More Provider Consolidation in Face of Health Care Reform

Today’s Managing Health Care Costs Indicator is 53%

 That's the portion of cardiologists who have already sold their practices to hospitals (40%) or are strongly considering sale of their practices in the next three years  

Here's a link to a March, 2010 NY Times story on physicians abandoning private practice.

There are a series of articles out over the last few weeks about how health care reform is leading to consolidation.

On the provider side, the AMA News reports on insurer consolidation (including United Health Care taking over business from Health Net and Principal) and hospital consolidation (including a two hospital merger in Chicago and a physician group merger with a hospital in Michigan). 

Here’s a quote from the physician leader of the group merging with a hospital:

"Hospitals and physicians together are facing future expectations for rapid improvements in quality of care and value as accountable health networks that would be difficult to achieve independently," 

Kaiser Health Network in collaboration with NPR pointed out that there are few physicians hanging out shingles at this point; most join hospitals or groups.    What does consolidation mean for overall health care costs? 

Here’s Paul Ginsburg of the Center for the Study of Health System Change on provider consolidation:

 “..hospitals that employ doctors generally have more negotiating clout with insurers than doctors working in private practice. The price difference can be so big … that hospitals can pay the doctors more and ‘still have something left over’ for themselves.

Kaiser Family Foundation also produced an impressive article last week on the varied prices of hospitalizations by county in California.  

My take is that provider consolidation is likely to lead to better integration, better access to capital, better implementation of electronic health records and other health care IT and better coordination – but higher unit prices. See this post from August on what questions regulators should ask about provider consolidation. 

I’ve argued earlier that the small “boutique” health plans with very little concentrated membership have low leverage in provider negotiations. Hence, they are likely to pay high prices – and their disappearance will likely lower overall health care costs.   More competition can be good – but too much fragmentation in the health insurer business is likely to lead to high unit prices.