The Impact of Hospital Consolidation

This brief is an update of the 2006 synthesis examining the impact of hospital mergers on prices, costs, and quality of care. In addition to examining the literature on hospital consolidation since the 2006 synthesis was published, this update reviews the evidence on physician-hospital consolidation. The Patient Protection and Affordable Care Act (ACA) promotes Accountable Care Organizations (ACOs) and the bundling of payments across providers for an episode of care (“bundled payments”), both of which encourage consolidation between hospitals and physician practices.

Key Findings:

Hospital consolidation generally results in higher prices. This is true across geographic markets and different data sources. When hospitals merge in already concentrated markets, the price increase can be dramatic, often exceeding 20 percent.

Hospital competition improves quality of care. This is true under both administered price systems, such as Medicare and the English National Health Service, and market determined pricing such as the private health insurance market. The evidence is more mixed from studies of market determined systems, however.

Physician-hospital consolidation has not led to either improved quality or reduced costs. Studies find that consolidation was primarily for the purpose of enhanced bargaining power with payers, and hence did not lead to true integration. Consolidation without integration does not lead to enhanced performance.