Horizontal integration and E=CUP

Let’s talk about horizontal integration and how it impacts E=CUP.

What is horizontal integration?

If vertical integration is acquiring the entire supply chain, horizontal integration is acquiring more companies at the same level in the supply chain.

Think about Disney & Pixar. Volkswagen & Porsche. Kraft & Heinz.

When two similar companies merge, they can unlock:
• Efficiencies of scale
• Increased buying power
• Greater market share

It can really be a 1+1=3 scenario.

But here’s the catch:

Horizontal mergers often exacerbate competing incentives.

You and I want to pay less for healthcare. But businesses—yes, even healthcare providers—want to grow revenue.

What’s happening on the ground?
• Hospitals are merging with other hospitals in the same market.
• Physician practices are consolidating into large corporate groups or selling to hospitals.

The result?
• Fewer alternatives.
• Increased provider leverage over insurers and communities.

And we get stuck in public games of chicken between providers and insurers, with prices rising as the only consistent outcome of their contractual brinksmanship.

Here’s where it gets worse:

Horizontal integration doesn’t lead to better care, but it does lead to higher prices—and job losses.

Research from Zarek Brot-Goldberg, Zack Cooper, Lev Klarnet, Ithai Lurie, and Corbin Miller in their paper for the National Bureau of Economic Research:
• A 1% increase in healthcare prices leads to a 0.4% decrease in employment outside the health sector.
• Hospital prices increase 1.2% on average after a merger, without improving care quality.
• Over 1,000 hospital mergers (2000–2020) consistently showed higher prices without increasing quality or reducing utilization.

Higher prices. Job losses. No added value.

So how does this tie back to E=CUP?
• After a merger, P (prices) rise.
• U (utility) and C (care) don’t change.

We’re paying more and getting nothing extra.

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Link to the paper: https://lnkd.in/eM6-yufh