When two hospitals in the same city merge, the price of care often rises. Researchers have documented this pattern for years: consolidated health systems gain leverage over insurers, negotiate higher rates, and pass those costs to patients and employers. Meanwhile, the charity care that nonprofit hospitals provide—often cited as justification for their tax-exempt status—has not grown in proportion to revenue. This tension sits at the centre of an ongoing debate about whether hospital consolidation serves the public interest or simply enriches large systems at the expense of affordability.

How Hospital Mergers Drive Up Sticker Prices

Hospital mergers reduce competition in local markets, giving the merged entity more bargaining power when negotiating with insurance companies. Insurers, facing a larger, more essential network, are often forced to accept higher reimbursement rates. A 2021 review of dozens of health-economics studies found that hospital mergers are consistently associated with price increases of 10–30%, depending on market concentration and the type of service.

The mechanism is straightforward: fewer hospitals mean fewer alternatives for insurers. If a system owns the only two hospitals in a county, an insurer cannot afford to exclude both from its network. The system can demand rates well above the competitive baseline, and the insurer—unable to offer a viable network without those hospitals—concedes. These higher rates then flow into premiums for employer-sponsored plans and individual policies.

Not every merger produces the same price effect. Mergers in already concentrated markets tend to raise prices more sharply than those in competitive areas. Mergers between hospitals that serve different geographic regions—so-called cross-market mergers—have a less consistent impact, though some evidence suggests they still lead to price increases by giving systems clout across multiple regions.

Critics of the anti-consolidation view argue that mergers can generate efficiencies—shared electronic health records, consolidated supply chains, reduced administrative overhead—that lower costs over time. But the empirical record is mixed. While some merged systems achieve modest operational savings, these rarely translate into lower prices for patients. Instead, savings tend to be retained by the system or invested in new facilities and technology.

For example, a merger in a mid-sized metropolitan area may allow two hospitals to combine their purchasing departments, reducing supply costs by perhaps 5–10%. Yet studies of such mergers often find that prices charged to insurers rise by double digits within a few years. The disconnect suggests that market power, not efficiency, is the dominant driver of post-merger pricing.

Charity Care Budgets Lag Behind Revenue Growth

Most US hospitals are nonprofit entities, exempt from federal income tax, state and local property taxes, and other levies. In exchange, they are expected to provide community benefit, which includes charity care—free or discounted services for low-income, uninsured, or underinsured patients. The IRS requires nonprofit hospitals to develop a charity care policy and report spending, but it does not mandate a minimum level.

Data from hospital cost reports and tax filings paint a consistent picture: charity care spending as a percentage of operating expenses has been flat or declining for many large systems, even as their revenues and profits grow. A 2023 analysis by the Lown Institute found that among the 50 largest nonprofit hospital systems, the median charity care ratio was roughly 1.8% of operating expenses. Several systems spent less than 1%.

Meanwhile, the value of tax exemptions for nonprofit hospitals is substantial. Estimates from the Congressional Budget Office and academic researchers place the total annual subsidy at roughly US$ 20–30 billion nationwide. Critics argue that if hospitals were required to spend a larger share of their revenue on charity care—say, 5% or more—they could still comfortably operate while providing meaningful relief to patients.

Hospital representatives counter that charity care is only one component of community benefit. They also point to unreimbursed care from Medicare and Medicaid, medical research, health education programs, and other services. But these categories are broad, and some researchers have questioned whether they truly benefit low-income communities in the same way that direct financial assistance does. For instance, research spending may advance medicine generally but does not directly reduce the out-of-pocket burden on a low-income patient seeking an emergency room visit.

Moreover, the definition of community benefit varies widely across systems. Some hospitals count the shortfall between Medicare reimbursements and actual costs as community benefit, even though Medicare is a federal program that all hospitals participate in. Critics argue this inflates the reported benefit while obscuring how much is actually spent on free care for the uninsured.

Evidence from the Federal Trade Commission Reviews

The Federal Trade Commission (FTC) reviews hospital mergers for potential anticompetitive effects under federal antitrust law. When a merger is likely to substantially lessen competition, the FTC can file a lawsuit to block it. Over the past two decades, the agency has challenged several high-profile hospital deals, with mixed success in court.

Retrospective studies of mergers that were allowed to proceed consistently show price increases. A landmark 2012 study by economists at the University of California, Berkeley and the University of Chicago examined mergers in California and found that prices rose by 10–20% after consolidation compared with control hospitals. Similar findings have been replicated in other states and time periods.

Despite this evidence, the FTC's ability to block mergers is limited. Courts have sometimes accepted hospital systems' arguments that a merger will improve quality or efficiency, even when price effects are expected. Moreover, many mergers fall below the filing threshold for Hart-Scott-Rodino review or are structured in ways that avoid automatic scrutiny.

Economist Martin Gaynor, a former FTC official and leading researcher on healthcare competition, has described enforcement as "inadequate." In congressional testimony and academic papers, he has called for stronger presumptions against mergers in highly concentrated markets and for more resources to conduct retrospective analyses. Some state attorneys general have stepped in where the FTC has not, but state antitrust actions are uneven.

For example, in a recent case in a northeastern state, the attorney general successfully blocked a merger between two mid-sized hospitals after a community coalition raised concerns about access and pricing. The decision forced the hospitals to remain independent, though they later formed a looser affiliation that did not require regulatory approval. Such outcomes highlight the patchwork nature of antitrust enforcement.

The Rural Hospital Dilemma: Consolidation or Closure

Rural hospitals face a different calculus. Many operate on thin margins, serve aging populations, and struggle to recruit specialists. Joining a larger health system can provide access to capital, management expertise, and negotiating leverage with insurers. For some rural facilities, a merger may be the only alternative to closure.

But consolidation in rural areas carries its own risks. When a small hospital becomes part of a regional system, local control often diminishes. Decisions about service lines, staffing, and investment may shift to a central office far from the community. And while the hospital may stay open, prices for patients in the area tend to rise, as the merged system can use its new market power to negotiate higher rates across a broader region.

Evidence from the Medicare Payment Advisory Commission suggests that rural hospitals that join systems do experience improved financial stability, but the gains are not always passed on to patients. Out-of-pocket costs for rural residents, who already travel longer distances for care, can increase. Some communities have pushed back against proposed mergers, arguing that preserving a locally governed hospital is worth the risk of financial instability.

There is no easy answer. For a town with one hospital, the choice is often between a merged facility that charges more and a shuttered facility that charges nothing—but offers no care at all. Policymakers have explored alternatives, such as federal grants for rural hospitals and loan repayment programs for rural physicians, but these efforts have not reversed the broader trend toward consolidation.

Consider a rural county in the Midwest where the only hospital was losing money for years. After merging with a regional system, the hospital received capital for a new emergency department and recruited a general surgeon. However, patients in the county soon faced higher deductibles and co-pays because the system renegotiated its insurance contracts. Some residents began driving to a hospital in a neighbouring state, where out-of-pocket costs were lower, despite the longer trip.

Insurer-Provider Negotiations and the Hidden Transfer

Most patients never see the direct impact of a hospital merger on their bills. Instead, the higher rates that systems negotiate are folded into insurance premiums, which rise for employers and individuals. Over time, these increases compound, making health coverage less affordable for everyone.

In some markets, large systems have also used their leverage to stay out of certain insurance networks, forcing patients to choose between paying higher out-of-network rates or switching to a different hospital. Surprise billing, though partially addressed by the No Surprises Act of 2020, still occurs in certain contexts, particularly for emergency care and ancillary services.

Employers, who bear much of the cost of coverage, have begun to push back. Some have formed coalitions to negotiate directly with hospital systems, sharing data on prices and quality to demand better terms. Others have adopted reference-based pricing, where they set a maximum payment for a procedure and require employees to cover any excess. These strategies have had mixed success, but they reflect growing frustration with the opaque nature of hospital pricing.

A related issue is the rise of out-of-network billing for physicians who work at in-network hospitals. When a hospital system merges, it may bring in new physician groups that are not in the same insurance networks, leading to surprise bills for patients who assumed all providers at the facility would be covered. State and federal regulations have reduced this practice, but it persists in some regions.

One notable example involves a large system in the Southeast that acquired several physician practices and then shifted them to out-of-network status for certain plans. Patients who had been seeing the same doctors for years suddenly faced higher costs. After public outcry and regulatory pressure, the system reversed the change, but the episode illustrates how consolidation can disrupt patient-provider relationships.

Policy Proposals That Aim to Bend the Curve

A range of policy proposals have been put forward to address the price effects of hospital consolidation. One approach is to tighten merger review thresholds, requiring hospitals to demonstrate that a merger will lower prices or improve quality before it can proceed. Some states have considered laws that would shift the burden of proof to the merging parties, rather than requiring regulators to prove anticompetitive effects.

Another proposal is all-payer rate setting, where a state agency sets uniform prices for all insurers and providers, eliminating the bargaining advantage that large systems hold. Maryland has operated an all-payer system for decades, and recent evaluations suggest it has moderated hospital cost growth while maintaining access. Other states, including Oregon and Colorado, have explored similar models but have not yet implemented them.

Mandatory minimum charity care spending is another idea gaining traction. Several states now require nonprofit hospitals to spend a certain percentage of revenue on financial assistance, or risk losing their tax exemptions. California, for example, mandates that hospitals provide charity care equal to at least 1% of operating expenses, though some advocates argue this threshold is too low. A more aggressive version would tie the requirement to the value of the hospital's tax exemption, ensuring that hospitals give back at least as much as they receive in public subsidies.

Transparency rules for hospital pricing, such as the federal requirement that hospitals post their standard charges online, have had limited impact so far. Many hospitals have not complied fully, and the data can be difficult for patients to interpret. Still, advocates argue that making prices public—even if imperfectly—creates pressure for systems to justify their rates. Some states have gone further, requiring hospitals to report charity care spending and community benefit in standardized formats that allow for easy comparison.

Another emerging idea is to use public option plans, where a government-sponsored insurance plan competes with private insurers and uses its bargaining power to negotiate lower rates. Washington State, for instance, introduced a public option in 2021, and early data suggest it has reduced premiums in some areas. However, hospital systems have pushed back, and the long-term impact on consolidation remains uncertain.

What Patients and Employers Can Watch For

For patients, the most immediate step is to check a hospital's charity care policy before receiving non-emergency care. Nonprofit hospitals are required to have a financial assistance policy, but they do not always advertise it. Patients can ask about discounts based on income and should not assume they are ineligible. Some systems offer free care to those earning up to 200% or 300% of the federal poverty level.

Employers, particularly those with self-funded health plans, can join purchasing coalitions to negotiate directly with hospital systems. By pooling data and bargaining power, these groups can push back against rate increases and demand transparency. Some have also begun steering employees to lower-cost facilities through tiered network designs and reference pricing.

Monitoring local merger announcements is another way to stay informed. When a merger is proposed, the public can submit comments to the FTC or state regulators. Community groups have successfully delayed or altered merger terms by raising concerns about access and pricing. Even when a merger is ultimately approved, public scrutiny can lead to conditions that protect patients, such as commitments to maintain charity care levels for a set number of years.

Finally, advocating for state-level price transparency laws can create systemic pressure. States that require hospitals to report price data and charity care spending have seen modest improvements in accountability. While no single policy is likely to reverse the effects of decades of consolidation, a combination of stronger antitrust enforcement, minimum charity care requirements, and better price transparency could help bend the curve.

This article is for informational purposes only and does not constitute professional medical, legal, or financial advice. Readers should consult qualified professionals for guidance specific to their situation.