Too much provider consolidation leads to higher healthcare costs, expert says

Too much consolidation could be driving healthcare costs up

Healthcare providers are increasing coordination to reduce the cost of care, but overly zealous consolidation can actually end up costing more, an expert panelist said at a Monday briefing.

Hospitals, nursing homes, assisted living facilities and other providers that join to create large, consolidated structures like Accountable Care Organizations wield significant pricing power in their local markets, said Robert Galvin, CEO of Equity Healthcare at the Blackstone Group.

Galvin was speaking at an Alliance for Health Reform event in Washington, D.C. Consolidation has driven payments to hospitals up about 3% on a nationwide basis, he said, citing a November 2012 report from the group Catalyst for Payment Reform. Metropolitan areas in particular have seen high levels of consolidation and consequent price increases, with mergers in the San Francisco Bay Area driving prices up nearly 40%, the report stated.

Coordination can control costs, but Galvin said problems occur when “appropriate consolidation becomes too much consolidation.” He expressed support for many of the remedies proposed by Catalyst for Payment Reform, such as improving pricing transparency and encouraging large private companies to pursue direct contracting with providers. Direct contracting might bring prices down by leading providers to innovate payment structures to win business. Antitrust regulation should also be considered, Galvin said.

Care coordination may be experiencing some growing pains, but ACOs are on the rise. Many operators see long-term care as crucial to ACOs' success in reducing rehospitalizations and extended hospital stays.