Healthcare debate must confront industry monopolization

What passes for political debate often neglects key developments. Healthcare is a case in point. As republicans stumble over their own proposals, the high level of industry consolidation threatens to monopolize the delivery of health services. Monopolization means less competition, higher prices, and reduced quality of care.  

With 561 hospital mergers since 2010, nearly half of all health markets are uncompetitive. In 2015 mergers and acquisitions were up 70 percent compared to 2010. By cornering a market, mergers enable health providers to negotiate higher reimbursement rates with insurers. This in turn has instigated a parallel flurry of insurance mergers to counter the market dominance of large health systems. Mounting evidence shows that consolidation leads to higher prices, not better quality.

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In a widely cited Robert Wood Johnson Foundation study, when hospitals merge in already uncompetitive markets the price increase often exceeds 20 percent. Another study found that hospital prices in two of California’s largest health systems were 25 percent higher than at other statewide hospitals.  

 

There has also been a spike in “vertical consolidation” where hospitals acquire physician practices and convert them into outpatient service departments. This also strengthens negotiating leverage and allows providers to circumvent anti-kickback laws by simply placing patient referring doctors on the payroll.

According to Forbes, the number of hospital employed physicians increased by nearly 50 percent from July 2012 through July 2015. A study found that hospital owned physician groups in California charge 10 percent more per patient and groups owned by large integrated health systems charge nearly 20 percent more than independent physician practices.

Vertical integration has been incentivized by uneven Medicare payments that provide higher reimbursement for services performed at outpatient departments than at physician owned practices. As recommended by the Medicare Payment Advisory Commission, uniform reimbursement policies where the same amount is paid for the same service regardless of location would better stimulate competition. Recent steps have been taken in this direction but discrepancies still exist.   

Some contend that alternative payment models, such as accountable care organizations (ACOs), contribute to industry consolidation. Since passage of the Affordable Care Act (ACA), both Medicare and private insurers have shifted towards payment reforms (replacing the traditional fee-for-service) that use performance based incentives to hold health care providers accountable both for cost and quality of care.

ACOs coordinate a patient’s care across a network of providers. A global budget is set for an entire patient population, with incentives to control spending and improve healthcare outcomes. Approximately 30 percent of Medicare payments are now tied to value based incentives. But these reforms have prompted concern that providers would consolidate in order to absorb the financial risks they pose.   

However, according to a new study published by Health Affairs there is little evidence that health providers are consolidating to support ACOs. The study found no discernible differences in the pace of consolidation in markets with ACOs compared to other healthcare markets. While participating physician groups did experience an increase in size, this was due to the addition of specialists and not directly related to ACOs. Moreover, consolidation trends were already underway prior to the ACA.      

The study does suggest that some consolidation might be a “defensive reaction” to payment reform. In other words, facilitated to resist entering into such arrangements. Interestingly, most of the Medicare savings from ACOs derives from independent physician groups, not from larger health systems that have been less successful in controlling costs.

As the Harvard researchers explain “Organizations that own hospitals and specialty practices have weaker incentives than those that do not to limit use of inpatient and specialty care under ACO contracts, and evidence from Medicare and commercial ACO initiatives suggests that providers can influence the use of care in multiple settings without formal ownership arrangements [i.e. consolidation] that unite providers.”     

This is because communication is more important than ownership consolidation. Coordinated care is enhanced by implementing data communication networks, such as health information exchanges, across multiple providers. Moreover, health experts say that good care depends less on size and more on leadership that prioritizes quality improvement, not all of which is expensive. While a modest level of consolidation among smaller entities might improve certain institutional capabilities, large integrated health systems are not necessary to realize those gains.    

The Federal Trade Commission has only recently started to apply greater antitrust scrutiny to proposed mergers. It is not clear whether this will continue under the Trump administration, but it should as it is easier to prevent monopolies in the first place then to break them up after the fact. However, the FTC needs more resources to keep up with the frantic pace of activity and to better comprehend the high level of consolidation already established. Donald TrumpDonald John TrumpTrump suggests some states may 'pay nothing' as part of unemployment plan Trump denies White House asked about adding him to Mount Rushmore Trump, US face pivotal UN vote on Iran MORE’s proposed across the board budget cuts do not bode well for this prospect.

Competition is a powerful tool that spurs lower prices and higher quality. But as Phillip Longman warns, we are at risk of developing a healthcare system where just a few large insurer/provider combinations monopolize the market and eliminate “the last vestiges of competition and consumer choice.” This condition could render partisan debates over the free market versus “socialized medicine” beside the point.  

Douglas Singleterry is an attorney who specializes in healthcare litigation and is co-author of New Jersey Uniform Commercial Code. He has served on the North Plainfield Borough Council since 2005.


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