Office of the Insurance Commissioner

According to a recent report from the Health Research Institute at PricewaterhouseCoopers, there were 255 health care merger and acquisition deals in Q2 of 2018. Though this number represents an overall reduction in health care deals over Q1, as evidenced by CVS’s proposed $69 billion merger with Aetna and Cigna’s merger with Express Scripts, the broader trend toward consolidation in health care continues.

Given the potential benefits of consolidation, it is no surprise that merger and acquisition activity is on the rise. A study by Charles River Associates (involving interviews with executives from 20 different hospital systems) indicated that hospital mergers result in reduced costs of capital and clinical standardization, leading to a 2.5 percent reduction in annual operating expenses per admission at acquired hospitals. According to the study, the average annual operating expense of the merging hospitals in the study, approximately $235 million, implied a merger-related annual savings of $5.8 million at each hospital.

Though consolidation offers many benefits, questions remain about whether consolidation, at least in its current form, will lead to lower-cost care for patients. A study analyzing consolidation in California found that consumers in health care markets in Northern California, which are “considerably more concentrated” than Southern California, pay 20 to 30 percent more for medical procedures than residents in Southern California. Even after cost-of-living adjustments, the study found that residents are paying 32 percent more for inpatient care, 28 percent more for outpatient care, and nearly 10 percent more in premiums. Some wonder whether increasing patient costs in these concentrated markets are a sign of what is to come if consolidation continues; as large medical groups become the norm, will it become more difficult for insurance companies to negotiate lower rates?
Continue Reading Health Care Consolidation: Keeping Patients in Mind