Hospital Consolidation Drives Up Healthcare Costs

Strategic Insights -

Consolidation in the healthcare industry has led to a steady increase in hospitals buying small physician practices, resulting in higher prices for patients. A new study by the National Bureau of Economic Research found that between 2008 and 2016, the share of private physician practices acquired by a hospital in the U.S. rose by 71.5%. By 2016, roughly half (47.2%) of physician practices were owned by a hospital. The study also revealed that within two years of physician groups being acquired, physician prices increased an average of 15.1%.

Key Takeaways:

  • Between 2008 and 2016, the share of private physician practices acquired by a hospital in the U.S. rose by 71.5%.
  • By 2016, roughly half (47.2%) of physician practices were owned by a hospital.
  • Within two years of physician groups being acquired, physician prices increased an average of 15.1%.
  • Two years after buying an OB-GYN practice, prices for labor and delivery were up by $475, an increase of 3.3%.
  • The study found that virtually all of the estimated deal valuations of physician-hospital mergers tracked fell below Hart-Scott-Rodino merger reporting thresholds.
  • By the start of 2022, 73.9% of physicians were working for someone else, including 52.1% by hospitals and health systems.
  • The study's authors argue that hospital consolidation leads to a decline in competition, which raises antitrust concerns.
  • Yale economist Zack Cooper suggests site-neutral payments or state policies that require merging parties to demonstrate benefit before a deal is allowed to go through could help address the issue.

Statistics:

  • 71.5% increase in the share of private physician practices acquired by a hospital in the U.S. between 2008 and 2016 (Source: National Bureau of Economic Research)
  • 47.2% of physician practices owned by a hospital by 2016 (Source: National Bureau of Economic Research)
  • 15.1% average increase in physician prices within two years of physician groups being acquired (Source: National Bureau of Economic Research)
  • $475 increase in prices for labor and delivery two years after buying an OB-GYN practice (Source: National Bureau of Economic Research)
  • 73.9% of physicians working for someone else by the start of 2022 (Source: Avalere study)
  • 52.1% of physicians working for hospitals and health systems by the start of 2022 (Source: Avalere study)

Sources:

  • "The Effects of Consolidation on Competition in Physician Markets" by Zack Cooper and Christopher Whaley (National Bureau of Economic Research)
  • "Avalere Study: Physician Employment Trends Study 2019-2023" (Physicians Advocacy Institute)
  • "Hospital partnerships for physicians and their practices can offer stability and resources" by Aaron Wesolowski, Vice President of Research Strategy and Policy Communications at the American Hospital Association