I was pleased to see Eduardo Porter devote a column to consolidation among U.S. medical providers, as Avik Roy has an article on the subject in a forthcoming issue of National Review. Porter writes:

Two decades ago, there were on average about four rival hospital systems of roughly equal size in each metropolitan area, according to research by Martin S. Gaynor of Carnegie Mellon University and Robert J. Town of the University of Pennsylvania. By 2006, the number of competitors was down to three.

The share of metropolitan areas with highly concentrated hospital markets, by the standards of antitrust enforcers at the Justice Department and the Federal Trade Commission, rose to 77 percent from 63 percent over the period.

And consolidation is continuing. Professor Gaynor counts more than 1,000 hospital system mergers since the mid-1990s, often involving dozens of hospitals. In 2002 doctors owned about three in four physician practices. By 2008 more than half were owned by hospitals.

If there is one thing that economists know, it is that market concentration drives prices up — and quality and innovation down.

Research by Leemore S. Dafny of Northwestern University, for instance, found that hospitals raise prices by about 40 percent after the merger of nearby rivals.

Other studies have found that hospital mergers increase the number of uninsured in the vicinity. Still others even suggest that market concentration may hurt the quality of care.

This brings to mind a recent Marginal Revolution post on various supply-side interventions that might help reduce the cost of medical care, e.g., a multi-pronged effort to expand the ranks of licensed medical providers, encouraging medical tourism, etc. The chief obstacle to this approach, and to health-system reform more broadly, is the power of the doctors’ lobby.