Hence, we have seen even more health care marketplace consolidation since passage of the ACA. To be sure, most of the consolidation in hospital markets occurred during the "merger wave" of the mid-1990s. But the more important policy question today is whether the ACA has made a bad problem worse. The primary effect of the law and its increasingly dense web of regulation has been to encourage a substantial increase in vertical integration and consolidation of health care services; mostly in the form of acquisitions of physician practices by hospitals.
As my AEI colleague
The more sanguine view of this trend among ACA advocates is that it represents overdue efforts to better integrate and coordinate health care delivery, in response to the law's new payment incentives (e.g., accountable care organizations, bundled payments, electronic health records adoption, value-based reimbursement). Such increased vertical, and even horizontal, consolidation potentially could improve the allocation of health care resources through less duplication, improved transitions between sites of care, reduced hospital readmissions, and better information sharing. But it also risks coming into conflict with pro-competition policies favoring greater price transparency, improved quality reporting, and lower prices. n3 Well-integrated health provider networks, or health systems, may face less competition, lock in patients to non-interoperable health IT systems, and leverage market power across health services domains. n4
One strong factor in the move toward greater consolidation of health care services - particularly between hospitals and physicians - is the continued likelihood of tighter reimbursement limits combined with cost-increasing mandates that would shift more financial risk to providers. More physicians are selling their small practices, shedding business costs, and seeking the "shelter" of salaried arrangements with hospitals or larger physician groups. On the other end of these transactions, hospitals and physician groups that can accumulate more capital, acquire in-demand practitioners, and increase patient referrals may be tempted to gain undue market power, demand higher rates, and increase health care costs; instead of just becoming more efficient and delivering higher value care.
Thus far, those who are skeptical of such pro-competitive consolidation have past history on their side.
On the health insurance side of the market, post-ACA-enactment consolidation has not been as rapid, thus far. However, longer-term factors suggest that this is likely to change. The new health exchanges, recently relabeled "marketplaces" (without market prices!), are structured to gravitate toward more standardized corridors of coverage. They are based on a limited set of actuarial-value tiers, cost-sharing limits, and bureaucratic pre-approval; then reinforced by a broader insurance regulatory scheme of mandatory essential health benefits, first-dollar coverage of preventive services, premium rate review, new medical loss ratio (MLR) ceilings on insurers' profits and administrative costs, and a thickening web of additional "guidance."
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