Strategic Partnerships Mergers and Acquisitions

Is consolidation in healthcare the work of modern-day robber barons — or the result of overdue reengineering?

September 27, 2023 4:06 pm

he most successful industrialists of America’s Gilded Age were often skewered by contemporary critics as being robber barons. A new generation of naysayers wants to recycle the old rhetoric, this time targeting organizations focused on healthcare:

  • “Corporate giants buy up primary care practices at rapid pace,” a recent headline in The New York Times asserted (May 12, 2023).
  • “Private equity takeovers are harming patients,” was the message in the prominent medical journal BMJ, which attributed the harm to “wealthy individuals” looking to invest, sell off assets, then take the money and run (July 19, 2023).
  • “Hospital consolidation continues to boost costs, narrow access, and impact care quality,” a recent seminar at the University of Pennsylvania proclaimed (Penn LDI virtual seminar, Jan. 19, 2023).

The critics’ clear message: Big money is helping healthcare get bigger, and it’s a bad deal all around. Many U.S. governmental and academic leaders support efforts to mitigate the perceived threat of healthcare’s recent trend toward consolidation, as discussed in the sidebar below (“Responses to concerns about the consolidation trend in healthcare”).

But the realities surrounding consolidation and its effect on the healthcare industry deserve a closer look.

Revisiting the legacy of the robber barons

Recent government actions aimed at mitigating perceived negative consequences of consolidation echo the concerns of the robber-baron era, when the undeniably monopolistic practices of some industrialists and businesses ultimately led to the passage of the seminal Sherman Anti-Trust Act.

But as journalist and historian Matthew Josephson, who popularized the term robber baron, once wrote, the real economic legacies of these actors were far more complicated.

“Under their hands, the renovation of our economic life proceeded relentlessly: large-scale production replaced the scattered, decentralized mode of production; industrial enterprises became more concentrated, more ‘efficient’ technically, and essentially ‘coöperative,’ where they had been purely individualistic and lamentably wasteful,” Josephson wrote. “But all this revolutionizing effort is branded with the motive of private gain … here surely is the great inherent contradiction.”

A new ‘contradiction?’

Healthcare consolidation may present an equally “great inherent contradiction” in that it also signals a new phase in the sector’s economic development and — in an era in which healthcare constitutes about a fifth of the $21 trillion U.S. economy — the inevitable demise of the sector as a cottage industry. It may to some degree reflect changing norms, including how and where healthcare providers want to practice, as well as the very definition of a healthcare market along conventional geographic lines.

A recent study by the American Medical Association notes that the share of physicians working in private practices dropped from 60.1% to 46.7% from 2012 through 2022.a What’s more, given the growing costs and sophisticated demands of running a medical practice, eight in 10 physicians surveyed for the same study said the need to negotiate higher payment rates was either “an important” or “very important” reason that their practice was sold to, or acquired by, a hospital or health system.

4 additional considerations

The nation should not be oblivious to the effect of healthcare consolidation on prices. But four other considerations should receive equal weight in any analysis of the trends.

 1 The practicality of hospital independence versus health-system ownership of hospitals. Given multiple factors — including the movement of healthcare outside of acute care hospitals and declining hospital operating margins — does it make sense to have as many freestanding hospitals as the nation has now? Or can larger, stronger systems better address real healthcare needs in communities? This question clearly raises complex issues for rural communities where community hospitals are the only nearby option for acute care and where a large health system may not be able to justify the expense of maintaining a facility.

2 The need for payer-provider alignment. As the U.S. healthcare system moves belatedly to focus on value, incentives to both improve quality and control the total costs of care should be increasingly aligned between healthcare payers and providers. To be sure, alignment can be forged through contracts — but the nation also has plenty of examples of organizations like Kaiser Permanente, which has long operated successfully as the single parent organization over its hospitals, physician practices and health plan.

Large payers like UnitedHealth Group and Humana are moving increasingly to buy or create new provider organizations (including CenterWell) to align incentives and deliver value-based care, including by moving more care outside of hospitals to homes and communities. Legitimate concerns have been raised about potential abuses — such as payers shielding profits from medical-loss ratio requirements by transferring activities to their related businesses, including medical groups. But if this broader consolidation and vertical integration also improves access and the quality of care for patients, is there really any good reason to block it?

3 The geographic boundaries around specific healthcare markets in today’s economy.  Old constructs of competition also must adapt to industry transformations driven by evolving technology and the quest for value. With the growth of virtual and remote care via telehealth and other modalities, many consumers can in effect shop for much of healthcare nationwide — even as more employer purchasers of healthcare nudge their workers to obtain care from hospital “centers of excellence” that may be far from home.b So how much longer will prices charged by providers in specific, localized geographic areas remain a useful metric of competition?

4 The long-term viability of traditional pricing approaches in response to declining Medicare payment. On prices per se, given the distorting effect of low Medicare payments, how alarmed should we be if healthcare providers continue to “cost shift” and commercial prices therefore rise?

The 2023 Medicare Trustees’ report stated plainly that long-term forecasts of Medicare’s financial viability are predicated on unrealistic expectations of how low payment can go while still inducing enough physicians and other providers to care for Medicare enrollees.c

Or as CMS actuaries put it: “There is a strong likelihood …. that Congress would find it necessary to legislatively override or otherwise modify the [scheduled payment] reductions in the future to ensure that Medicare beneficiaries continue to have access to health care services.”d

Amid this reality of suppressed Medicare payment, if commercial prices rise, will that be due to lack of competition, or will it simply reflect the struggle to maintain a viable healthcare system? Clearly, the nation needs a more holistic set of measures to evaluate the costs and benefits of consolidation, beyond just prices or size.

A more nuanced perspective is needed

True consumer welfare in the modern healthcare era must comprehend a range of outcomes — price and affordability, to be sure, but also quality, access to the most effective interventions and the overall cost effectiveness of care. Patient-reported outcomes and consumer preferences also matter, as does the ability of health systems to innovate in and adapt to the use of technologies such as artificial intelligence.

In short, the images now being conjured up — of 21st-century robber barons tying Marcus Welby, MD, to a post and fleecing him and his patients — constitute a sad and misleading caricature. The nation needs a far smarter and deeper set of analyses to understand what this kaleidoscopic picture of the evolving healthcare market truly means. 


a. Kane, C.K, “Recent changes in physician practice arrangements: Shifts away from private practice and towards larger practice size continue through 2022,” American Medical Association Policy Research Perspectives, July 2023.
b. Klein, S., and Hostetter, M., “Tackling high health care prices: A look at four purchaser-led efforts,” The Commonwealth Fund, April 1, 2022.
c. The 2023 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. March 31, 2023.
d. Shatto, J., Klemens, M.K., “Projected Medicare Expenditures under an illustrative scenario with alternative payment updates to Medicare Providers,” Memorandum from CMS Office of the Actuary, March 31, 2023.

Full disclosure: APG’s position on healthcare consolidation

My organization, America’s Physician Groups (APG), which exists to nudge the healthcare system to more value-based healthcare, is at the epicenter of many of the changes currently afoot in healthcare related to consolidation. Along with hundreds of independent primary care and multispecialty physician practices engaged in the full range of alternative payment models, APG’s members now include Oak Street Health, bought earlier this year by CVS; One Medical, now owned by Amazon; and multiple formerly independent physician groups now owned by or affiliated with Optum.

APG shares the view of many in Congress that it may be useful to track future healthcare ownership changes, subject to certain size thresholds to avoid excessive reporting requirements. But at the same time, APG believes it’s also best to dial down the robber-baron rhetoric and forge a better understanding of what’s driving this evolution in healthcare. It will also be useful to monitor a range of measures likely to be far subtler than the simple “big is bad” hypothesis would imply.

Responses to concerns about the consolidation trend in healthcare

Concerns raised around consolidation in healthcare have prompted action in various quarters, including proposals introduced in Congress, red flags raised by academics and scrutiny by the Biden Administration that led to an executive order.

Congressional actions

Some members of Congress are sufficiently alarmed about consolidation in healthcare that they’ve backed bills such as the PATIENT Act (Promoting Access to Treatments and Increasing Extremely Needed Transparency). The bill would require healthcare entities to report to the U.S. Department of Health and Human Services (HHS) any mergers, acquisitions and ownership changes. HHS would then be required to post this information publicly, with its analysis of trends in horizontal and vertical integration.

Other proposals include the Medicare Common Ownership Transparency Act of 2023, which would seek data on acquisitions of physician practices by Medicare Advantage plans and other health insurance entities.

One motivating factor: The largest concentration of U.S. physicians now works under the banner of UnitedHealth Group’s Optum, with more than 70,000 employed or aligned physicians across more than 2,200 locations nationwide.

Academics weigh in

History and research suggest there are good reasons to stay alert to excessive healthcare market consolidation. As Harvard economist Leemore Dafny testified to Congress in 2021, studies have long shown that horizontal consolidation — that is, when hospitals or physician groups buy comparable providers within the same market — reduces competition in the market and causes prices to rise.a

Dafny also testified that there is “substantial evidence that at least two common forms of non-horizontal integration among health care providers — hospital acquisitions of physician groups and cross-market mergers — can lead to significant increases in prices without commensurate benefits and, therefore, raise health care spending without any clear improvements for patient.”

Biden administration steps in

The Biden administration has taken this warning to heart, issuing an executive order on July 9, 2021, that called for a “whole of government” effort to promote competition economywide. It explicitly singled out consolidation in healthcare and health insurance as a cause for concern.

Now, new draft merger guidelines from the Justice Department and Federal Trade Commission issued this year suggest that these agencies intend to shift away from the consumer welfare standard that has long guided antitrust law.

Under this decades-old standard, the agencies can challenge a business practice or merger if it is found to raise prices, reduce output or stifle innovation, although a final ruling on the practice or merger is left to the federal courts. By contrast, the new guidelines suggest that these agencies intend to focus more on other factors, including sheer size and serial acquisitions in a single industry, much as they have recently done in reviewing mergers and acquisitions in other sectors, such as technology. 


a. Dafny, L.S., “How health care consolidation is contributing to higher prices and spending, and reforms that could bolster antitrust enforcement and preserve and promote competition in health care markets,” Testimony to U.S. House Committee on the Judiciary Subcommittee on Antitrust, Commercial and Administrative Law, April 29, 2021.


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