which would in turn lower costs for patients and generate savings for private health plans. We support both Congressional and regulatory ac tion to control the pace of provider consolidation, thereby increasing care options and lowering healthcare costs.

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