How Horizontal Consolidation Is Changing Healthcare

One of the prime examples of consolidation is the growing number of acquisitions of physician practices. Between July 2015 and July 2016, hospitals acquired 5,000 physician practices. Similarly, the number of hospital employed physicians increased in every region. Experts predict that by 2020, most markets will be dominated by two or three provider networks. We’re already seeing this in several locations. In northeast Ohio, two major networks dominate the market: University Hospitals and Cleveland Clinic. In New Jersey, a recent merger between Hackensack University Health Network and Meridian Network has created a massive network covering two-thirds of the state. Consolidation is already impacting healthcare by reducing clinical variation, resulting in patient care becoming more uniform across locations and providers.

Between July 2012 and July 2016, the number of physician practices employed by hospitals grew by 36,000— a 100% increase over four years.

There are many causes behind horizontal consolidation. New payment reforms and reporting requirements are making it advantageous for providers to consolidate, thereby simplifying administration. For many physicians, consolidation is a net positive because it allows them to focus on their core competence of providing care instead of running a business.

We may well be approaching monopoly thresholds. However, that’s not likely to stop consolidation altogether.

The Roadblocks To Horizontal Consolidation

Payers are also attempting to consolidate. But the Department of Justice, which regulates consolidation, may pose a roadblock. Several mergers have already been blocked, including AetnaHumana and Anthem-Cigna. In both cases, federal judges ruled that the proposed mergers would be in violation of antitrust laws, negatively affecting consumers. We may well be approaching monopoly thresholds. However, that’s not likely to stop consolidation altogether.

Horizontal consolidation of providers will likely continue, even as it slows for payers. Now that horizontal consolidation has become more difficult, payers are turning more to vertical consolidation. In the future, we can expect further growth of vertical consolidation like the CVS-Aetna acquisition. Major insurers still want to grow, after all.