Consolidation The Basics
Connecticut’s healthcare market is consolidated into a few large health systems. Hospitals are merging together (horizontal integration), and physicians are joining the systems (vertical integration). This concentration of providers has led to higher prices demanded by the growing monopolies, raising insurance premiums, closing services such as Maternity and Delivery Care, increased burdens on over-stressed hospital staff, and increased consumer out-of-pocket costs. Promises of improved quality have not borne out. Other states have passed measures to make their markets more competitive, helping to control costs.
Consolidation Deeper Dive
Are Connecticut’s healthcare systems getting bigger? What does it mean?
Like the rest of the country, Connecticut’s healthcare market is consolidating into a few large health systems. Hospital mergers are growing quickly in our state (horizontal consolidation) and Connecticut physicians are increasingly joining large health systems (vertical consolidation). There are fewer hospitals and practices that are not affiliated with one of the large health systems. While this consolidation started years ago, the financial and administrative pressures of COVID accelerated the trend.
What is the impact?
As large health systems become monopolies in areas of the state, they can squeeze out competition and demand higher prices, without providing improved quality or access to care. There is clear evidence that consolidation in health markets increases prices with no improvement in the quality or access to care. Hospital consolidation adds to stress for clinical staff and reduces nurses’ wages.
Consolidation also reduces consumer choice and risks access to care. Hospital consolidation led to recent closings of essential birthing centers in Connecticut, reducing access to critical maternity care in our state.
Consolidation also creates massive stresses on hospital staff, who have nowhere else to practice. The Federal Trade Commission cited labor concerns in their decision to challenge a merger in Rhode Island.
In a public statement, the Federal Trade Commission stated, “Many of the purported benefits of hospital mergers – including coordination of patient care, sharing information through electronic medical records, population health management, risk-based contracting, standardizing care, and joint purchasing – can often be achieved through alternative means that do not impair competition.”
Why is healthcare getting more consolidated?
There are several trends driving consolidation. Health systems have a financial incentive to merge and acquire competitors. As systems get larger, they can demand higher prices from insurers, driving up revenue and profits. Consolidation is also an unintended consequence of payment reform efforts and the Affordable Care Act. The reforms were intended to integrate providers across systems into Accountable Care Organizations to reduce duplication of services, improve provider communication and patient safety, to improve the value of care. However, in practice, integration has fostered consolidation which has created significant barriers to value-based payment and improving health equity.
The state regulatory process, Certificate of Need (CON), that is meant to protect Connecticut’s healthcare market, is failing. While Connecticut has among the best CON laws in the nation, our state’s process has not protected competition and is biased toward the applicants who want to merge. From July 2016 through last August, of all 74 CON decisions, the state Office of Health Strategy approved all but three.
What can government do to counter the harm?
Connecticut can pass laws to prohibit anti-competitive contract clauses, mitigating large health systems’ ability to jack up prices. For example, in consolidated markets like Connecticut’s, insurers and employers must include a hospital or other provider in their network because there are no other alternatives. Through anti-competitive contract clauses, a health system can then link a must-have provider to others in competitive markets. These clauses allow big health systems to name their own price for all their providers, not just the must-have entity. In the 2022 legislative session, a bill to prohibit these clauses passed Connecticut’s state Senate with 29 votes in favor and 4 opposed. The bill did not come up for a vote in the House of Representatives.
Connecticut could also strengthen the CON process to explicitly promote market competition in their decisions. A task force was created in 2022 to consider changes to the CON process. It’s unclear if CON can or should be salvaged; other states have done away with it and prices didn’t change. In 2016 another legislative taskforce recommended protecting and strengthening market competition in CON decisions, but nothing changed.
The Biden administration has prioritized promoting competitive markets, including healthcare. Both the Federal Trade Commission and the Department of Justice have increased actions to support competition, blocking four proposed healthcare mergers and expecting to do more.
In the absence of government action, two lawsuits have been filed in Connecticut to correct alleged anti-competitive behavior by one large health system. One is a class action suit, alleging that the health system has used its monopoly power and anti-competitive contract clauses to raise prices above market rates raising healthcare costs for consumers. Similar lawsuits have been filed in other states.
Without government action, it is likely that consolidation in healthcare will grow in Connecticut. This will raise prices and the burden on state businesses, government, and household budgets, and access to care will suffer.