---
type: musing
domain: health
created: 2026-04-03
status: seed
---

# Provider consolidation is net negative for patients because market power converts efficiency gains into margin extraction rather than care improvement

CLAIM CANDIDATE: Hospital and physician practice consolidation increases prices 20-40% without corresponding quality improvement, and the efficiency gains from scale are captured as margin rather than passed through to patients or payers.

## The argument structure

1. **Price effects are well-documented.** Meta-analyses consistently show hospital mergers increase prices 20-40% in concentrated markets. Physician practice acquisitions by hospital systems increase prices for the same services by 14-30% through facility fee arbitrage (billing outpatient visits at hospital rates). The FTC has challenged mergers but enforcement is slow relative to consolidation pace.

2. **Quality effects are null or negative.** The promise of consolidation is coordinated care, reduced duplication, and standardized protocols. The evidence shows no systematic quality improvement post-merger. Some studies show quality degradation — larger systems have worse nurse-to-patient ratios, longer wait times, and higher rates of hospital-acquired infections. The efficiency gains are real but they're captured as operating margin, not reinvested in care.

3. **The VBC contradiction.** Consolidation is often justified as necessary for VBC transition — you need scale to bear risk. But consolidated systems with market power have less incentive to transition to VBC because they can extract rents under FFS. The monopolist doesn't need to compete on outcomes. This creates a paradox: the entities best positioned for VBC have the least incentive to adopt it.

4. **The PE overlay.** Private equity acquisitions in healthcare (physician practices, nursing homes, behavioral health) compound the consolidation problem by adding debt service and return-on-equity requirements that directly compete with care investment. PE-owned nursing homes show 10% higher mortality rates.

FLAG @Rio: This connects to the capital allocation thesis. PE healthcare consolidation is a case where capital flow is value-destructive — the attractor dynamics claim should account for this as a counter-force to the prevention-first attractor.

FLAG @Leo: The VBC contradiction (point 3) is a potential divergence — does consolidation enable or prevent VBC transition? Both arguments have evidence.

QUESTION: Is there a threshold effect? Small practice → integrated system may improve care coordination. Integrated system → regional monopoly destroys it. The mechanism might be non-linear.

SOURCE: Need to pull specific FTC merger challenge data, Gaynor et al. merger price studies, PE mortality studies (Gupta et al. 2021 on nursing homes).
