Regulators may have another layer to consider when evaluating provider tie-ups—wage stagnation.
Much research and analysis has been dedicated to the price implications of consolidation among healthcare providers, economists’ conclusion being that prices typically rise when they combine. But now evidence is mounting that in less-competitive markets, employees’ wages may also be impacted.
A new working paper indicates that wage growth slows in markets with fewer competitors. “Employers in these markets have more power over workers because they have fewer to turn to in terms of competitors,” said co-author Elena Prager, assistant professor of strategy at Northwestern University’s Kellogg School of Management.
Prager and co-author Matt Schmitt, an assistant professor of strategy at UCLA’s Anderson School of Management, compared wage growth in markets with mergers to those without, finding that wage growth fell more when the merger was large (top quartile) and when the employee had industry-specific skills. Annual wage growth was 1.1 percentage point slower for skilled nonhealth professionals in concentrated markets (social workers, claims adjusters, insurance personnel, HR professionals) and 1.7 percentage points slower for nursing and pharmacy workers, their analysis of 84 hospital mergers from 2000 to 2010 revealed.
If that indeed is the case, experts say it should come into play when federal and state regulators are considering whether to allow health systems to merge.
Regulators rarely consider the impacts on wages from increased labor market power as a factor in antitrust reviews, and the courts have yet to rule against a merger because of its anti-competitive labor effects, said Michael Buchanio, a principal in West Monroe Partners’ healthcare practice.
“However, recent research suggests labor market concentration can and should be used to argue against a horizontal merger,” he said.
Wage growth slowdowns were less severe in markets with strong labor unions and wages weren’t affected after out-of-market mergers that didn’t change employer concentration, researchers noted. The study didn’t analyze pay for middle managers or executives and didn’t find any impact on “unskilled” workers.
Prager hopes that this data will inform the national debate on how to best frame merger reviews.
“This is bigger than healthcare alone,” she said. “Historically in the U.S., the presumption has been that the job of the Federal Trade Commission and Department of Justice is to protect the interest of consumers. In some sense that is a narrow view.”