Hospital Acquisition of Physician Practices Harms Competition, Drives Up Prices

A new study raises concerns about the unchecked impact of hospital-physician consolidation on costs and market dynamics.

Hospitals have increasingly acquired physician practices in recent years, and new research reveals that the consequences of this vertical consolidation are proving harmful.

The working paper, published by the National Bureau of Economic Research, examined the impact of hospitals acquiring OB-GYN practices between 2008 and 2016 and found that these acquisitions resulted in significant price increases for both physician and hospital services.

The share of physician practices acquired by hospitals increased nationally by 71.5% over the period examined, from 27.5% in 2008 to 47.2% in 2016.

Two years after a hospital acquires a physician group, prices for physician services increased by $502, or 15.1%, while hospital charges for related services like labor and delivery increased by $475, or 3.3%, according to the study.

Importantly, the researchers found no evidence that these price hikes were tied to improvements in care quality. Instead, the findings suggest that vertical consolidation reduces market competition and allows health systems to increase prices across broader geographic areas, even affecting providers not directly involved in the acquisition.

Researchers highlighted that prices for physicians who are already integrated at a hospital increase by 9% after their hospital acquires additional physician s within their specialty.

“Given that these physicians’ integration status did not change, it is unlikely that a sudden change in their quality or bargaining ability precipitated the price increase we observed,” the authors wrote. “This suggests that the price increases were the result of a lessening of competition.”

The study also underscores a gap in regulatory oversight. Nearly all of the acquisitions studied, or 99.9%, were too small to trigger antitrust review under Hart-Scott-Rodino federal merger-reporting thresholds. Still, their cumulative effect contributed to broad market-level price increases.

“While evaluating all of these acquisitions might be challenging under current processes, our estimates suggest the scale of consumer harm generated by these transactions in aggregate is similar in magnitude to that of horizontal hospital mergers, which have been of great interest to regulators,” the authors concluded.

Federal Trade Commission (FTC) antitrust underenforcement has been a topic of contention for policymakers.

A study published in the American Economic Review last year found that the FTC challenged only 1% of mergers from 2000 to 2020, instead of the 20% they could have enforced. Due to the lack of enforcement from 2010 to 2015, the analysis noted that prices for patients increased by 5% or more.