Consolidation The Basics
Connecticut’s healthcare market is consolidated into a few large health systems. Hospitals are merging with each other, and physician practices are joining the big systems. This concentration of providers has led to higher prices demanded by the growing monopolies, raising insurance premiums, closing critical services such as maternity and delivery care, more burdens on over-stressed hospital staff, and rising consumer out-of-pocket costs. Promises of improved quality have not borne out; in fact, quality of care is often lower than before the merger. Under the Biden administration, federal regulators are halting mergers that limit competition. Connecticut has joined other states by passing measures to make markets more competitive, helping to control costs. But consolidation is difficult to mitigate once in place.
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 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.
A 2024 report by Connecticut’s Office of Health Strategy found that between 2013 and 2021, hospital consolidation led to less competition for services, faster price growth, and higher hospital profits. The researchers also found more use of high-profit services, especially for private insurance, in consolidated markets.
What is the impact?
As large health systems become monopolies in areas of the state, they can squeeze out competition and demand higher prices. There is clear evidence that consolidation in health markets increases prices with no improvement in the quality or access to care. in fact, there is evidence that quality is eroded as prices rise when systems consolidate. Hospital consolidation adds to stress for clinical staff and reduces nurses’ wages.
A recent national study linked hospital consolidation and the resulting higher prices with broad economic impacts such as job losses, lower federal tax payments, and increased unemployment insurance costs in affected counties.
Consolidation 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. Primary care practices acquired by large health systems are more likely to drive patients into more specialty care within the system, increasing costs with no improvement in health outcomes.
Consolidation 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.
Why is healthcare getting more consolidated?
There are several trends driving consolidation. Health systems have a financial incentive to acquire competitors and create local monopolies. 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 (ACOs) to reduce duplication of services, improve provider communication, patient safety, and the value of care. However in practice, integration has only 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 August 2022, of all 74 CON decisions, the state Office of Health Strategy approved all but three.
What can government do to counter the harm?
States can pass laws to prohibit anti-competitive contract clauses, mitigating large health systems’ ability to jack up prices. In 2022, Connecticut passed legislation to restore competition in our consolidated hospital market.
For example, in consolidated markets like Connecticut’s, insurers and employers must include a hospital or other provider in their network because if there are no other alternatives in the area – a must-have provider. Before passage of the bill, a health system could link a must-have provider to others in competitive markets through anti-competitive contract clauses. These clauses allowed big health systems to name their own price for all their providers, not just the must-have entity. They could also require insurers place them in the lowest cost tier for consumers, regardless of price or quality. This dries up revenue for better-performing competitors, driving them out of business and reducing consumer choice. The new law makes these clauses illegal. Also under the new law, insurers must publicly disclose the quality and price standards for tiers.
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. In 2016 another legislative taskforce recommended protecting and strengthening market competition in CON decisions, but nothing changed. It’s unclear if CON can or should be salvaged; other states have done away with it and prices didn’t change.
The Biden administration prioritized promoting competitive markets, including healthcare. Both the Federal Trade Commission and the Department of Justice have increased actions to support competition, blocking proposed healthcare mergers. 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.”
In addition, three lawsuits have been filed in Connecticut to correct alleged anti-competitive behavior by Hartford Healthcare. One is a class action suit, alleging that Hartford Healthcare has used its monopoly power and anti-competitive contract clauses to raise prices above market rates raising healthcare costs for consumers. Another was filed by St. Francis, part of a competing hospital system, and the most recent was filed on behalf of health plans. All allege the same anti-competitive behaviors, driving up healthcare costs and driving competitors out of business. Similar lawsuits have been filed in other states.
Future
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.
Updated August 21, 2024