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Classic economic theory is that reducing competition in an area that is not perfectly competitive will cause prices to rise over time. Hospital systems have contended that operating at a larger scale will allow them to achieve certain efficiencies, whether that be in purchasing power, or in shared overhead. Those benefits might exist, but larger hospital systems also have more negotiating power with payers. While hospital systems claim that they are merging for the benefit of patients, who actually benefits?

From a financial perspective, the New York Times published analysis supporting economic theory, showing that generally, prices in a region have risen after major healthcare mergers. In 19 of the 25 areas with the most hospital consolidation from 2010 to 2013, the prices of the merged hospital systems experienced the highest percentage change, compared to other hospitals in the same state. Of the remaining six, the hospital merger that saw a substantial price decline was a merger that was opposed by the Federal Trade Commission, where the involved parties reached a settlement (presumably involving some pricing restrictions). The other five cases saw no substantial changes in price changes, which is actually better than the state average, which did rise over the same time period.

It's not just hospitals that are merging -- physician groups are as well. As the provider groups get larger, they are able to negotiate higher rates. Perversely, when insurers refuse to compensate smaller providers at the same rates, they make mergers more attractive to provider groups who are then able to demand higher rates. Thus, a short-term focus on reducing costs can result in higher costs for the insurer in the long run.

Kaiser Health News reported on consumers trying to save money by switching health insurance plans that charge less for monthly premiums but also have more restrictive provider networks. Over the last three years, the number of plans that offered any out-of-network coverage dropped from 58 percent in 2015 to 29 percent in 2018. A better measure of the popularity of these plans is to look at the actual enrollment: what kinds of plans are consumers signing up for? While the article did not offer national statistics, the article did cite enrollment in California's state exchange's HMO and EPO plans (more restrictive) as having grown from 46 percent in 2016 to 70 percent in 2018, with enrollment in PPO plans (less restrictive) dropping from 54 percent to 30 percent over the same time period. Many consumers appear to be electing for lower-premium plans, even if they come with more restrictions.

If this trend continues, it might be that the providers that do not contract with the lower-premium plans will need to reconsider their pricing strategy. As long as they insist on higher rates, and insurance companies will need to charge their customers higher premiums to cover them (if these providers are unable to achieve more efficient healthcare). If these providers lack sufficient volume, they might consider lowering their prices.

An important step in helping consumers avoid needless frustration is insurance companies publishing accurate and up-to-date provider directories so that consumers can make informed decisions.

Bloomberg published an opinion piece showing that healthcare costs as a percentage of the US economy has continued to grow over the last half century. The author presents different pieces of evidence that identify rising prices as the main culprit, and not increased utilization of healthcare services: prices for healthcare services have risen faster than overall prices, and a recent study suggests that Americans actually use fewer of, but pay more for, specific healthcare services than people in some other developed countries. The author also points out that people have been paying for the increases in prices, either at the expense of raises (until about 2007), or through government taxes.

The author calls for consolidating government purchasing power to drive down healthcare prices. As appealing as that might sound, a rigid structure may curtail some opportunities for innovation and cost-savings. A better approach would be a scheme like reference pricing with widely disseminated information about cost and quality, where patients who want care at a specific institution can pay the difference if they so desire. Undergirding that approach is having enough competing providers, so the government would also have a role to play in preventing too much consolidation.

Rising drug prices have frequently made the headlines over the last few years. There have been different proposals on how to address the issue, including introducing legislation to allow Medicare to negotiate pricing. NPR reported on the current administration's recent proposal: to include drug prices from around the world when calculating the reference price. Apparently, Medicare currently pays for drugs at 106% of the average US sales price of the drugs. Since drugs in the US are often much more expensive than the same drugs in other countries, including the prices of drugs from around the world may dramatically lower the amount that Medicare pays for drugs.

The price discrepancy by nation is a form of price discrimination that allows pharmaceutical companies to set prices according to what each country might tolerate, giving them higher revenue than what they would get if they were allowed to set only one global price. Patient advocates have previously proposed a workaround by allowing the importation of drugs from other countries. This current proposal is another approach that would dramatically affect the price gap.