Are mergers driving up the cost of healthcare? 4 things to know

Everyone can agree that healthcare costs are rising, though perhaps not on the root cause. But, amongst the myriad factors contributing to bloated healthcare spending, one may stand out as a leading cause, according to a report by The Wall Street Journal.

Mergers and acquisition activity has taken on a feverish quality over the past few years. Ostensibly, hospital and health system mergers and physician practice acquisitions are a strategic move towards clinical integration and a hopeful safeguard against the uncertainty in healthcare. Here are four things to know about how mergers could be contributing to steadily climbing costs, according to the report.

1. Across the country, private insurance payments to hospitals have risen 3 percent due to consolidation, according to a 2012 Catalyst for Payment Reform report.

2. Post-acquisition, hospitals have been known to hike prices significantly. For example, an analysis performed by a Federal Trade Commission economist revealed that San Francisco Bay Area hospitals Summit and Alta Bates increased prices by 28 percent to 44 percent after merging in 1999.

3. Historically, competition has been considered a staple of cost reduction. On the flip side, consolidation reduces the amount of competition and causes prices to soar. Research conducted by the FTC's Martin Gaynor and University of Pennsylvania Professor Robert Town suggests consolidation that occurs in already concentrated markets can lead to price increases in excess of 20 percent, according to the report.

4. The WSJ report suggests that the goal of cost reduction can be achieved without consolidation, but rather with the exploration of different structures of care. For example, independent physician practices can play a role in improving efficiency and reducing waste by participating in accountable care organizations. But, consumers will have to be wary of excessive provider market share, even in the case of ACOs.

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