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The Pandemic Will Fuel Consolidation in U.S. Health Care


Published March 9, 2021, in the Harvard Business Review. Reposted with permission.

Concentration in the U.S. health care sector has been on the rise over the past two decades. Starting with horizontal consolidation, it has spread to vertical mergers and acquisitions and megamergers of national players at multiple levels of the supply chain. Given the financial difficulty that many providers have suffered during the pandemic, this trend is likely to continue, reducing competition and increasing prices. In light of this danger, Congress and regulators should take steps now to more fully assess the impact and curb those combinations that adversely impact payers and patients.

Studies to date tend to rebut the argument that acquisitions improve efficiencies, reduce costs, and lead to better care coordination. Instead, they show that consolidation increases prices and fails to improve the quality of care. For example, hospitals’ acquisitions of physicians’ practices in California has been linked to higher prices for primary care and specialist services and to increases in insurance premiums.

There is some help on the way. In January, the Federal Trade Commission (FTC) issued orders to six large insurers (Aetna, Anthem, Florida Blue, Cigna, Health Care Service Corporation, and UnitedHealthcare) to provide commercial claims data for hospital inpatient and outpatient and physician services in 15 states from 2015 to 2020. These directives aim to provide more detailed evidence about how mergers of physician practice and hospitals’ acquisitions of physician practices affect competition. And this potentially opens the door for oversight at the state and federal level.

But the FTC’s actions won’t necessarily prompt more aggressive antitrust enforcement. That’s because the majority of individual transactions are too small to require federal reporting even though the acquisition of several smaller provider organizations can collectively lead to significant market concentration that seriously weakens the level of competition.

Other kinds of mergers that currently are escaping scrutiny include insurers’ acquisitions of physician practices, other providers, and pharmaceutical benefit managers (PBMs), and pharmacies integrating with PBMs. Because these entities don’t compete against each other directly, their mergers may not appear anticompetitive at first blush. But there is real potential that they will significantly impede competition and raise prices.

With so little transparency about how these companies operate, transfer money internally, or treat others in the market, there is ample opportunity for merged entities to engage in gaming and anticompetitive actions that disadvantage other market players, decrease options for consumers, and drive health care spending higher. Examples include the following:

  • A health plan can manipulate its medical loss ratio, which is meant to cap profits, by simply shifting statutorily prohibited profits to a different business unit within the same company.
  • Dominant providers can offer lower rates preferentially to their parent insurer, thereby disadvantaging rival insurance plans and ultimately making it more difficult for other plans to compete on the basis of the premiums they charge and driving them out of the market.
  • Insurers can adopt practices that maximize their PBM revenue, while driving up costs for patients, employers, and the government.
  • Dominant “must have” providers can extend anticompetitive contract terms to acquired physician practices — an issue at the center of the recent California v. Sutter Health System settlement.

But studying many of these issues isn’t possible with the data currently available; action from an agency with subpoena power will be required.

There are several steps that Congress and the FTC can take to further evaluate and mitigate the adverse effects of consolidation in the health care market. As recently suggested by the Commonwealth Fund Task Force on Payment and Delivery System Reform, Congress and the agency could:

  • Evaluate the impact of “payviders” — integrated payer and provider groups — on quality, equity, access, and cost of care
  • Evaluate the effect of mergers and acquisitions among PBMs, retail pharmacy chains, pharmacy services administrative organizations, and insurers on drug purchasing, distribution, and pricing
  • Prohibit or restrict use of anticompetitive contract provisions, including anti-tiering and anti-steering provisions, nondisclosure agreements, and all-or-nothing provisions
  • Require all health care entities to report merger-and-acquisition activities, regardless of value, to state attorneys general
  • Expand the FTC’s ability to enforce antitrust laws against noncompetitive behavior in the health care industry — for example, by authorizing investigations into, and actions against, smaller mergers and anticompetitive behaviors by not-for-profit firms

We know with near certainty that big systems and insurers will be going on a shopping spree for struggling providers after the pandemic subsides. By taking action now, Congress and regulators can help prevent market distortions that could adversely affect the cost and quality of care.

Publication Details



Lovisa Gustafsson, Vice President, Controlling Health Care Costs, The Commonwealth Fund

[email protected]


Lovisa Gustafsson and David Blumenthal, “The Pandemic Will Fuel Consolidation in U.S. Health Care,” Harvard Business Review, Mar. 9, 2021.