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Environmental Scan on Consolidation Trends and Impacts in Health Care Markets

HHS Assistant Secretary for Planning and Evaluation (ASPE): This contractor report describes the landscape of market consolidation across the U.S. health care system and analyzes the evidence on the price, cost, and quality effects of consolidation. An introduction written by ASPE reviews some of the key findings from the RAND analysis, and includes data analysis and national maps showing changes in health care market concentration over the past decade. The RAND report is an independent assessment and does not represent the official views of ASPE or HHS.
ASPE Executive Summary:

The No Surprises Act (NSA) of the 2021 Consolidated Appropriations Act creates protections for those with private health insurance against surprise medical bills. Under Section 109 of the NSA, the Secretary of Health and Human Services must conduct a study by January 1, 2023, and annually thereafter for the following 4 years, on the effects of the Act on any patterns of vertical or horizontal integration of health care facilities, providers, group health plans, or health insurance issuers; overall health care costs; and access to health care.  

Responsibility for the Reports to Congress has been delegated to the Office of the Assistant Secretary for Planning and Evaluation (ASPE).  We plan two major analytic tasks to set the stage for the reports to the Congress.  The first task is to establish a comprehensive baseline report that describes the landscape of market consolidation across the U.S. and analyzes the evidence on the price, cost, and quality effects of consolidation. The attached report from RAND presents the results of these analyses, and the below “Graphics Supplement” provides additional information about the concentration landscape.  The second task for the near future will be to develop the analytic models and databases that will allow us to estimate the impact of the NSA provisions on market consolidation, price, quality, and access.

The attached environmental scan discusses trends and impacts of consolidation in health care. Key findings are:

• The literature shows strong evidence that hospital horizontal consolidation increases prices for health care services and increases health care spending.  
• While not as thoroughly documented, physician horizontal consolidation has been found to increase prices for health care services.  
• Studies also find that insurer horizontal consolidation increases health insurance premiums and increase overall health care spending, with some evidence that it also reduces payment rates to health care providers.
• The literature is less conclusive on questions of how consolidation impacts health care quality and patient access.  
• The few existing evaluations on state surprise billing laws do not find direct evidence of those laws on spending, quality, patient access, and consolidation.

Markets for health insurance and health care services are not uniform across the country or over time. The variation in market concentration across geography and over time will influence the local impact of the NSA and will be an important consideration in evaluating the impact of the NSA.

In the attached “Graphics Supplement,” we present insurance and hospital market concentration measures across geographic areas and over time, based on ASPE data analyses.  The RAND report is an independent assessment and does not represent the official views of ASPE or HHS.  

RAND Summary:
Spending on health care was more than $4 trillion in 2020, representing nearly 20 percent of gross domestic product in the United States. Because continued consolidation of health care organizations might contribute to the growth in spending and affect providers, employers, and consumers, it is important to understand how markets are organized and the impacts of consolidation.
Consolidation can take different forms. Traditionally, consolidation has referred to the merger, purchase, acquisition, or ownership of entities. More recently, softer forms of consolidation are occurring, such as those involving contractual agreements between entities (e.g., clinically integrated networks) that allow for joint price negotiations. Horizontal consolidation occurs between entities offering similar services, whereas vertical consolidation occurs between entities offering different services (e.g., hospitals acquiring or affiliating with physician practices).

Consolidating organizations might integrate in various ways (e.g., structurally, functionally, and clinically). Financial integration is the most typical way consolidation entities structurally integrate. A proposed benefit of consolidation is that greater integration will lead to increased efficiencies, coordination of care, and patient outcomes. However, the achievement of these benefits is most closely tied to the ability of the consolidating organizations to clinically integrate, which has proven more challenging to achieve.  
To inform the development of NSA reports to Congress, this report provides a summary of
recent patterns of and trends in vertical or horizontal consolidation of health care facilities, providers, and health insurers; what is known about the impacts of consolidation on health care  prices, health care spending, quality of care, patient access, and health care wages; and the potential impact that the NSA provisions might have on consolidation and its effects. We conducted an environmental scan in the following domains:  

• horizontal provider consolidation
− hospitals merging with other hospitals
− physician practices merging or forming contractual arrangements with other practices

• horizontal insurer consolidation
− commercial insurers merging with other insurers
− mergers among Medicare Advantage insurers and Medicaid managed care organizations

• vertical consolidation
− hospitals or health systems acquiring or affiliating with physician practices
− integration of health care hospitals and physicians with insurers

• other areas of health care market consolidation
− pharmacy consolidation
− telehealth provider consolidation

• other topics related to consolidation
− private equity investments and ownership in nursing homes, hospitals, and physician practices
− anticompetitive practices (e.g., tiering, steering) and barriers to entry (scope of practice and certificate of need)
− charity care and medical debt
− recent trends in litigation (California v. Sutter Health, Anthem/Cigna and Aetna/Humana proposed mergers, Jefferson Health acquisition of Albert Einstein Healthcare Network)

• surprise medical billing policies
− state laws protecting consumers against surprise medical bills.

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