What Are the Consequences of Modern Health Care Consolidation for Costs, Quality, and Access?
Richards and Whaley (2026) examined how recent waves of health care consolidation have affected competition, prices, quality, and patient access in the United States. They asked whether mergers, vertical integration, private equity ownership, and insurer acquisitions have improved health care efficiency or primarily increased market power. The article synthesizes evidence from national hospital, physician, insurer, and private equity data, along with findings from numerous empirical studies. They conclude that consolidation has generally increased commercial health care prices by about 6% to more than 20% following hospital mergers, while commercial insurers now pay hospitals roughly 250% of Medicare rates, with little evidence of corresponding improvements in quality or access.
Why This Article Was Selected for The Policy Scientist
Health care consolidation has become one of the defining policy issues in the United States because it affects health care spending, market competition, affordability, and access across nearly every segment of the health system. Richards and Whaley have established research programs on health care markets and competition, making this review a timely synthesis as private equity ownership, insurer-provider integration, and physician acquisitions continue to expand. Published in the Journal of Economic Perspectives, one of economics’ leading journals, the article builds on decades of influential industrial organization and health economics research. The authors draw upon extensive national datasets and a large body of high-quality empirical studies, providing a strong foundation for their conclusions. Although the article itself is a narrative review rather than an original causal analysis, it emphasizes evidence from numerous quasi-experimental studies. Future research would be strengthened by additional causal inference designs evaluating newer forms of consolidation, particularly insurer-provider integration and private equity acquisitions. The broad market mechanisms described are likely relevant to other countries with increasing provider concentration, although the magnitude of the effects depends on each nation’s health care financing and regulatory institutions.
Full Citation and Link to Article
Richards, M. R., & Whaley, C. M. (2026). The current era of health care consolidation. Journal of Economic Perspectives, 40(2), 93–116.
Central Research Question
This article examines how three recent waves of health care consolidation have reshaped competition, pricing, quality, and access within the United States health care system. Specifically, the authors ask whether horizontal mergers among hospitals and insurers, vertical integration between hospitals and physicians, and newer forms of consolidation involving private equity firms and insurer-owned provider organizations have achieved their stated objectives of improving efficiency, coordinating care, and reducing costs. Alternatively, they explore whether these organizational changes have primarily increased market power, weakened competition, and raised prices without corresponding improvements in quality. The article also evaluates the policy environment that has encouraged consolidation and reviews recent federal and state policy initiatives intended to moderate its adverse consequences.
Rather than focusing on a single type of merger or organizational arrangement, the article synthesizes developments across multiple sectors of health care. The authors argue that modern consolidation should be understood as an evolving sequence of interconnected market responses in which one form of concentration creates incentives for additional consolidation elsewhere in the health care system.
Previous Literature
The article builds upon several decades of research in health economics and industrial organization examining competition, pricing, and market concentration. Among the foundational studies discussed are Arrow’s (1963) analysis of uncertainty in medical care markets and Robinson’s (1999) description of managed care and insurer-provider negotiations. These earlier works established the distinctive characteristics of health care markets that differentiate them from more traditional competitive markets.
The authors also draw heavily upon more recent empirical research examining hospital mergers and market concentration. Important contributions include Gaynor, Ho, and Town (2015), who reviewed competition in health care markets; Cooper et al. (2019), who documented substantial price increases associated with hospital concentration; Dafny (2010), who examined competition among health insurers; and Beaulieu et al. (2020), who evaluated hospital mergers and quality outcomes. Together, these studies consistently demonstrate that increased provider concentration generally raises prices while producing little evidence of meaningful quality improvements.
The review also incorporates a rapidly growing literature on physician-hospital integration, including studies by Baker, Bundorf, and Kessler (2014), Capps, Dranove, and Ody (2018), and Dranove and Ody (2019), which document higher spending following vertical integration. Emerging research on private equity ownership, including work by Gupta et al. (2024), Singh et al. (2022), and Asil et al. (2024), provides evidence that financial investors increasingly influence provider markets through acquisitions and consolidation strategies. Finally, recent studies examining insurer-provider integration and Medicare Advantage payment incentives illustrate how changing reimbursement policies have created new organizational incentives that extend beyond traditional hospital mergers.
Collectively, this literature provides the empirical foundation for understanding how evolving market structures affect prices, quality, competition, and patient access.
Data
The article is a comprehensive review rather than an original empirical analysis. Consequently, it synthesizes evidence from numerous national administrative datasets, proprietary industry databases, government statistics, and published peer-reviewed studies.
Several important national datasets are used to describe current market structure. Hospital concentration measures are derived from the American Hospital Association using Hospital Referral Regions and Herfindahl-Hirschman Indexes. Commercial insurance market concentration is calculated using Clarivate insurance enrollment data. Trends in physician employment rely on the Agency for Healthcare Research and Quality’s Compendium of U.S. Health Systems together with Medicare Fee-for-Service claims. Additional information regarding ownership changes comes from Centers for Medicare & Medicaid Services databases and other government administrative sources.
The article also summarizes evidence from Medicare payment files, commercial insurance claims, provider ownership databases, and private financial datasets used in previous research. Numerous figures illustrate trends in hospital mergers, physician employment, insurer concentration, payment differentials, and market concentration across the United States.
Because the review draws upon multiple nationally representative sources collected by government agencies and established industry organizations, it provides a comprehensive description of current health care market organization. The breadth of evidence allows the authors to evaluate consolidation across hospitals, physician practices, insurers, ambulatory surgery centers, dialysis providers, and private equity acquisitions rather than focusing on any single segment of the health care industry.
Methods
The article employs a narrative review methodology supported by descriptive statistics and synthesis of previously published empirical research. Rather than estimating new statistical models, the authors critically evaluate findings from a broad collection of observational and quasi-experimental studies.
Many of the studies reviewed employ strong causal inference methods. These include difference-in-differences designs evaluating hospital mergers, event-study analyses examining ownership changes, natural experiments created by policy reforms, and merger analyses comparing prices before and after consolidation events. Several studies also exploit regulatory changes, payment reforms, and geographic variation to isolate causal effects of consolidation on prices, quality, utilization, and patient outcomes.
The article supplements these empirical findings with descriptive analyses of market concentration using Herfindahl-Hirschman Indexes, national maps of provider concentration, counts of hospital mergers, and trends in physician employment. These descriptive statistics provide important context for understanding the changing structure of health care markets over time.
The review also discusses theoretical mechanisms through which consolidation affects market performance. These include bargaining power between providers and insurers, economies of scale, referral incentives, payment arbitrage, information asymmetries, and regulatory incentives created by Medicare reimbursement policies. Throughout the article, empirical evidence is integrated with economic theory to explain why consolidation may influence prices and organizational behavior.
Findings/Size Effects
The evidence reviewed consistently indicates that health care consolidation has substantially increased market concentration across multiple sectors of the U.S. health care system. Nearly all hospital markets now exceed federal thresholds defining highly concentrated markets, while only a small fraction of commercial insurance markets remain competitive. More than half of U.S. physicians are now employed by hospitals or health systems, representing a major structural change in physician practice organization.
The strongest and most consistent empirical finding concerns prices. Hospital mergers are associated with commercial price increases ranging from approximately 6 percent to more than 20 percent. Commercial insurers now pay hospitals roughly 250 percent of Medicare reimbursement rates on average, compared with approximately 106 percent in the mid-1990s. Commercial prices also vary dramatically across providers for identical services, often differing by nearly an order of magnitude without corresponding differences in quality.
Evidence regarding quality is considerably weaker. The reviewed studies generally find little improvement in patient outcomes following hospital mergers, while several studies identify deterioration in quality or reduced access for certain patient populations. Some research suggests hospitals increasingly allocate resources toward higher-margin commercially insured patients while reducing services that primarily serve Medicare or Medicaid beneficiaries.
Vertical integration between hospitals and physicians similarly increases spending without consistent evidence of quality improvements. Following physician acquisition, referral patterns shift toward the acquiring hospital system, increasing use of higher-cost settings of care. These changes are facilitated by payment policies that reimburse hospitals substantially more than independent physician practices for identical outpatient services.
Private equity ownership produces somewhat more mixed findings. Multiple studies document increases in prices and negotiated payment rates following acquisition, particularly when fragmented physician practices are combined into larger organizations. Evidence regarding quality remains less consistent, with some studies identifying declines in nursing home quality while others report little measurable effect or occasional improvements in selected clinical settings.
The authors also identify several policy mechanisms that unintentionally encourage consolidation. Site-of-care payment differentials create financial incentives for hospitals to acquire physician practices because identical services receive substantially higher reimbursement when delivered in hospital-owned facilities. Likewise, Medicare Advantage payment rules and existing merger notification thresholds may inadvertently encourage insurer-provider integration and smaller acquisitions that collectively reshape local markets while avoiding extensive regulatory scrutiny.
Overall, the evidence demonstrates that consolidation has consistently strengthened provider bargaining power and increased commercial prices while producing limited evidence of improved efficiency, higher quality, or better patient outcomes.
Conclusion
The article concludes that modern health care consolidation represents one of the most important structural developments affecting the U.S. health care system. Although consolidation has frequently been justified on the grounds of improving efficiency, coordinating care, and reducing costs, the accumulated evidence indicates that these anticipated benefits have generally been limited. Instead, increased market concentration has strengthened negotiating leverage for providers, contributed to higher commercial prices, and created new opportunities to exploit existing reimbursement policies.
The authors emphasize that contemporary consolidation differs from earlier merger activity because it increasingly involves physician practices, private equity firms, insurer-owned provider organizations, and complex financial arrangements that are more difficult for regulators to monitor. These newer forms of integration require updated policy responses that extend beyond traditional antitrust enforcement.
Potential policy solutions include expanding ownership transparency, eliminating site-of-care payment differentials, strengthening merger review, increasing oversight of smaller acquisitions, improving commercial price transparency, and adopting selected price regulation where competitive markets no longer function effectively. Each policy alternative involves tradeoffs between limiting market power and preserving incentives for organizational innovation.
Ultimately, the article argues that future policy should focus not simply on preventing consolidation but on addressing the economic incentives that encourage market concentration. A better understanding of these incentives will help policymakers design reforms that promote competition, improve affordability, and maintain high-quality health care delivery while adapting to the evolving organization of the health care marketplace.
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