CVS shook the healthcare industry in December last year when it announced its purchase of Aetna. The drug store chain’s purchase of the insurance company highlighted the growing trend of mergers in the healthcare industry. Competition between companies for healthcare data, the shift to value-based care, and changing compensation models have played a large role in pushing companies to combine. These factors, coupled with declining reimbursements, the influence of big tech companies, and the sheer size of the healthcare industry itself, have caused this glut of healthcare mergers both nationally and internationally.
Despite the optimism surrounding these new developments in the healthcare industry, they have come with some costs. In particular, the costs of healthcare delivery have increased due to consolidation. Likewise, the reduced competition in the healthcare marketplace has reduced the quality of patient care. While many players in the industry have touted this market consolidation as an improvement, it actually hurts patients and small providers alike.
The High Costs of Market Power
The consolidation of healthcare delivery itself has resulted in more expensive care, as many hospital systems with large networks charge more for the same care that smaller clinics provide. From an economic perspective these price increases make sense; the more control a company has over a certain market, the greater its power to set prices. Therefore, if one company controls most of the hospitals in one town they can increase prices. While this strategy increases profits for businesses, it clearly hurts consumers. Since healthcare companies do not disclose the prices of most of their services, high hospital bills can blindside unsuspecting patients. These high care prices also undercut the efforts of many national policy makers to lower national healthcare spending.
Squishing the Little Guy
The consolidation of healthcare markets also often occurs at the expense of smaller players in the healthcare field. The closure of many local pharmacies exemplifies this trend. The discriminatory pricing schemes of pharmaceutical benefit managers have contributed to these closures by putting smaller healthcare businesses at a competitive disadvantage and thus undercutting competition. These developments are a net negative for local communities since a large corporate entity would likely take less interest in a community than a small business.
Questionable Patient Care
The negative social externalities that accompany healthcare consolidation can possibly lead to lower quality patient care. While researchers have not conducted enough studies to produce conclusive data, a study conducted by David Meltzer, an economist and primary care physician at the University of Chicago whose research focuses on health economics , indicates that a good, long-term personal relationship between a doctor and patient can enhance patient care. The rapid consolidation of healthcare can thus make it more difficult for one primary care physician to oversee all aspects of a patient’s healthcare and to develop the deep relationship that enables better care. The standard of care should not differ from doctor to doctor, but it is likely that a doctor’s understanding of their patient and their patient’s life story can have an impact on their assessment of the potential causes of and proper treatments for health problems.
The doctor-patient relationship likely also plays a large role in assessing the impact of the social determinants of care, such as housing, income security, and environment, on one’s health status. No improvements in medical knowledge or medical technology will ever adequately substitute for this relationship, so politicians and industry leaders should respect it and account for it when making their decisions.
Healthcare going Forward
Many industry leaders driving the consolidation of healthcare often boast about the potential to lower inefficiencies and thus improve care. Given the immediate costs of this consolidation, however, one should have a healthy skepticism as to whether or not these changes will indeed lead to better care. We also should remember that the healthcare market directly affects people’s lives, and so we should consider more factors than just efficiency when evaluating changes in this industry.
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