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Provider Consolidation And Health Spending: Responding To A Growing Problem


November 14th, 2012

As the country faces the fiscal cliff and continued deficit challenges, controlling health care expenditures will require aggressive efforts. When we look at why costs are rising and what the remedies are, we need to examine carefully a growing and under-publicized phenomenon: provider consolidation and its role in rising prices. A new report by Catalyst for Payment Reform (CPR), an employer-led non-profit organization, describes the substantial impact this growing trend has on health care spending. Given that several aspects of health care reform indirectly and directly support consolidation, it is critical we understand this trend better and start discussing how to address it.

Health care spending is increasing, but not exclusively because patients are utilizing more, and more expensive, care. Unit prices for hospitals and doctors are rising also, driving spending up, and evidence is mounting that the major contributor is ongoing provider consolidation. By 2006, over 75 percent of U.S. metropolitan statistical areas (MSAs) had experienced enough hospital merger activity to be considered “highly consolidated.” Nationwide, payments to hospitals on behalf of the privately insured are an estimated 3 percent higher than they would be absent hospital consolidation. In some specific cases, prices have gone up as much as 50 percent post consolidation. For example, when two competing Northern California hospitals, Summit and Alta Bates, merged, prices increased between 28 and 44 percent.

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