Catalyst for Payment Reform

Market Competition


Market Competition

What Is Market Competition?

One of the biggest impediments to purchasers getting better value for their health care spending is that there has been tremendous consolidation among health care providers.  There are many reasons why this consolidation has taken place, from providers reacting to prior health plan consolidation to preparing for new delivery models and payment arrangements.  As hospitals, health systems, and physician practices have merged horizontally and vertically, the resulting entities have amassed greater market share and market power.  As a result, consolidated provider systems are able to reject changes to traditional payment methods and negotiate for higher payment amounts without any commensurate improvement in the quality or efficiency with which they deliver care.  Adequate market competition is critical to spur improvements in care quality, efficiency and costs.


Why Should Employers and Other Health Care Purchasers Care About Market Competition?

Purchasers need to be aware of changes in the health care provider landscape and look for ways to stimulate competition among health care providers where possible in order to push for changes to the status quo, improvements to the quality of care and competitive pricing.  One of the largest drivers of health care cost growth over the last five years has been price increases. If providers are able to continue commanding higher prices, efforts at delivery and payment reform may not result in health care becoming any more affordable.


What Are the Latest Trends in Market Competition?

Over the past two decades, hospitals in the United States have become highly concentrated as they have shifted away from independent status and merged with other competing facilities, or integrated with multi-hospital systems; therefore, health care markets are becoming less competitive. By 2006, over 75% of U.S. metropolitan statistical areas (MSAs) had experienced enough provider consolidation to be considered “highly consolidated.” From 2007 to 2012, 432 hospital mergers and acquisition deals were announced, involving a total of 835 hospitals.[1]  As consolidation among health care providers has increased, the market has become vulnerable to increases in prices by providers.


How Can Purchasers Ensure there is Adequate Competition?

There are a variety of methods that Purchasers can use to stimulate competition among health care providers, including:

  • Push for greater price and quality transparency to encourage health care providers to compete on these dimensions
  • While employers and other purchasers have had mixed feelings about contributing data to a local all-payer claims database, some may wish to do so to support greater price transparency in key states where revealing variation in prices could create competition among providers and place pressure on those commanding higher-than competitive prices to lower them.
  • Incorporate telehealth into care offerings for members and their families. Telehealth is an alternative, less expensive form of care that can both improve access to care for patients and help ensure the use of appropriate care.
  • Implement onsite clinics as appropriate. In the right circumstances, onsite clinics improve access to care for employees, and can help shape employee utilization of health care providers in the community, especially to the degree that onsite clinicians can shape their referral patterns according to quality and price information.
  • Explore purchasing tactics that create competition among providers, such as centers of excellence programs, narrow networks, and direct contracting. By identifying high value providers and creating incentives for members and their families to seek care from them, providers will feel greater pressure to improve quality and efficiency and lower prices.


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[1]David M. Cutler, PhD and Fiona Scott Morton, PhD, “Hospitals, Market Share, and Consolidation,” 310 JAMA No. 18, 1964-70 (2013).