You’ve read some of our coverage regarding consolidation of health care delivery systems. It started locally, but has grown nationally. A recent piece in the New York Times identified one “nonprofit” system that operates in six western states and runs two venture capital firms designed to crank out further revenue from its donation and patient revenue streams. In 2019, these hedge funds, with $12 billion in assets, generated $1.3 billion in profits. But I digress. The argument we hear over and again about consolidation helpful is, essentially, the economy of scale: a large system can provide more diverse and affordable care when its risk is spread over a wide variety of specialties. Well, does that theory actually hold up? It turns out actually the opposite may be true. Perhaps bigger is not always better after all. 

Keep in mind that even nonprofit health care has a profit motive (more investment in research, more facilities, more cache). And we can agree that the larger entity has greater bargaining power. So, are these systems using that bargaining power to reduce costs to their patient-clients? In theory sure, but not universally. It should come as no shock that no, they often use that position to receive greater reimbursement from insurers. Costs go up, insurers pay more, and patient-clients have to pay more into deductibles, and suddenly the “economy of scale” is turned on its head. 

Furthermore, this expansion develops environments where providers refer patients within the system, providing further profit opportunities to these large systems. 

With greater bargaining position, too, comes that cache, greater political clout. The New York Times article highlights the hundreds of millions of dollars these systems received in bailout money, while many rural and small hospital systems received next to nothing. The bailout was officially meant to shore up these systems suffering from declining patient revenue due to the pandemic. So it seems that the rich have been getting richer even off of these bailout funds.

And only time will tell if this will in turn lead to a faster pace of consolidation in desperate bids to keep these many smaller clinics afloat.