It will significantly affect the demand for medical services and the ability of employers to provide health care benefits. Although the number of mergers dipped somewhat in 1998 compared with the previous year, hospital consolidations are expected to continue running at a rapid pace. The growth of managed care is a major factor because it has put considerable pressure on health care providers to reduce costs. The evolution of health insurance companies' behavior helps explain the recent hospital consolidation movement. As managed care has become the dominant type of coverage in the last decade, insurance companies have become more active in trying to control spending by placing cost constraints on providers, as they did before the advent of managed care.
More research is needed to explore the effects of vertical integration in the health care sector.
Hospitals claim that their primary merger motives are improving efficiency and the quality of care, but the empirical evidence on this claim is mixed. Opponents of consolidation emphasize the serious anticompetitive effects of mergers and call for government action to limit this activity. However, the government generally loses the antitrust cases it brings against hospital mergers. In a significant recent legal ruling, the U.S. Justice Department lost a 1997 case challenging the merger of two hospitals in the New York City metropolitan area. This ruling, along with other recent losses by the antitrust authorities, does not bode well for the government's ability to prevent hospital mergers in metropolitan areas.