Healthcare prices increased as healthcare providers expanded their market power through mergers and acquisitions, according to two recent studies discussed in Kellogg Insight.
In two separate studies, David Dranove, PhD, a Kellogg professor of strategy at Evanston, Ill.-based Northwestern University; Christopher Ody, PhD, a research assistant professor of strategy at Northwestern; and Cory Capps, PhD, of Bates White Economic Consulting in Washington, D.C., analyzed healthcare consolidation. They compared data on what physicians charged for the same services before and after acquisition by a hospital.
Here are four takeaways from the studies.
1. Using health insurance claims covering approximately 12 percent of the U.S. population, the researchers found nearly 10 percent of physician practices in the data were acquired by a hospital from 2007 to 2013. Prices for the services provided by the acquired physician practices increased an average of 14 percent, according to the report.
2. "The rising prices are partly due to 'mechanical elements' of how prices are set in contracts" with insurers, Dr. Dranove told Kellogg Insight. That's because insurers often contract with hospitals for higher rates than they would with a physician group. Dr. Dranove added, "When a hospital owns a physician practice, they gain market power."
3. In a separate study using the same insurance claims data across 1,117 physician markets, the researchers analyzed whether mergers between hospitals and physicians create uncompetitive markets. The researchers found while 22 percent of markets studied are anticompetitive by federal guidelines, only 28 percent of those markets include a single acquisition federal authorities would have categorized as anticompetitive.
4. "Deals are usually investigated for antitrust issues one transaction at a time," Dr. Dranove told Kellogg Insight. "These physician-group acquisitions tend to be very small, such that individually they're not anticompetitive. Even if deals involved 10 doctors at a time, they probably wouldn't get much attention. But collectively they can definitely be anticompetitive, over time."
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