Bigger is Not Always Better: How Consolidation in Health Care Hurts Patients

The recent news that U.S. retail giant CVS Health will purchase insurance giant Aetna, in part to gain millions of new customers for its prescription drug and primary care businesses, is another ominous sign for patients.  Patients should worry about all the continued consolidation in the health care industry, whether it is Walgreens buying Rite-Aid to increase their pharmacy clout; Anthem’s ill-fated attempt to purchase Cigna to become an insurance monopoly; or hospital systems like Partners Healthcare in Boston trying to buy the hospitals and physician networks in and around its service area to control patient flow and increase market share.  Consolidation often limits competition, and when that happens in market-based systems especially the result, says good research, is often that the cost of health care goes up.  This does not benefit patients, who increasingly are paying more out of pocket for their insurance and for the services they receive from doctors, hospitals, labs, and drug companies.

The Affordable Care Act did little to encourage greater competition in the health care marketplace.  That was probably by design, since those creating the legislation held an implicit assumption that the bigger players in each of the different industry areas like insurance, pharmacy, and hospital care could deliver given the size of the insurance expansion the ACA would promote.  As we see from the existing premium inflation on the exchanges across the country and with prescription drugs, and the continued long delays in people’s ability to access care, this assumption was not accurate.  To the contrary, the ACA’s focus on new and unproven structures like accountable care organizations; new payment models that reward scale and resource investment in things like information technology; and rewarding those organizations that have the most comprehensive performance measurement infrastructures has encouraged the kind of profit-oriented consolidation in the industry that does less to improve the overall system.  Also, given the increased squeeze by payers like Medicare on payments to hospitals, for example, mergers and acquisitions are a natural yet dysfunctional corporate response to higher levels of uncertainty in the external health care environment.

What does this all mean on the ground for patients?  First, it means less choice from everything to where they get their medications from which doctors and hospitals they can go to.  For example, the Boston metro area is dominated by two very large delivery systems available to patients:  Partners or Beth Israel, the latter which intends to merge with Lahey Clinic, creating another care delivery giant in Boston region.  Once you are in these systems of care, increasingly they don’t let you out.  They need to capitalize on the investments made in getting bigger by forcing patients to see only their doctors, labs, and surgical centers.  Once choice is limited, prices can be increased, and without a lot of competitive pressure, for example, exerted on care quality or patient satisfaction, the systems may underinvest in these things.  Health care costs in Massachusetts are among the highest in the nation, and this reality is one reason why.

A second everyday implication of consolidation is that it makes the health care experience feel more transactional rather than relational.  A transactional experience is impersonal, standardized, and organization- rather than professional-driven.  The focus is on efficiency and the organization’s interest in turning over volume rather than the patient’s interest in tailored service delivery.  In this way, patient contact with the system becomes a maze of 800 numbers, call centers, automated replies, and web-based clicks that move us through standard templates.  Consolidation produces large, bureaucratic organizations that have a harder time seeing us as unique individuals, and catering to our parochial preferences and needs, which in health care is important for keeping patients healthy.  This often produces a generic and substandard experience for many patients; causes many to lower their expectations for what they will get for their investment of time and money; and makes us all too reliant on “the company” for taking care of us, rather than the clinician.

Should we take the waves of consolidation in all parts of the health care system more seriously in terms of its direct impact on patients?  We sure should.  Closer regulatory scrutiny would help.  Often this scrutiny is watered down in the face of specious arguments about consolidation in health care “saving jobs” and contributing positively in terms of economic impact to a given locale.  The paradoxical rationale that consolidation will reduce health care costs and improve care quality also gets put forth, even in the face of evidence to the contrary.  In a health care industry that remains beholden to market-based principles for doing business, state and federal governments must do a better job of enforcing existing anti-trust laws, certificate of need requirements, and other tools available to ensure health care competition and protect patient interests.  That said in some geographic locales and parts of the industry, it may already be too late.

Timothy Hoff, PhD is Professor of Management, Healthcare Systems, and Health Policy at Northeastern University in Boston, A Visiting Associate Fellow and Visiting Scholar at Oxford University, and author of the new book, “Next in Line:  Lowered Care Expectations in the Age of Retail- and Value-Based Health”, published by Oxford University Press.

2 replies »

  1. Health systems want to be better and want to improve how care is provided to their patients. With digitization growing at exponential rate hospitals and health systems are adapting to new solutions for providing better care to their patients.

  2. Consolidation does not help with prices, but in U.S. health care “competition” is not the fix either. Hospitals want to be larger to better negotiate with insurance companies, they never have the best interests of patients to lower prices. Relying on competition to bring down prices is like expecting competition of luxury cars will make them available to the ordinary folks. Imagine the reaction of hospital investors if an announcement was made that prices were being cut.

    Only thing that will help is regulation, like we have for state auto insurance. More regulation not competition is the answer, then the systems can get as big as they want.