The Silent Squeeze on Patients: How Vertical Integration is Driving Up Healthcare Costs

Anne Hug’s experience is a disturbing example of how hospital systems can quietly funnel patients into more expensive treatment options. Despite the American College of Obstetricians and Gynecologists recommending that her routine procedure could be done in a doctor’s office with local numbing, she was forced to undergo it in a freestanding surgery center owned by her hospital system.

This is a classic example of vertical integration, where one company owns or controls multiple parts of the supply chain and can direct patients to more expensive treatment options. This trend has been quietly sweeping the nation, with hospitals buying up doctors’ practices, surgery and imaging centers, and even insurers. Insurers are also getting in on the action, buying up doctors’ practices, specialty pharmacies, and merging with pharmacy chains.

Proponents of vertical integration claim it leads to greater efficiency, but studies have shown that for patients, it results in higher prices without any corresponding benefits to health outcomes. Soroush Saghafian, an associate professor at Harvard University’s Belfer Center for Science and International Affairs, notes that “the purchases are driven by financial efficiency.” This means that patients like Hug are being forced to pay more for their care without getting better treatment.

The regulatory agencies are struggling to keep up with this trend. The Federal Trade Commission and the Justice Department together police mergers in healthcare, but their tools – warning letters, lawsuits, and consent decrees modifying the terms of a merger – are inadequate. Antitrust laws “aren’t fit for purpose at this point,” says Zack Cooper, an associate professor of public health and economics at Yale University.

The numbers are staggering: over 275 deals involving hospital acquisitions of physician practices have been studied by Cooper’s group, the Health Care Affordability Lab. Nearly all of them fell below the reporting threshold. “It’s like death by a thousand paper cuts,” Cooper says.

As a result, patients are being forced to pay more for their care without any corresponding benefits in terms of health outcomes. They’re also losing control over their own healthcare decisions – being funneled into more expensive treatment options by hospital systems that have grown too big to fail.

The Federal Trade Commission continues to play catch-up with this trend, but it’s essential that patients and policymakers alike recognize the true nature of vertical integration: a silent squeeze on patients that’s driving up costs without any corresponding benefits. It’s time to take a hard look at our healthcare system – and demand better for ourselves and our communities.

As hospital systems continue to grow in size and scope, further consolidating their grip on the healthcare market, the implications are profound. As Cooper notes, “We’re struggling with this right now.”