Bigger Med

Surgeon, writer, and public health researcher Atul Gawande wrote an article in 2012 titled “Big Med.”¹ The article was about how medicine was finally starting to fall to the big corporate chains, just like restaurants, hotels, and soft drinks had. After years of physicians being predominantly self-employed—working alone or in small private practices—physicians started signing up to be employees of large health systems.

But in many ways, 2012 was still a simple time in terms of healthcare bigness. From 2012 to 2022, the share of physicians working in private practices fell from 60 percent to 47 percent.² Back in 2012, private equity had little interest in healthcare; across 10 physician specialties, there were only seven metro areas in the United States where a private equity firm had greater than 30 percent market share. By 2021, that number was 108—or nearly a third of all US metro areas.³

In 2012, Amazon had no healthcare presence and UnitedHealth was just a health insurance company. Today, Amazon is a significant player in primary care and pharmacy markets via its acquisitions of One Medical and PillPack; by the end of 2023, UnitedHealth had nearly 90,000 employed or affiliated physicians through its Optum subsidiary.⁴

The purpose of this article is to detail how much bigger US healthcare corporations have gotten and to explain the impact this has had on patients and workers. Healthcare consolidation—and hospital consolidation in particular—has negatively impacted not only the wages of nurses but also the wages of all workers, even those who are not health professionals. But we’ll get to that later. First, let’s take a stroll through what health economist Uwe Reinhardt referred to as America’s healthcare wonderland.⁵

The Paycheck Gobbler

It seems everything is more expensive these days. Inflation was stable at around 2 percent a year from 2014 to 2020, but then rose rapidly to 9 percent in June 2022.⁶ Inflation eats away at the purchasing power of consumers. Ideally, wages and investment income outpace inflation. If they don’t, then consumers’ purchasing power falls.

But not everything gets more expensive over time. Notably, high tech products consistently get cheaper. TV and computer software prices have dropped 60 to 90 percent since 2000. What price has increased the most since 2000 among the typical products and services households consume? Hospital services: they are up over 200 percent. The price of medical care services (e.g., doctor visits) increased 120 percent over the same time period. Compare these to wages and inflation over this period, which increased 87 percent and 60 percent, respectively.⁷

There always seems to be a concern about Americans getting priced out of housing. But compared to healthcare, housing’s 70 percent price increase over the period looks paltry.⁸ There’s no doubt about it: healthcare is gobbling up our paychecks.

To make the healthcare dent in take-home pay abundantly clear, take a look at the chart below, which shows workers’ earnings, inflation, family health insurance premiums, and workers’ contributions to family premiums from 1999 to 2022. Workers’ earnings have outpaced inflation since 1999 (an increase of 103 percent versus 73 percent)—that’s the good part. But over the same period, family premiums increased nearly 300 percent and worker contributions to family premiums increased in lockstep, also up nearly 300 percent. As healthcare gets more expensive, health insurance premiums increase to cover the extra costs, and you and your employer bear the burden.

A shocking study from 2019 estimated that 67 percent of all personal bankruptcies in the United States from 2013 to 2016 were tied to medical issues—because of high costs for care or time out of work.⁹ And a 2024 analysis found that among US adults, 8 percent have medical debt and 1 percent have more than $10,000 in medical debt. The situation is worse for those who are in poor health, have a disability, or have an income below 200 percent of the federal poverty line: 20, 13, and 11 percent, respectively, have medical debt.¹⁰

Our Unique Price Problem

So, healthcare costs are eating up a greater share of people’s paychecks and are burdening a number of them with medical debt. But is this a uniquely American problem? Healthcare prices generally increase relative to TVs and computer software worldwide, so that part is not uniquely American. But US healthcare is still unique.

It is widely known that the United States spends more on healthcare than other countries—a lot more. The question has always been why? As countries become wealthier, they generally spend more on healthcare. Once you’ve covered the basic necessities of life, spending extra income on trying to extend the length and quality of your life makes sense. But we spend twice as much per capita as other large, wealthy countries. What gives?

A group of health policy researchers gave what they believed to be the answer in the title of their 2003 paper, “It’s the Prices, Stupid: Why the United States Is So Different from Other Countries.”¹¹ A lot of research since 2003 supports the authors’ conclusion: we have a healthcare price problem. The figure below shows the prices of nine common hospital admissions for the United States and 10 other countries. For all nine admissions, our price is well above the prices in other countries—often two to five times above.

Why the High Prices?

Healthcare in America relies on competition to function. Ideally, more competition means lower prices, higher quality, more product variety, and greater innovation. But the healthcare industry is trending toward more consolidation and less competition.

We could examine a lot of different healthcare prices, but let’s focus on hospital prices for the moment. Often when high US hospital prices are being discussed, it is implicitly commercial hospital prices that are being referred to. Commercial prices (as opposed to Medicare or Medicaid prices) are those paid to hospitals by employer-sponsored health plans. The prices in the second figure above are commercial hospital prices. Medicare and Medicaid prices paid to hospitals are administratively set by the government. Commercial prices, on the other hand, are agreed upon through bilateral bargaining between insurers and hospitals. During bargaining, each side tries to use whatever leverage it has to negotiate favorable rates. Insurers want low hospital reimbursement rates; hospitals want high rates. What happens in a market where there are five insurers and one hospital? The hospital has a lot of leverage because it has five insurers it can contract with. But the insurers must either contract with the one hospital or not participate in the market. What if the reverse were true? One insurer and five hospitals. Then the leverage flips. The one insurer now has the leverage to force the five hospitals to compete over inclusion in its network.

This bargaining is why mergers matter in the context of hospitals (and healthcare generally). Suppose market A has two insurers and two hospitals to begin with. Then the two hospitals decide to merge. In the original situation, the insurers at least had two options and could try to play the hospitals against each other for network inclusion. Once the hospitals merge, there is no longer any other option for the insurers and the merged hospital has the leverage to negotiate higher reimbursement rates. This dynamic is at least partially responsible for the rise in hospital prices in recent years.*

Hospital mergers are driving prices up, failing to increase quality, and driving wages down.

Between 1998 and 2021, 1,887 hospital mergers were announced, reducing the number of US hospitals from around 8,000 to a little over 6,000.¹² Hospital mergers have been studied more by health economists than any other type of healthcare consolidation, so we have a pretty good idea of what they lead to.¹³ It is clear that they increase hospital prices and spending. Their impact on quality is mixed, and they tend to decrease healthcare wages, particularly nurses’ wages.

Estimated hospital price increases “of 20 or 30 percent are common, with some increases as high as 65 percent.”¹⁴ Three retrospective merger analyses conducted by the Federal Trade Commission—the Evanston Northwestern and Highland Park merger in the Chicago area, the Sutter and Summit merger in the San Francisco Bay Area, and the merger of the Cape Fear and New Hanover hospitals in Wilmington, North Carolina—found price increases of 65 percent, 44 percent, and 65 percent, respectively.¹⁵

Merging hospitals typically claim that the merger will increase efficiency and improve quality. There is a care coordination reason to suspect quality could improve after hospital mergers. But so far, documenting quality increases has eluded researchers. The study of the impact of hospital mergers on quality with the strongest methodology (in my opinion) was published in 2020. Using data from 2007 to 2016 that included 246 acquired hospitals, the study found that hospital acquisition was associated with modestly worse patient experiences and no significant changes in readmission or mortality rates.¹⁶

The impact of hospital consolidation on wages is most easily seen through its impact on nurses’ wages. If a market is served by one seller, the seller is said to have a monopoly. It is less common to hear the term monopsony, which is the term used when a market has one buyer. A monopoly hospital is the only provider (seller) of hospital services in a region. A monopsony hospital is the only buyer of nurses’ labor. The same hospital can be both a monopoly in terms of the services it sells and a monopsony in terms of the labor it buys. This would be the case if there were no good treatment alternatives to the hospital and nurses had no good employment options aside from the hospital. Among economists, the former has generally been thought to be true (it’s hard to imagine going somewhere other than your local hospital to get a hip replacement). The latter has been more of a debate. Nurses could go work for doctors’ offices or find a job outside the field of healthcare entirely, but if they want to utilize their specialized training, it is generally hospitals that most demand the types of specialized services that nurses can provide.

Several papers have discussed how monopsony power of hospitals can hold down the wages of nurses, but I’ll focus on one from 2021 that’s among the most recent and has the strongest methodology. Examining US hospital mergers between 1998 and 2012, the authors found that in markets with large increases in hospital concentration, wages were 7 percent lower for nursing and pharmacy workers compared to the wages of nursing and pharmacy workers in markets that were not exposed to hospital mergers. In terms of wage growth, this implied that post-merger annual wage growth was 1.7 percentage points slower for nursing and pharmacy workers than would be expected absent the merger. The authors also found that wage growth slowdowns were attenuated in markets with strong labor unions.¹⁷

Equally important, all this consolidation indirectly impacts everyone, even those who rarely use medical services and aren’t health professionals. Everyone with employer-sponsored health insurance is exposed to cost increases created by healthcare mergers. Hospitals merge, the costs of hospital services go up, health insurance premiums go up to cover the costs, and workers and employers are on the hook for those higher premiums. Employers then have a choice: bear the additional costs by themselves or lower workers’ wages (or reduce their wage growth). There are health insurance benefit decisions they can make as well, such as offering health plans that have higher deductibles, but those are just additional ways of making workers bear the added costs.

A recent study I conducted with Chris Whaley, a health economist at Brown University, analyzed the impact of hospital mergers on the wages of nonhealthcare workers. Their wages should only be affected by hospital mergers through the impact the mergers have on their health insurance premiums, deductibles, and other out-of-pocket costs. We found that hospital mergers lead to a $638 reduction in wages, a $521 increase in hospital prices, and a $579 increase in hospital spending among the privately insured population (indicating employers were shifting funds from wages to insurance costs).¹⁸

Making matters worse, private equity is now accelerating the hospital consolidation trend. The Private Equity Stakeholder Project tracks private equity–owned hospitals in the United States and shows 460 such hospitals as of January 2024. This represents 22 percent of the United States’ proprietary for-profit hospitals. Texas has the most with 97, and New Mexico has the highest proportion, with private equity owning 38 percent of private hospitals in the state. Nearly a quarter of private equity–owned hospitals are psychiatric hospitals. Almost all of this private equity hospital acquisition activity occurred in the last decade.¹⁹ A recent study comparing almost 700,000 hospitalizations across 51 private equity–acquired hospitals with four million hospitalizations across 259 matched control hospitals found that private equity acquisition was associated with a 25 percent increase in hospital-acquired conditions.²⁰ Another study found private equity hospital acquisitions to be associated with large increases in net income, charges, and charge-to-cost ratios.²¹ (For more on private equity’s tactics and impact, see the sidebar here and the article here.)

These trends are clearly in the wrong direction. We should be moving toward more accessible and affordable care, along with improved conditions for healthcare workers. Individually, there’s little we can do to change the direction of the healthcare industry. But together, as union members and voters, we can rewrite the rules.

What Can Be Done?

Reversing these trends will not be quick or easy—but it can be done. The first two ideas that pop into many people’s minds are to (1) set prices administratively like in Medicare and Medicaid or (2) move the whole US healthcare system to a single-payer system like that of the National Health Service in the United Kingdom. Both ideas, while appealing in some ways, are problematic²² and are politically unlikely to happen (at least in the foreseeable future). Still, there’s much that we can do without achieving a complete overhaul of our healthcare system.

Let’s start with promoting competition. The US Department of Justice (DOJ) and the Federal Trade Commission (FTC) have been more aggressive of late in challenging mergers. In September 2023, the FTC sued US Anesthesia Partners (the principal provider of anesthesia services in Texas) and private equity firm Welsh, Carson, Anderson, and Stowe, alleging the two executed a multiyear, anticompetitive scheme to consolidate anesthesiology practices in Texas, drive up the price of anesthesia services provided to Texas patients, and boost their own profits.²³ In May 2024, a judge dismissed the FTC’s case against Welsh, Carson, Anderson, and Stowe but allowed the case to continue against its portfolio company, US Anesthesia.²⁴ While the first cases brought against private equity firms will face hurdles like this, I’m optimistic that today’s DOJ and FTC will be more willing to bring these types of cases than they were in the past.

In March 2024, the DOJ and FTC, along with the US Department of Health and Human Services (HHS), requested public comment on the impact of corporate greed in healthcare. In the press release, FTC Chair Lina Khan said, “When private equity firms buy out healthcare facilities only to slash staffing and cut quality, patients lose out. Through this inquiry the FTC will continue scrutinizing private equity roll-ups, strip-and-flip tactics, and other financial plays that can enrich executives but leave the American public worse off.”²⁵ HHS Secretary Xavier Becerra emphasized that increased competition in healthcare markets would improve the cost and quality of care and also boost worker wages and conditions. This shows there is an appetite at the federal level under the Biden-Harris administration for curbing healthcare consolidation.

States are also showing an appetite. California established the Office of Health Care Affordability in 2022. One of its primary tasks is to assess market consolidation in the state by collecting material change notices and conducting cost and market impact reviews when transactions “are likely to significantly impact market competition, the state’s ability to meet targets, or affordability for consumers and producers.”²⁶ This effort follows similar efforts in other states, most notably Massachusetts and Oregon.²⁷

There are also things employers and unions can do. Employers should be more involved in deciding which providers are in the networks of the health plans that they offer employees. By wanting every provider in network, employers make it difficult for insurers to use the threat of network exclusion on hospitals, which takes away much of the leverage insurers could have in price negotiations.

One crucial role of unions—and workers—is emerging from research on the impact of hospital mergers on nurses’ wages. Hospital mergers reduce nurse wage growth, but this effect is mitigated in markets with strong unions.²⁸ Unions are an important counterforce to the wage stagnation generated by healthcare mergers—and the more people join, the greater union power will be.

Another role of unions is organizing and mobilizing to advocate for legislative and regulatory changes. Nurses, doctors, and others who work in healthcare are often trusted in their communities, and they can build on that trust by ensuring their patients, families, and community members know about the risks of consolidation. Electing leaders who are supportive of what the DOJ and FTC are doing under the Biden-Harris administration’s direction and what states such as California, Massachusetts, and Oregon are doing will help curb healthcare consolidation and, in turn, benefit patients and workers. The road is long, but there are signs of progress.

Dan Arnold, PhD, is a health economist at the University of California, Berkeley, School of Public Health, where he also serves as the research director for the Nicholas C. Petris Center on Health Care Markets and Consumer Welfare.

*Hospital prices are influenced by multiple factors. This is a simplified discussion to demonstrate that consolidation gives hospitals a lot of pricing power by taking away insurers’ other alternatives. (return to article)

Endnotes

1. A. Gawande, “Big Med,” New Yorker, August 6, 2012, newyorker.com/magazine/2012/08/13/big-med.

2. American Medical Association, “AMA Examines Decade of Change in Physician Practice Ownership and Organization,” press release, July 12, 2023, ama-assn.org/press-center/press-releases/ama-examines-decade-change-physician-practice-ownership-and.

3. R. Scheffler et al., Monetizing Medicine: Private Equity and Competition in Physician Practice Markets (Washington, DC, and Berkeley, CA: American Antitrust Institute, Petris Center, and Washington Center for Equitable Growth, July 10, 2023), www.antitrustinstitute.org/wp-content/uploads/2023/07/AAI-UCB-EG_Private-Equity-I-Physician-Practice-Report_FINAL.pdf.

4. B. Herman, “UnitedHealth Group Now Employs or Is Affiliated with 10% of All Physicians in the U.S.,” STAT, November 29, 2023, statnews.com/2023/11/29/unitedhealth-doctors-workforce.

5. U. Reinhardt, Priced Out: The Economic and Ethical Costs of American Health Care (Princeton, NJ: Princeton University Press, 2019).

6. Associated Press, “U.S. Inflation Reached a New 40-Year High in June of 9.1 Percent,” Politico, July 13, 2022, politico.com/news/2022/07/13/us-inflation-new-40-year-high-june-00045541.

7. M. Perry, “Chart of the Day.… or Century?,” American Enterprise Institute, July 13, 2021, aei.org/carpe-diem/chart-of-the-day-or-century-6.

8. Perry, “Chart of the Day…. or Century?”

9. D. Himmelstein et al., “Medical Bankruptcy: Still Common Despite the Affordable Care Act,” American Journal of Public Health 109, no. 3 (2019): 431–33.

10. S. Rakshit et al., “The Burden of Medical Debt in the United States,” Peterson-KFF Health System Tracker, February 12, 2024, www.healthsystemtracker.org/brief/the-burden-of-medical-debt-in-the-united-states.

11. G. Anderson et al., “It’s the Prices, Stupid: Why the United States Is So Different from Other Countries,” Health Affairs 22, no. 3 (2003): 89–105.

12. H. Levins, “Hospital Consolidation Continues to Boost Costs, Narrow Access, and Impact Care Quality,” University of Pennsylvania Leonard Davis Institute of Health Economics, January 19, 2023, ldi.upenn.edu/our-work/research-updates/hospital-consolidation-continues-to-boost-costs-narrow-access-and-impact-care-quality.

13. For a recent review of the evidence, see J. Liu et al., Environmental Scan on Consolidation Trends and Impacts in Health Care Markets (Santa Monica, CA: RAND Corporation, September 30, 2022), rand.org/pubs/research_reports/RRA1820-1.html.

14. M. Gaynor, “Diagnosing the Problem: Exploring the Effects of Consolidation and Anticompetitive Conduct in Health Care Markets; Statement Before the Committee on the Judiciary, Subcommittee on Antitrust, Commercial, and Administrative Law, U.S. House of Representatives,” March 7, 2019, congress.gov/116/meeting/house/109024/witnesses/HHRG-116-JU05-Bio-GaynorM-20190307.pdf.

15. Gaynor, “Diagnosing the Problem.”

16. N. Beaulieu et al., “Changes in Quality of Care After Hospital Mergers and Acquisitions,” New England Journal of Medicine 382, no. 1 (2020): 51–59.

17. E. Prager and M. Schmitt, “Employer Consolidation and Wages: Evidence from Hospitals,” American Economic Review 111, no. 2 (2021): 397–427.

18. D. Arnold and C. Whaley, Who Pays for Health Care Costs?: The Effects of Health Care Prices on Wages (Santa Monica, CA: RAND Corporation, July 28, 2020), rand.org/pubs/working_papers/WRA621-2.html.

19. Private Equity Stakeholder Project, “PESP Private Equity Hospital Tracker,” pestakeholder.org/private-equity-hospital-tracker.

20. S. Kannan, J. Bruch, and Z. Song, “Changes in Hospital Adverse Events and Patient Outcomes Associated with Private Equity Acquisition,” JAMA 330, no. 24 (2023): 2365–75.

21. J. Bruch, S. Gondi, and Z. Song, “Changes in Hospital Income, Use, and Quality Associated with Private Equity Acquisition,” JAMA Internal Medicine 180, no. 11 (2020): 1428–35.

22. Bain & Company, Global Healthcare Private Equity Report 2024 (Boston: 2024), bain.com/globalassets/noindex/2024/bain_report_global_healthcare_private_equity_2024.pdf.

23. Bain & Company, Global Healthcare.

24. A. Borsa et al., “Evaluating Trends in Private Equity Ownership and Impacts on Health Outcomes, Costs, and Quality: Systematic Review,” BMJ 382: e075244.

25. E. Kemp, Private Equity’s Path of Destruction in Health Care Continues to Spread (Washington, DC: Public Citizen, March 21, 2023), citizen.org/wp-content/uploads/Public-Citizen-Private-Equitys-Path-of-Destruction.pdf.

26. Scheffler et al., Monetizing Medicine.

27. J. Bruch, “Expansion of Private Equity Involvement in Women’s Health Care,” JAMA Internal Medicine 180, no. 11 (November 2020): 1542–45.

28. A. Borsa and J. Dov Bruch, “Prevalence and Performance of Private Equity–Affiliated Fertility Practices in the United States,” Fertility and Sterility 117, no. 1 (January 2022): 124–30.

[Illustrations by Carlo Giambarresi]