More on Consolidation within the Health Care Industry

Fortune's team of Maria Aspan and Erika Fry have focused their analytical lens on the growth of health care firms in their recent article, "Companies like CVS and UnitedHealth are now some of the world’s biggest businesses. Is that healthy for the rest of us?" (May 24, 2023). It's a good read.

Let's start some context. Despite a recent minor dip, health care is the largest single sector that contributes to our Gross Domestic Product, the equal of defense and education (at all levels) combined. 

Although this number -- whether expressed in absolute dollars, as a percentage of GDP, or as expenditures per capita -- is vastly larger than the expenditures of every other developed country in the world. And by almost any measure, the results -- in terms of life span, infant and maternal mortality, etc. --  pale in comparison to the same countries and many developing countries, as well. Much has been written about this conundrum. After all, we are a rich country and if we want to spend a lot of our wealth on health care, well, why not? The counter-argument is multifaceted. Are we as a society making smart decisions about those health care expenditures? Are there better strategies than "throw a ton of money at what ails you and hope that something works"? Are we doing all we reasonably can to root out waste and fraud? As COVID vividly and catastrophically demonstrated, expenditures for health care goods and services are not equitably distributed to racial and ethnic minorities, economically disadvantaged individuals and households, or the under- and uninsured, a group that persists despites the reforms of Obamacare.

This is Aspan and Fry's concern, too. They are looking at the rapid and extensive increase in firm size and the consolidation of disparate providers (hospitals, pharmacies, clinics, physician practices) into behemoths of unimaginable market power see at least a correlative relationship with GDP. Much of the merger activity in the health care sector is fueled by debt and venture capital, all of which demands cash flow to service. In other words, relentless growth in net revenues, year over year and quarter over quarter. Where's the incentive to keep patients healthy and out of hospital beds or to provide the most cost-effective care?

Granted, providers prosper by delivering more goods and services. And insurers prosper by paying for less care. As the authors point out, there is a conflict of interest at a fundamental level of this business model. Meanwhile, it's the wild, west out there, and the big firms seem to be doing just fine, at least for now. Whether that translates into better health outcomes for the rest of us is still very much in doubt.