The growth of managed care has placed considerable pressure on providers of health care and, in particular, on hospitals. The evolution of insurance companies' behavior helps explain the recent hospital consolidation movement. Insurance companies have placed cost constraints on providers, both in the early years of health insurance and currently, when there are strong competitive forces. Hospitals claim that their primary merger motives are improving efficiency and the quality of care. The empirical evidence on this claim is mixed.
More research is needed to explore the effects of vertical integration in the health care sector.
In one of the more significant recent legal rulings, the U.S. Justice Department lost a 1997 case challenging the merger of two hospitals in the New York City metropolitan area. This, 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. It is difficult to generalize on an appropriate antitrust policy for hospital mergers. Hospital consolidation is likely to continue at a rapid pace. Since some developments may reduce the cost of employee benefits while others may increase the cost of these benefits, the final effect on the provision of health care benefits by employers is uncertain.