Looking forward to the future of health care policy, The Washington Post’s Steven Pearlstein wrote on November 23rd:

These days, most health reformers can agree about two things.

They believe, based on pretty good evidence, that growing concentration among insurers, hospitals, pharmacy benefit managers and drug companies helps explain why health-care costs are rising faster than the cost of everything else.

Insurance companies merge to gain greater clout in negotiating with hospitals and other providers, then the providers merge to gain leverage over the insurers. At any one time, in any one market, one side or the other might have the upper hand, but there is little evidence that the benefits from this endless cycle of consolidation actually flow to those of us who ultimately pay the bills.

Here’s the dilemma: The only way for the health-care industry to move toward accountable care is to further accelerate a process of consolidation that has already reduced competition and increased market power. Hospitals are once again busily buying up physician practices and outside laboratories that used to compete with them, incorporating them into their “systems.” And independent physicians who used to compete with one another are quickly merging into multi-specialty practices, offering a full range of services to large blocks of patients for fixed annual fees - an arrangement known as “capitation.”

You can see where all this could lead in any community where one provider group or another has already gained enough market power that it can pretty much dictate prices to insurers.

There is no evidence that health care costs are being driven by market consolidation. Health care is no more consolidated than other markets. But what does make health care entirely different than other markets is that the parties that “ultimately pay the bills” are not the same people that actually consume the care. Heritage Foundation experts Robert Book and Jason Fodeman write:

A major source of these spending increases is a third-party payment system that often leaves the physician and patient insulated from and even unaware of the costs of the various treatment options. Often, the patient faces the same co-payment regardless of which treatment is chosen, and the extra costs are passed along to the insurance company, Medicare, or Medicaid. These payers may appear to have an incentive to encourage efficient use of resources, but ultimately they do not pay the price for inefficiency. Insurance companies offer “generous” benefits and pass on the increased spending to patients (and often their co-workers) through increased insurance premiums, and government programs pass on the spending increases to taxpayers.

In fact, even before Obamacare became law, the Centers for Medicare and Medicaid Services confirmed that for the first time in the history of the United States a majority of health care spending will be done by the government. Who has any incentive to reduce their health care consumption if taxpayers are the ones picking up the tab.