If there are lots of buyers of a service in a particular region but you’re the only supplier, you have a lot of leverage to charge high prices. Conversely, if there are lots of suppliers but you’re the only buyer, you have a lot of leverage to bargain prices down. In the healthcare world, hospitals are the suppliers and insurance companies are the buyers. So if there are only one or two hospitals in your region, then prices are likely to be high. Thus this comment about the trend toward consolidation of hospital chains:
“The rhetoric is all about efficiency,” said Karen Ignagni, the chief executive of America’s Health Insurance Plans, a trade group that represents insurers. “The reality is all about higher prices.”
Ignagni obviously has a dog in this fight, but she’s basically right. A 500-hospital chain might be more efficient than a 100-hospital chain. But it’s definitely able to charge higher prices.
