Impact of Healthcare Provider Mergers and Acquisitions on Medical Bills

Healthcare mergers and acquisitions have been on the rise in recent years, with many physician practices being acquired by hospitals or larger healthcare providers. While the idea behind these consolidations is often to drive down costs and improve efficiency, new research from the Kellogg School suggests that the reality may be quite different.

According to the research conducted by Kellogg professors David Dranove and Christopher Ody, along with Cory Capps of Bates White Economic Consulting, prices for services provided by physicians who were acquired by hospitals actually rose by an average of 14 percent between 2007 and 2013. This increase in prices is attributed to the market power gained by hospitals through these acquisitions, as well as the way contracts with insurers are structured to allow for higher billing rates.

One of the key findings of the research is that while individual acquisitions may not raise red flags with antitrust regulators, the cumulative effect of multiple acquisitions can lead to uncompetitive markets. In fact, the researchers found that a significant percentage of physician markets in the US meet federal guidelines for being uncompetitive, but only a small fraction of these markets had individual acquisitions that would have been viewed as anticompetitive by regulators.

The challenge, as Dranove points out, is that current antitrust laws are not equipped to address the gradual consolidation of healthcare providers over time. Regulators tend to focus on individual transactions rather than the broader impact of multiple acquisitions on market competition. This leaves little room for intervention once a healthcare conglomerate has already been established.

While the research does not definitively answer whether the quality of healthcare has improved as a result of these consolidations, the rising prices alone are a cause for concern. Dranove suggests that state-based agencies could potentially regulate provider integration, but such measures may go too far in limiting competition. Insurers also have limited power to negotiate lower prices with large provider groups, as these groups hold significant market power.

Overall, the research highlights the challenges posed by healthcare mergers and acquisitions and the need for policymakers and regulators to address the impact of these consolidations on pricing and market competition. As healthcare providers continue to integrate, finding a balance between efficiency and competition will be crucial to ensuring affordable and high-quality care for patients.