Consolidation in Health Plan and Hospital Markets: Implications for Hospital Prices

April 2013

Over the past two decades, a wave of hospital mergers and acquisitions has resulted in many highly concentrated hospital markets across the United States.  This phenomenon has raised concerns that consolidated hospitals are using their increased bargaining power to secure higher prices from health plans, thereby adding to the nation’s already unmanageable health care costs.  For their part, hospitals and other health care providers point out that consolidation among health plans has also occurred in recent years.  Hospitals warn that health plans’ power to drive down provider prices could have serious implications for quality of care and patients’ access to it.

In a HCFO-funded study, Glenn Melnick, Ph.D., University of Southern California, and Yu-Chu Shen, Ph.D., Naval Postgraduate School, studied how both health plan market concentration and hospital market concentration interact to affect hospital prices and ultimately consumer welfare.  Using descriptive and statistical analyses, the researchers described the markets in which most hospitals operate, assessed the implications for hospital prices, and identified strategies for promoting competition in the post-health reform era.