The Hidden Market Forces Driving Up Patient Costs

POLICY WIRE — Washington, D.C. — After a failed round of in vitro fertilization (IVF) this year, Anne Hug, a professor of radiology, was advised by her fertility doctor to remove a single polyp in her uterus to enhance her chances of pregnancy. The American College of Obstetricians and Gynecologists recommends this procedure be performed in a doctor’s office with local anesthesia.

However, her doctor, part of a large Ohio health system, planned to conduct the procedure in a hospital operating room with full anesthesia. Seeking a more cost-effective option, Hug found an obstetrician willing to perform the procedure in his office. She even completed a two-week hormone course in preparation.

The day before the scheduled procedure, the doctor’s office informed Hug that it would instead be performed at a freestanding surgery center owned by the same health system, which had acquired the OB-GYN practice in 2025. Despite her preference for local anesthesia, the procedure was conducted under sedation, and the bill soared from an estimated $3,000 to around $6,000.

Hug’s situation exemplifies the consequences of “vertical integration” in healthcare, where one entity owns multiple parts of the supply chain, directing patients to more expensive options. This practice is rapidly expanding nationwide, with hospitals acquiring doctors’ practices and surgery centers, insurers buying practices and pharmacies, and private equity firms orchestrating these deals for profit.

Although these integrations are purported to increase efficiency, studies indicate that patients face higher prices and potentially worse health outcomes. Soroush Saghafian, an associate professor at Harvard University, notes that these purchases are driven by financial efficiency rather than improved patient care.

Zack Cooper, an associate professor at Yale University, highlights the inadequacies of current antitrust laws and the under-resourced agencies tasked with enforcing them. The Federal Trade Commission (FTC) and the Justice Department, responsible for policing healthcare mergers, struggle to keep pace with the rapid deal-making.

The number of doctors employed by hospitals has more than doubled over the past decade, with 82% of physicians now working for hospitals, corporate entities, or private equity firms. Many of these transactions fall below the reporting threshold for antitrust scrutiny, leading to unchecked consolidation.

Cooper’s research on hospital acquisitions of physician practices revealed that over 99% of the examined deals were below the reporting threshold, describing the situation as “death by a thousand paper cuts.” The FTC has taken some actions against healthcare mergers, but relies on complaints and news reports to identify smaller deals.

The Justice Department has brought few cases, focusing instead on challenging hospital-insurer contracts. The economic theory behind vertical integration is complex, with potential benefits and significant drawbacks. Harvard researchers found that hospital purchases of gastroenterology groups led to decreased quality, higher prices, and increased complication rates for colonoscopies.

As health economists study the impacts of vertical integration, the trend continues unabated. Major insurers have merged with pharmacy benefit managers and specialty pharmacies, often requiring patients to use specific services, which can disrupt access to affordable medications. Ari H., a Florida resident, experienced this firsthand when switching to a new insurer, Aetna, which did not count copay assistance toward his deductible, significantly increasing his out-of-pocket costs.

Mark Cuban, founder of Cost Plus Drugs, criticizes this practice, calling it crazy stuff. The FTC has taken steps to increase transparency and patient choice in pharmacy benefit managers, but the impact on patient costs remains significant.

Reporting by Policy-Wire (PW)