Research: Hospital-Physician Practice Mergers Boost Healthcare Prices

A study published by the National Bureau of Economic Research finds that hospitals’ rapid acquisition of physician practices is driving up healthcare prices. 

A policy brief from Yale University’s Tobin Center for Economic Policy describes the situation: Researchers found that from 2008 to 2016, 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. For instance, 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%. 

According to the researchers, 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,” the policy brief states. 

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.

“Across the economy, from tech to healthcare, 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,” said Matthew Grennan, Ph.D., in a statement. He is 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 added.

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.