Healthcare consolidation doesn't pay off for patients, experts tell lawmakers at hearing

There is little evidence that healthcare consolidation improves patient care or lowers healthcare costs, experts told lawmakers at a hearing this week. 

The House Energy and Commerce Committee's Subcommittee on Oversight and Investigations held a hearing on the matter Wednesday, and economic and health policy experts testified that most research suggests healthcare mergers have limited benefits for patients. 

There is "substantial academic literature" that shows horizontal mergers in healthcare, where providers snap up competitors, tend to lead to increased costs, said Leemore S. Dafny, Ph.D., a professor of business administration at Harvard Business School, in his statement (PDF). 

Healthcare consolidation is instead driven by a number of factors that the merging parties believe will benefit them, Dafny said. Some reimbursement rules established by the Centers for Medicare & Medicaid Services reward consolidation, and it's commonly thought that building scale will produce cost savings. 

"Healthcare consolidation is widespread and will likely continue," Dafny said. "The usual checks in place to impede anticompetitive consolidation are muted in most healthcare sectors." 

RELATED: 13 healthcare M&A deals that made headlines in 2017 

This trend isn't limited to the prices providers charge patients, said Martin S. Gaynor, Ph.D., a professor of health policy and economics at Carnegie Mellon University, in his statement (PDF). 

Insurers in markets with low competition are likely to charge higher premiums but pay less to providers, Gaynor said. He noted that insurance markets are highly consolidated, as the two largest insurers in the U.S. have a 70% stake or more in half of the insurance markets in the country. 

For example, when Aetna merged with Prudential in 1999, premiums for large employers increased by 7%, Gaynor said. 

"Insurance premiums also respond strongly to competition," Gaynor said. "Markets with more insurers have substantially lower premiums." 

RELATED: American Medical Association report—Health insurance markets increasingly concentrated 

Rep. Gregg Harper, R-Miss., the subcommittee's chairman, sought solutions Congress could take to increase competition and innovation in the healthcare space. Dafny noted that a solution backed by a number of entities—including the Medicare Payment Advisory Commission—is for Medicare to deploy site-neutral payments to avoid cost increases related to mergers. 

Rep. Joe Barton, R-Texas, also suggested the embattled 340B drug discount program plays a role in increasing consolidation, as recent research suggests that some 340B hospitals are snapping up physician groups to take advantage of the program. 

Barton suggested that all discounts from the 340B program be passed on to patients, a move Kevin A. Schulman, M.D., associate director of the Duke Clinical Research Institute, said (PDF) would "provide a huge incentive to go back to the practice model that we had that was much less expensive to consumers."  

RELATED: Hospitals, pharmaceutical companies, spar over cuts to 340B drug discount program 

Hospitals in particular have been swept up in "merger-mania" of late, with Kaufman Hall finding the number of deals increased by 13% in 2017 compared to 2016. The group doesn't see any signs of momentum for consolidation slowing down this year, either. 

The American Hospital Association issued a letter (PDF) to the subcommittee, expressing concern that the hearing would not "present a full and accurate picture" of what's driving hospitals and health systems to consolidate. 

"What is important for policymakers to understand is how the rapidly changing healthcare environment is challenging hospitals to adapt by realigning with other hospitals and with providers, such as physicians, particularly those providing essential services that might be unavailable to individuals in their community absent that alignment," wrote Tom Nickels, the AHA's executive vice president for government relations and public policy. 

The value of healthcare deals announced last year also skyrocketed, increasing by 145.8% compared to 2016. Much of this jump was bolstered by the big-ticket deal between CVS and Aetna, but even with that merger discounted from the findings the deal value was notably higher in 2017.