Provider market consolidation may contribute to price growth

A panel of experts convened by the National Academy of Social Insurance (NASI) recently released a report addressing the issue of limited competition in private healthcare markets in the U.S.

According to the NASI Panel on Pricing Power in Health Care Markets, market power ( the ability to raise prices and sustain them) of health care providers has grown over the past 20 years,  driven in part by an upsurge in hospital mergers and integration of physician practices into hospitals. The NASI report cites studies finding that hospitals can negotiate significantly higher reimbursements from private payers than Medicare, and that hospital systems – both large and small –receive higher average payments than hospitals that are not part of a system.

“Over the last two decades, there has been a 40 percent increase in hospital market concentration… This is equivalent to a market with five hospitals of equal size becoming a market with three hospitals of equal size. Moreover, using the [Herfindahl–Hirschman Index] as the yardstick, most of the metropolitan statistical areas in the United States are now considered highly concentrated hospital markets.”

– National Academy of Social Insurance (NASI)

Although insurance markets are increasingly concentrated, the report points to studies finding that insurer concentration has not been a key driver of accelerated cost growth. The panel highlights emerging trends among payers in response to price growth, including increasing consumer exposure to prices (through higher cost-sharing and narrower networks) and moving away from traditional fee-for-service provider reimbursement.

Related Content:

Health & Wellbeing

How does U.S. life expectancy compare to other countries?

Health Spending

Health Cost and Affordability Policy Issues and Trends to Watch in 2024

In addition to exploring the pros and cons of eleven policy options for addressing imbalanced market power, the panel puts forth four main guidelines for developing such policies. These policy principles include a focus on market competition as the best way to promote efficiency, quality, and cost control; the need for greater price transparency as a means of enhancing consumers’ ability to choose services; a recommendation for greater scrutiny of delivery system and payment reforms before their implementation; and an overall focus on the need for price variation to reflect real differences in costs.

The Peterson Center on Healthcare and KFF are partnering to monitor how well the U.S. healthcare system is performing in terms of quality and cost.

More from Health System Tracker
A Partnership Of
Share Health System Tracker