Hospital Consolidation Across Geographic Markets: Insights from Market Participants on Mechanisms for Price Increases

Consolidation among health systems has resulted in increased prices and has caused the cost of employer-sponsored health benefits to increase much faster than inflation over the past few decades. Earlier quantitative research shows small but significant price increases resulting from transactions that expand the geographic footprint of health systems, but the mechanisms by which these cross-market acquisitions raise prices is not completely resolved.

In this qualitative study, the authors interview market participants to elucidate the experience of employers, insurers, and others when negotiating with large health systems.

The respondents report that employer demand for broad, stable provider networks and a lack of employer support for insurers when negotiating with large health systems undermined insurers' ability to negotiate lower prices. Additionally, the interviews identified the widespread use of restrictive contract terms by health systems and misaligned financial incentives between employers and consultants engaged to act on their behalf.

Without government action, employers will be unable to restrain price increases that result from increasing market power of consolidated health systems. The authors identify policy levers that regulators can use to increase competition, but the oligopolistic nature of many health care markets in the United States suggest that even more significant government action may be needed.