You may have heard about how the current health care market is all about “consolidation“. Consolidation can be a broad term, but it usually refers to hospitals acquiring other hospitals, physician practices, and even absorbing insurance companies. While some of this is in response to the Affordable Care Act, consolidation was already occurring before 2009. Big Companies have been a Big Thing for a while: agriculture, media, law, and other industries have been undergoing consolidation similar trends, perhaps in an effort to become more resistant to risk.*
Some people think of consolidation in a good way, kind of like bundled testing. In theory, it should be administratively simpler. Less hospital systems = less billing, recordkeeping, and bureaucratic burden because patients are less likely to be shifting between health systems when there are fewer of them. Administrative costs are a likely etiology of some of the health care spending growth in the United States in the last two decades.
Others think of consolidation more like… a pneumonia. You know, like when a lobe of your lung gets all fibrotic and stuff. One of the many things I have learned in medical school is that consolidated pneumonias are bad.
Figure 1: A gross anatomical specimen consolidated lobar pneumonia. (Operative term here is “gross”).
Less hospitals = less competition = higher prices for the same services, whether that be for third party payers or patients themselves. There’s some evidence to show that price inflation is a common adverse effect of hospital mergers. And there is also evidence to suggest that high prices are bad for patients, too.
The Federal Trade Commission is the agency tasked with preventing enormous hospital mergers from having this effect on the healthcare economy. They recently sued Penn State’s Hershey Medical Center when they attempted to merge with PinnacleHealth System. The FTC’s core assertion was that the merger of these two systems would limit care options for patients in the “Harrisburg area” and that the combination of these two systems would cover 65% of Southern Pennsylvania. The Pennsylvania Office of Attorney General agreed with the FTC, citing nearby UPMC’s similar grip on healthcare delivery in the Pittsburgh region as an example.
While these assertions may not sound all that impressive (especially if you, like most people, know very little about rural Pennsylvania) it was a big blow to the FTC’s recent track record of success when it came to knocking down huge hospital deals.
This decision has interesting implications for a newly minted large hospital system — Vanderbilt Health. Shedding its University trappings, the Vanderbilt Health System is now more poised to be more “agile” in a rapidly evolving healthcare market, ready to start forming “partnerships” and investing in “ventures” in the years to come. I interpret this to mean that they are set to absorb more hospitals, physician practices, and other entities. While improved coordination of care might be one outcome, based on consolidation and price trends for other regions, it also will mean higher prices.
Only time will tell if we are a consolidated pneumonia for Tennessee or not.
*Or maybe, they’re trying to become Too Big to Fail??
Primers on Consolidation:
Alex Tolbert, “Health Care Consolidation: What Consumers Need to Know”, The Tennessean (March 8, 2016) http://www.tennessean.com/story/money/industries/health-care/2016/03/08/health-care-consolidation-what-consumers-need-know/81493602/
The Robert Wood Johnson Foundation, The Impact of Health Care Consolidation — Update, The Synthesis Project, June 2012 http://www.rwjf.org/content/dam/farm/reports/issue_briefs/2012/rwjf73261
CORTEX 