The Escalation of Expenses Tied to Health Care Consolidation

In recent years, the landscape of the health care industry has undergone significant changes, with consolidation becoming a prevalent trend. While this consolidation may bring promises of efficiency and improved quality of care, it has also been accompanied by a concerning trend: rising costs. The correlation between health care consolidation and increased expenses is a pressing issue that requires a closer examination.

Health care consolidation refers to the merging of hospitals, medical practices, and other health care entities under larger corporate umbrellas. This trend has been fueled by various factors, including economic pressures, changes in reimbursement models, and advances in technology. While consolidation can lead to streamlined operations and enhanced coordination of care, it also has the potential to reduce competition, resulting in higher prices for consumers.

One of the primary drivers of cost increases associated with health care consolidation is the enhanced bargaining power that larger health care systems wield. When hospitals and other providers merge, they gain increased leverage in negotiations with insurers and other payers. This leverage allows them to demand higher reimbursement rates, which ultimately get passed on to consumers in the form of higher premiums, deductibles, and out-of-pocket expenses.

Moreover, consolidation can lead to reduced competition within local health care markets. As smaller providers are acquired or driven out of business, patients may have fewer options when it comes to choosing where to seek care. This lack of competition can further exacerbate price inflation, as dominant health care systems face less pressure to keep costs in check.

Additionally, the integration of health care services within consolidated systems can result in “price bundling,” where services that were previously billed separately are now packaged together at a higher overall price. While proponents argue that bundling can lead to more coordinated and comprehensive care, critics caution that it can also lead to unnecessary price inflation and reduced transparency for consumers.

The impact of health care consolidation on costs is particularly pronounced in certain high-cost niches within the industry. For example, specialty services such as oncology, orthopedics, and cardiology often see significant price increases following consolidation. In these areas, where providers have a high degree of market power and patients have limited alternatives, the effects of consolidation are keenly felt by consumers.

Addressing the issue of rising costs linked to health care consolidation requires a multifaceted approach. Policymakers must carefully consider regulations that promote competition and prevent anticompetitive behavior within the health care industry. This may involve measures such as scrutinizing proposed mergers and acquisitions more closely and enforcing antitrust laws more rigorously.

Furthermore, efforts to enhance price transparency and empower consumers to make informed choices about their health care options are essential. By providing patients with access to information about the cost and quality of care from different providers, policymakers can help mitigate the impact of consolidation on prices.

In conclusion, while health care consolidation may offer benefits in terms of efficiency and quality of care, it also poses significant challenges in terms of rising costs. Addressing this issue requires a concerted effort from policymakers, providers, insurers, and consumers alike. By promoting competition, enhancing transparency, and implementing appropriate regulations, we can work towards a health care system that delivers high-quality care at an affordable cost for all.

Experts suggest that the acquisition of physician practices by large hospital systems is adversely impacting states’ workers’ compensation systems. While advocates of “vertical integration” in health care argue that it benefits consumers by improving care delivery efficiency, researchers in the workers’ compensation field argue that consolidation drives up costs by reducing competition and can hinder return-to-work outcomes. They assert that the efficiency claimed is primarily administrative rather than related to patient care efficiency.

A study conducted by the Workers Compensation Research Institute, based in Cambridge, Massachusetts, and published in December, revealed that between 2012 and 2018, the vertical integration of care within consolidated medical systems led to an 11.4% increase in workers’ compensation claim costs.

Kate Farley-Agee, the Vice President of Product Management for Coventry Workers’ Comp Networks, a subsidiary of Enlyte LLC, based in Plainfield, Illinois, emphasized that vertical integration generally results in higher overall payments for medical care. According to a study conducted earlier in 2023 by the WCRI, vertical integration led to a 10% increase in payments per visit. Subsequent research in December also revealed its impact on payments per claim, the frequency of medical visits per claim, and the volume of care provided per visit.

Joe Paduda, a principal at Health Strategy Associates, a workers’ comp consultancy based in Plainfield, New Hampshire, noted that when physician practices merge into larger health care systems, more providers typically attend to the patient, resulting in a higher number of services billed per visit. He highlighted that workers’ comp medical fee schedules, which are typically used to control costs, have limited effectiveness in mitigating the impact of vertical integration because increased services ultimately translate to increased costs.

There has been a trend of consolidation among payers and providers, with providers justifying their need to expand in order to negotiate effectively with larger payers,” he explained. “It’s almost like an arms race.”

Steve Bennett, the Vice President of Workers Compensation Programs and Counsel for the American Property Casualty Insurance Association, pointed out that when systems undergo vertical integration, injured workers often undergo more extensive and costly imaging testing. While this could potentially lead to better outcomes, the evidence so far suggests that return-to-work rates worsen. Workers treated by physicians within larger hospital systems tend to stay out of work longer and receive more temporary disability benefits, negatively impacting return-to-work outcomes as found by WCRI researchers.

Jason Beans, CEO of Rising Medical Solutions Inc., based in Chicago, stated that insurers bear the brunt of vertical integration. He noted that it restricts access to care and drives up prices when mergers occur.

Richard Gundling, Vice President of the Healthcare Financial Management Association, based in Downers Grove, Illinois, cautioned against attributing rising workers’ compensation claims costs solely to vertical integration. He pointed out that overall costs, including labor, drug costs, and supplies, have been increasing significantly in recent years.

Experts also warn about the challenges posed by horizontal integration, where one hospital system acquires another. This process results in similar problems for workers’ compensation, including increased costs and delayed return-to-work outcomes.

Kate Farley-Agee of Coventry Workers’ Comp Networks noted that the move towards consolidation, whether vertical or horizontal, can be traced back to the passage of the federal Affordable Care Act over a decade ago. She emphasized that while these consolidations have affected patient populations differently, workers’ compensation insurers are particularly impacted as they bear the responsibility for paying for care.

According to the December WCRI report, the percentage of physicians integrated with health care systems increased significantly between 2012 and 2018. This trend has particularly affected orthopedic practitioners, who are crucial providers for injured workers.

Another concern raised by experts is the potential impact of vertical integration on access to care, especially in rural areas. If providers consolidate with hospital systems located in urban centers, patients and workers’ compensation claimants in rural areas may face challenges in accessing necessary care.

Experts suggest that while vertical integration has already had adverse effects on workers’ compensation, horizontal integration in the health care sector is also impacting the care of injured workers.

Horizontal integration involves the consolidation of individual hospitals into larger health care systems or the merging of hospital systems with other hospital systems. This is distinct from vertical integration, which entails a health system acquiring a physician practice.

Jason Beans, CEO of Rising Medical Solutions Inc. in Chicago, shared an anecdote about a self-insured municipality in Florida, where medical costs significantly increased after a local hospital system was acquired by a national health care system. According to Beans, prices rose by approximately 25% within the same facility with the same doctors, a trend he attributes to the growing involvement of venture capitalists and bankers in the health care business.

The ongoing trend of hospital consolidation is expected to exert further upward pressure on utilization and pricing in the workers’ compensation sector, according to the National Council on Compensation Insurance (NCCI) based in Boca Raton, Florida. NCCI reports that completed hospital mergers in the broader health care sphere have yet to demonstrate clear benefits in terms of improved quality, access, and cost for patients. While such mergers may lead to an increase in intensive surgeries and the overall number of surgeries, they do not necessarily result in improved patient outcomes.