Matthew Grennan, an associate professor of economics at Emory University, is one of the study's authors.
New research published today by the National Bureau of Economic Research
finds that the widespread, rapid acquisition of private physician practices by hospitals is pushing up health care prices across the United States.
The share of private physician practices acquired by a hospital rose nationally by 71.5% from 2008-16, posing new challenges for regulators who don't have the resources to block the thousands of such deals that are occurring annually.
Past research has shown that horizontal hospital mergers — when one hospital buys another — push up the cost of care and lead to local job losses. The new research identifies vertical mergers between hospitals and physician practices as yet another vehicle for rising health care prices.
"Across the economy, from tech to health care, we have seen increasing numbers of non-horizontal mergers between firms who complement each other. In the context we study, hospital systems have acquired so many physician practices that a majority of physicians in the United States now work for hospitals," says Matthew Grennan, an associate professor of economics at Emory University and one of the study's authors.
"This paper provides empirical evidence consistent with some of the leading theories for how these non-horizontal mergers can result in anticompetitive price increases. As a result, I think economists and others in the antitrust community are likely to give more careful consideration to these potential sources of harm," Grennan says.
Read the policy brief from Yale's Tobin Center for Economic Policy.
New findings:
- Hospitals are buying private practices at a rapid pace. From 2008-16, the share of physician practices owned by a hospital rose by 71.5%. By 2016, 47.2% of private practices were owned by a hospital.
- When hospitals buy private practices, hospital and physician prices go up. Two years after a hospital buys an OB-GYN practice, prices for labor and delivery are up by $475, an increase of 3.3%. Physician prices are up $502, an increase of 15.1%.
- Price increases after these mergers are driven by reduced competition. Prices for physicians who were already merged into a hospital at the time of a new merger increased by 9%. It's unlikely that these practices had a sudden change in quality or bargaining ability just before the new practice was merged.
- These mergers are challenging for regulators to observe. Estimated deal valuations of 99.9% of physician-hospital mergers observed by the researchers were below Hart–Scott–Rodino (HSR) merger reporting thresholds.
Moving forward, policymakers should scrutinize physician/hospital mergers and end financial incentives that encourage these transactions, the researchers say. For example, Medicare should pay physicians the same rates whether or not they are employed by a hospital, a practice often referred to as "site neutral billings."
When mergers do occur, regulators at the FTC and other agencies should focus their attention on those with greater scope to reduce competition. States could also play an important role by requiring hospitals and physicians to provide evidence on the benefits of their transaction in order to merge, according to the researchers.
The research team includes Zack Cooper, Yale University and the NBER; Stuart V. Craig, University of Wisconsin, Madison; Aristotelis Epanomeritakis, Harvard University; Matthew Grennan, Emory University and the NBER; Joseph R. Martinez, University of California, San Francisco; Fiona Scott Morton, Yale University and the NBER; and Ashley Swanson, University of Wisconsin, Madison and the NBER.
