Health Policy$ense

Provider Consolidation and Integrated Care – the Latest Research and Analysis

Recently we’ve noticed a great deal of emerging research evidence and analysis on provider consolidation and integrated care. An abundance of riches! Here we’ve pulled out the angles of the different analyses and brought together key resources.

Update May 2015

LDI’s Lawton R. Burns has new research on costs in hospital systems from which he concludes that the story of hospital system formation is one of diseconomies of scale. He and colleagues find that hospital systems lead to higher operating costs compared to freestanding community facilities. Moreover, the bigger the system the higher the costs.

Burns also recently spoke on a panel at the Federal Trade Commission’s (FTC) Examining Health Care Competition Workshop in Washington, D.C. He addressed vertical integration - between physicians and hospitals as well as payers and providers. 

What is the impact of provider consolidation on quality of care and cost?

  • LDI’s Lawton R. Burns and colleagues have analysis on integrated delivery networks (IDNs), which they define as vertically integrated health services networks that include physicians, hospitals, post-acute services and/or health plans, or fully integrated provider systems inside a health plan. They find “scant evidence” of improved quality, lower cost per case, or greater societal benefit of IDNs. In Modern Healthcare, they question whether for IDNs the whole is less than the sum of the parts.
  • In earlier work on horizontal and vertical integration of physicians, Burns and colleagues also find little evidence for the superiority of integrated models in terms of patient care quality or cost-savings.
  • LDI’s Robert Town and Carnegie Mellon’s Martin Gaynor have extensively studied the impact of hospital consolidation and conclude that it generally results in higher prices.  They found that hospital competition improves quality of care, and physician-hospital consolidation has not led to either improved quality or reduced costs. They posit that because the main purpose of consolidation has been enhanced bargaining power with payers, not true integration, it has not led to enhanced performance.
  • Austin Frakt and colleagues have researched provider integration, premiums and quality in the Medicare Advantage market specifically.  They found that integrated plan–providers charge higher premiums, controlling for quality.


What about decreased competition and potential monopolies?

  • In the New England Journal of Medicine, Edith Ramirez, Chair of the Federal Trade Commission (FTC) looks at antitrust enforcement in health care and whether health care markets should be treated any differently. Critics argue that enforcement of antitrust laws undermines efforts to contain costs through provider collaboration and is therefore at odds with the policy aims of the Affordable Care Act. Ramirez responds to this by emphasizing that antitrust analysis takes into account both cost and quality considerations. When reviewing a hospital merger, for instance, the FTC focuses not only on whether the transaction will most likely have anticompetitive impact, such as higher prices or other harms, but also on whether it will raise the quality of health care services.
  • At a 2014 conference in Washington, D.C. co-sponsored by LDI and the Penn Wharton Public Policy Initiative, LDI’s Robert Town moderated an expert panel on ‘Provider Consolidation, Integration, ACOs and Competition Policy’. Key issues explored by panelists – Michael Vita of the FTC, Kate Ho of Columbia University, Aviv Nevo of Northwestern University - include the evidence that vertically integrated systems like Kaiser Permanente can foster high quality and relatively low cost. But, they stress, this does not mean that allowing hospital and physician groups in other areas to merge will produce the same outcome.
  • Also see recent work by Robert Town, Martin Gaynor and Kate Ho, analyzing health care markets through the lens of industrial organization economics. They focus on the impact of competition on price, quality and treatment decisions for health care providers and health insurers.


What is the relationship with health reform? 

Writing on the AcademyHealth blog, Austin Frakt examines the evidence of how consolidation affects cost and quality, and what that means for health reform efforts. Frakt suggest that if there are efficiency gains, they are accruing to providers rather than to patients. The hope is that new payment structures encouraged by the ACA will promote lower prices — which would benefit patients if insurers pass them along in lower premiums — even as they promote consolidation. Can changes in the way care is delivered offset the cost- (or price-) increasing effects of consolidation and improve quality? Frakt says more evidence is needed. 

  • For a good view of the moves health systems are making in a specific market, see Dan Goldberg’s article on New York’s five large health systems.  Writing in Capital Magazine, he describes the strategies each system is using---mergers, acquisitions, and affiliations—to adjust to the new health care landscape.
  • Goldberg has put together a ‘tip sheet’ for his colleagues covering health care mergers and consolidations. It is also a useful resource for the armchair policy wonk to think through the changing dynamics of health care markets in the post-ACA world.