By: Nick Bonds, Esq.
National spending on healthcare was approximately $74 billion in 1970. Fast-forward to 2022, the growth alone on healthcare spending from 2021 was $175 billion, topping out around $4.5 trillion total spending for that year. It’s a well-worn saying in the healthcare industry but it still rings true: “It’s the prices, stupid.” Every ounce of work and creativity that we at The Phia Group, and many of our colleagues in the industry, pour into trying to reduce healthcare costs may ultimately be for naught if the prices continue to rise indefinitely. One of the driving factors behind those ever-increasing costs: consolidation.
Consolidation has been steadily taking hold over the last 30 years but was punched into lightspeed by the pandemic. Large corporations (e.g., Amazon, UnitedHealth) and private equity firms have been buying up physician practices and smaller independent hospital systems. Like in every industry, consolidation of health systems pushes costs skyward. Bigger entities with fewer competitors means the people calling the shots at those health systems have little incentive to keep costs low. A study by Harvard’s National Bureau of Economic Research (NBER) has shown that consolidated health systems offer at best marginally better patient care at substantially higher costs than independent providers and hospitals. The prices paid to these consolidated health systems, those with effective monopolies in their areas, were found to be “12%-26% higher for physician services, 31% for hospital services,” for again only marginally better care.
More than simply increasing what patients and their health plans pay for healthcare, consolidation has been proven to hurt many of the providers and employees of these consolidated systems, too. Research by the Washington Center for Equitable Growth has demonstrated that when hospitals no longer have to compete based on quality metrics, they stop investing in innovation and technology, clinician and employee wages stagnate, facilities and services get pared down, and prices continue to rise without any commensurate increase in the quality of care.
Thankfully, the U.S. Department of Justice’s (DOJ’s) Antitrust Division has finally stepped up to try and fix the broken health system market. This May, the DOJ announced the formation of the Antitrust Division’s Task Force on Health Care Monopolies and Collusion (HCMC). This task force’s primary objective is to enhance DOL scrutiny of healthcare platforms that integrate doctors with insurers, data, and other assets and to recommend steps to address the lack of competition in the healthcare market.
It's far from a silver bullet, but any steps to break up the anticompetitive streak that has taken deep root in our industry can go a long way toward finally tackling the prices side of the equation and keeping healthcare affordable for participants and plans alike.