Environmental Scan on Consolidation Trends and Impacts in Health Care Markets

The No Surprises Act (NSA) (Division BB, Title I of the Consolidated Appropriations Act, 2021; Pub. L. 116–260) creates protections for privately insured consumers against surprise medical bills from out-of-network health care providers. Section 109 requires the Department of Health and Human Services, in conjunction with the Federal Trade Commission and the Attorney General, to prepare reports to Congress on the effects of the NSA provisions on patterns of vertical or horizontal integration of health care facilities, providers, group health plans, or individual health insurance issuers; overall health care costs; and access to health care items and services. The first report is due January 1, 2023, with subsequent reports due annually for the following four years.

The NSA aims to protect consumers from surprise medical bills and might have other effects on health care markets. To the extent that the law reduces out-of-network prices, theory suggests that in-network prices will decrease as well, given that providers’ alternative to joining a network would become less attractive and their bargaining power would subsequently decline. Changes in prices could in turn affect total spending and premiums, provider supply, access to and the quality of health care services, and providers and insurers’ decisions to consolidate.

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 study 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.

Methodology

We searched for and abstracted information from peer-reviewed and gray literature. We used existing literature reviews and supplemented with articles published after the most recently published literature review. We also conducted targeted searches for evidence not covered by existing reviews. The research team screened titles and abstracts to identify relevant articles and abstracted pertinent information into a structured template. During the abstraction process, we constructed a database of terms and definitions of measures.

We conducted a simplified assessment of methodological quality (MQ) and strength of evidence (SOE). For each empirical study, we rated MQ (high, medium, or low) based on study design and analytic techniques used. For each domain-outcome, we graded the SOE (high, moderate, low, or insufficient) based primarily on the number and MQ of studies and consideration of consistency, directness, and applicability; we then adjusted the grade of the evidence higher or lower. The SOE grades reflect RAND's assessment of the evidence and confidence in available evidence. For example, low SOE indicates limited confidence in the evidence that may be due to either few studies available or substantial inconsistency in the evidence. A domain-outcome with SOE graded low due to few studies available may still warrant the attention of policymakers.

We created summary tables to show key trends and impacts on health care prices per service paid to providers, overall health care spending (including premiums), quality of care (including clinical quality and patient experience), patient access to care, and health care wages and labor supply in the relevant domains. We indicate where gaps in the knowledge of impacts remain.

Key Findings

Table 1 shows a condensed summary of empirical evidence on consolidation effects. This study is accompanied by a spreadsheet-based evidence table (available for download at www.rand.org/t/RRA1820-1) containing the studies included in the environmental scan. We found strong evidence that hospital horizontal consolidation is associated with higher prices paid to providers and some evidence of the same for vertical consolidation of hospitals and physician practices. Health care spending is likely to increase in tandem with these price increases, although fewer studies have directly examined spending than prices. There is one possible beneficial effect for consumers: We found that horizontal consolidation of commercial insurers is associated with lower prices paid to providers as insurers gain market power in negotiations with providers. However, the lower prices paid to providers do not appear to be passed onto consumers, who face higher premiums following insurer consolidation.

There is a body of evidence examining the effects of consolidation on quality of care. Assessment of quality performance is complex and multidimensional, but studies typically examine only a small number of quality measures to assess impacts on quality of care. In addition, studies often examine a specific instance of a merger rather than examine effects nationally. Studies show mixed findings depending on the quality measures studied, setting, and degree of integration: Several studies show no change in most quality measures following horizontal and vertical consolidation. Some studies show a decline in some measures of quality performance following horizontal consolidation, although two studies show an improvement in quality of care (following a rural hospital merger and an urban safety net hospital merger with “full integration”).¹ Other studies find mixed effects that vary with the degree of vertical integration. There is insufficient evidence of the effects of horizontal or vertical consolidation on patient access to care, and low or insufficient evidence on the effects of consolidation on health care wages.

Although there has been increasing interest in consolidation in pharmacy and telehealth provider markets, private equity ownership and investment, and anticompetitive practices, we found insufficient or weak evidence on the effects of these changes in the health care market. Most of the empirical studies we found on private equity investments focused on nursing homes, and findings were either mixed or too limited to draw clear conclusions.

We found moderate evidence that an expanding scope of practice is associated with, if anything, a decrease in health care spending and increase in access to care and quality of care, but we found insufficient evidence on the effects on health care prices and wages. We also found moderate evidence that certificate of need laws are associated with no change or a decrease in health care quality, but the evidence was low or insufficient for other outcomes.²

We found limited mixed evidence on the effects of hospital and physician consolidation on the provision of charity care and insufficient evidence on medical debt burden and collection (not shown in Table 1). We found no studies examining the effects of insurer consolidation on charity care and medical debt.

State surprise billing protections are relatively new, and the effects on prices have been heterogeneous depending on the various approaches taken and their implementation. Few studies have examined outcomes other than prices.

Gaps in Evidence

Using our review of the literature, we identified several gaps in our understanding of the impacts of consolidation. These include the following:

• Evidence is lacking on the effects of nonownership forms of consolidation that involve contractual arrangements or memorandum of understanding agreements between hospitals or health systems and physicians. A key challenge to assessing the impacts of these softer forms of consolidation is the lack of data that identifies and maps these nonownership relationships because existing administrative data sets do not capture these relationships.
• There is an incomplete understanding of consolidation effects on quality of care across a broad set of quality dimensions. Quality performance has many dimensions, and most studies assessing impacts do not broadly assess quality of care. Furthermore, studies might use different measures that make comparisons of findings between studies challenging. Studies that assess impacts on quality of care tend to rely on measures that can be constructed using claims data; however, many aspects of clinical quality that would be useful to understand the impacts of consolidation can only be assessed using clinical data contained in electronic medical records, which are not routinely available to evaluators.
• The evidence on consolidation effects on quality of care is mostly limited to the average effects and does not examine the heterogeneity in effects (1) for different settings and subpopulations and (2) by the degree of integration. Findings might vary across the different quality measures and settings examined and the degree of integration. Further examination is needed to understand how effects might be heterogenous across subpopulations (e.g., dual eligible and disabled populations) because the average effects might not reflect the experience of all groups.
• Insufficient evidence exists on consolidation effects on patient access. There might be particular concern about access in rural settings and among vulnerable populations.
• There is limited direct evidence on insurer consolidation effects on health care prices. Understanding the effects of consolidation on prices paid to providers has proven challenging because of the lack of readily available data on actual prices paid to providers. All-payer claims databases (ACPDs) and price transparency initiatives that disclose actual prices paid to providers could enable researchers and policymakers to study price effects following consolidation. Not all states have ACPDs and there is no federal ACPD; as of this writing, 31 states have an ACPD or are in the process of developing one. These data will be a valuable resource for understanding the effects of consolidation on prices paid to providers.
• There is a lack of evidence on the effects of private equity acquisitions. Most existing research to date has focused on nursing homes and has thereby yielded limited insights into sectors of recent private equity growth, particularly physician practices and behavioral treatment centers. One challenge is that data are difficult to obtain to track private equity acquisitions and investments over time and to evaluate their impact.
• Few evaluations of state surprise billing laws exist, and there is no direct evidence on the effects on spending, quality, patient access, and consolidation. Filling this gap in evidence will be important for informing assessments of the NSA and improving state payment methodologies, which will continue to preempt the NSA for state-regulated plans.

Understanding the gaps in knowledge regarding the impacts of consolidation might help inform future data analyses conducted in support of the NSA report to Congress and research by the Office of the Assistant Secretary for Planning and Evaluation, Department of Health and Human Services, other federal and state agencies, and researchers.