Hospital Consolidation Impacts on Cost and Quality

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March 8th, 2013

hospital consolidation impactsHospital spending is the key driver of healthcare costs in the US and has been growing at nearly 5% year over year. One cause of this consistent increase in spending is the continuing consolidation of hospitals around the country.

Since 2009 hospital consolidations have been steadily growing according to data from Morgan Stanley and Irving Associates. This increase in consolidation has given some merged hospital systems oligopoly power to impose fees that are far higher than those found in areas with high market competition.  Statistics show that hospital consolidation in highly concentrated markets have driven prices up by as much as 40%.

With increased market power and leverage, hospitals charge private payers higher prices and are more successful in “cost-shifting” as a result of providing underfunded care. Studies show that stand-alone and community hospitals typically receive payments from private payers which are closer to Medicare/Medicaid fees.

Hospital Consolidation’s Impacts on Cost and Quality:

  1. Increases the price of hospital care.
    Increases in price due to hospital consolidation are largely passed onto consumers through higher premiums, higher deductibles/co-pays and even lower wages.
  2. Reduces quality of care, through decreased market competition.
    The focus of hospital consolidation is on reducing competition to increase market bargaining power when dealing with insurers. This reduction in competition also has an impact on quality and patient choice. Consolidated hospital systems may be less motivated to offer innovative, efficient methods and improvements to care quality in order to attract new patients.
  3. Consolidation hasn’t lead to lower costs or improved quality.
    Integration of merged hospitals may lead to enhanced performance through achieving efficiencies, greater coordination and revising processes to unify entities. Consolidation alone only combines multiple entities under one group to increase market power, not necessarily fusing them together for improvement.

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