Signage in front of Aetna Inc.’s headquarters in in Hartford, Conn.

The Obama administration’s signature law, the Affordable Care Act, set in motion a variety of reforms to the U.S. health care system, a number of which sparked health care providers to begin consolidating and integrating the industry. Yet more than six years after the implementation of the new law, policymakers still don’t know what the consequences of health care consolidation might mean for patients up and down the income ladder.

Low Medicaid reimbursement rates and the expanded coverage of Medicaid under the Affordable Care Act are often cited as justification for the need of health care providers to consider mergers and acquisitions. But health care finance scholars are now beginning to understand what major consolidation means for patients and costs as mergers-and-acquisitions deals proliferate, among them:

  • Aetna, Inc.—in an effort to reinforce its Medicare Advantage business, which is aimed at elderly and disabled patient—announced it would buy Humana Inc. for $37 billion.
  • Anthem Insurance Companies Inc. announced it would acquire Cigna Corp., currently valued at $53 billion.

The Anthem-Cigna merger would primarily consolidate employer health-plan options, but if Aetna and Anthem get the green light from the U.S. Department of Justice and state regulators, the two newly-merged companies would create a powerful “triumvirate” alongside UnitedHealth Group in the for-profit insurance market, says Bob Herman of Modern Healthcare.

Three recent papers take a closer look at the effects of greater consolidation in health services. A new study focusing on the changes in hospital prices from cross-geographic and cross-product market mergers suggests that these combinations can have significant effects on prices for privately insured patients. The report, by Leemore Dafny at the Kellogg School of Management, Kate Ho at Columbia University, and Robin Lee at Harvard University, finds that cross-market mergers in the same state result in price increases of roughly 6 percent to 10 percent. The existence of either a common customer or a common insurer appears to yield measurable market power, suggesting that cross-market mergers should be carefully evaluated by federal antitrust authorities.

With respect to the Aetna-Humana and Anthem-Cigna combinations, the Department of Justice is investigating how the mergers would affect costs to consumers and availability of care, costs to employers, as well as competition in all markets. Taken together, these mergers demand even tougher scrutiny than if they were evaluated in isolation to fully consider whether consolidating providers will take steps to improve services for their less profitable patients, like those insured by Medicaid.

Last month David Newman at the Health Care Cost Institute and co-authors released a study describing the geographical variation in prices of 242 common health care services for the commercially insured. The study compared 41 states and the District of Columbia, finding that prices for medical services differed by a factor of three in some cases. The ratio of average state prices to average national price varied from a low of 0.79 (in Florida) to a high of 2.64 (in Alaska). The authors say some of this variation is probably due to differences in underlying market dynamics, such as varying market structure, a lack of transparency, or the availability of alternative treatments.

Then there’s Zack Cooper of Yale University and his co-authors, who conclude that the consolidation of hospitals alone and the resulting decline in competition may be playing an important role in rising health care costs. Prices in markets with a single hospital, for example, have prices that are 15.3 percent higher than markets with four or more hospitals, implying that hospitals with more market power use it to raise prices. Cooper and his co-authors also find that prices were higher in markets where hospitals were larger, for-profit, located in a low-income area, or had more medical technologies.

These findings, by both Newman and Cooper and their co-authors, argue against the idea that health care consolidation and integration work to better serve patients across the board. Not surprisingly, then, federal regulators have moved to block many of the so called “horizontal mergers” of hospitals and healthcare providers in the same geographic area. In 2014, using the Clayton Antitrust Law of 1914, the Federal Trade Commission won it’s first-ever litigated case challenging a merger between St. Luke’s Health System, Ltd. and Saltzer Medical Group in Nampa, Idaho.

Yet the health care industry overall continues to consolidate through cross-market mergers of providers from different geographic or product markets in healthcare. Aetna and Anthem will have to establish a court defense for their deals to claim that the expected efficiencies of consolidation counterbalance their merger’s anti-competitive effects for regulators and consumers alike. Health care consolidation may offer some promise of improved operational and network efficiencies, but perhaps also some peril if the benefits of a more integrated health care system are not widely shared both up and down the income ladder and across the diverse ethnic and racial communities in the United States.