Is Provider Consolidation Good or Bad for Health Care Reform?

posted by on Friday, August 22, 2014

Health care reform is causing a historic shift in the U.S. landscape as health care providers, practices and hospitals are undergoing an unprecedented level of consolidation to save costs and improve efficiencies. EHR Intelligence debates both sides of this issue, examining the benefits to patients and concerns about a changing health care industry.

A combination of mandates and incentives are changing the health care landscape and rewarding providers whose clinical practices support high levels of care coordination and superior control over the costs associated with this care. A byproduct of health care reform, however, is the push toward greater integration, which has led to provider consolidation and raised concerns about a lack of competition in the health care industry.

The debate over the pros and cons of provider consolidation is the focus of a new forthcoming issue of Health Affairs that has already made its appearance online. Rounding out two health care market studies by Sage and Ginsburg & Pawlson are contrasting viewpoints from two industry stakeholders that provide insight into what’s at stake in present health care reform as far as providers are concerned.

The perspective of Bruce Vladeck, Senior Adviser at Nexera, illustrates that the downstream effect of provider concentration is not easy to predict. “The dilemma posed for policy makers and analysts arises from the assumption that increased concentration is intrinsically a bad thing, even though many good things seem to be happening as provider concentration progresses,” he writes.

In particular, Vladeck draws attention to the “dominant reputations and markets positions” of the health care industry’s leaders — the Mayos, Geisingers, and Kaisers of the world — whose increasing levels of control have occurred alongside historically low levels of hospital prices.

In light of the paradoxical nature of health care in the United States, Vladeck raises doubts about the soundness of any strategy that would work to minimize the control of dominant entities and have the concomitant effect of establishing an uncompetitive playing field.

A major contention raised by Vladeck is the notion that individual consumers would be able to dictate how their health care will be delivered — the myth of the sovereign individual consumer. The danger here, argues Vladeck, is how well informed consumers are expected to be, noting that “consumers are regularly inundated with self-serving or downright erroneous information from health insurers, providers, and entrepreneurs alike about health care services and their use.”

In lieu of the proposals put forth by Sage and Ginsburg & Pawlson, Vladeck emphasizes the need for policy makers, providers, and consumers to take a step back and ponder “what kind of health care system we really want and how much we are prepared to pay for it.”

Unlike Vladeck, the Director of the Bureau of Economics for the Federal Trade Commission (FTC) Martin Gaynor stresses the new for continued and strengthened regulation of the health care industry.

Martin’s perspective demonstrates a sincere belief that a combination of federal and state policies are capable of preserving and improving competition in the health care industry while at the same time fostering innovation.

“The challenge of finding effective policies for dealing with highly concentrated markets underscores the importance of active antitrust enforcement,” he explains. “Preventing harmful consolidation ex ante is far more effective at promoting efficiency and protecting consumers than is trying to deal with the consequences ex post, once it has occurred.”

However, he does admit that even regulation has its shortcomings, such as in the case that a health care organization has gained control over a particular market legally and antitrust laws would be incapable of undoing this control. “U.S. antitrust enforcement agencies have a substantial role to play in health care, but it is important to realize what they can and can’t do. The antitrust laws do not address all possible problems with markets,” he reveals.

Obviously, there is no single solution to health care reform as it pertains to the state of providers. Instead, it stands to reason that a more fluid and adaptive approach is necessary for supporting integration while at the same time promoting competition.