Saturday, December 01, 2012

Neither accountable nor caring nor organized

Almost two years ago, I quoted Dartmouth's Elliott Fisher facetiously remarking that we could not be sure whether accountable care organizations (ACOs) would actually be accountable, caring, and organized.  A year later, I warned about the dangers of industry consolidation, quoting from Federal Trade Commissioner J. Thomas Rosch:

“The net result” of ACOs, says Rosch, “may therefore be higher costs and lower quality health care—precisely the opposite of its goal.”

Events since that time should cause us concern.  Julie Creswell and Reed Abelson report in the New York Times about a consolidation and market share battle going on in Boise, Idaho.

Regulators expressed some skepticism about the results, for patients, of rapid consolidation, although the trend is still too new to know for sure. “We’re seeing a lot more consolidation than we did 10 years ago,” said Jeffrey Perry, an assistant director in the F.T.C.’s Bureau of Competition. “Historically, what we’ve seen with the consolidation in the health care industry is that prices go up, but quality does not improve."

In an earlier Washington Post article, author Steven Pearlstein explained his concerns.  He noted:

Because there are often hospitals in each region that insurers must have in their networks to attract subscribers, dominant hospital chains are able to demand monopoly-like prices for their services. Insurers have responded by merging with other insurers in the hope of gaining negotiating leverage by becoming as indispensable to the hospitals as the hospitals are to them. To maintain their leverage, hospitals in turn have consolidated into bigger and bigger chains.

This arms race has produced repeated waves of consolidation that, rather than having led to lower prices, have led to higher prices, declining quality and less competition.

Look, what is going on in hospitals is similar to what has happened in other industries--telecommunications, banking, electric utilities.  The first refuge of corporate executives who face structural changes in their industries is to arrange mergers to gain market power and reduce risk.  I know of no industry in which unregulated market dominance has led to lower costs or greater customer choice.  Monopolies, after all, behave like monopolies. Neither Republicans nor Democrats have chosen to address these market power issues in the health care sector.


Anonymous said...

Also in retail, as noted for the nth time during a recent visit to malls in Atlanta - the stores in which were identical to those in my home state. The salient fact is that my daughter did not recognize a problem - she's never known anything different. Thus will the public react, or not.

I guess the question becomes, if consolidation is occurring in all our industries, is it a fact of evolution and we must adapt accordingly, rather than trying to prevent an unstoppable trend. I am no economist, but I recognize inevitability when I see it, and I don't think government can change this. What would you recommend, Paul?


Paul Levy said...

Oh, but government can and has in the past in other fields. But there has to be the political will to do so.

Anonymous said...

In our region, SW-USA,-massive hospital consolidation has resulted in threats and intimidation to local surgeons and other specialists who would otherwise not refer to the recently merged "not for profit" hospital group or their "partner" imaging centers, labs and surgery centers. (referrals to hospital affiliated entities typically result in higher charges to the patient referred on average- especially in the imaging center sector where patients are charged at hospital rather than out-patient re-imbursement rates) The dirty little secret is that the primary care and FP/Internists practices, imaging centers and labs etc. acquired by the hospital physician group merger acquisition were not composed of the best or most ethical practitioners in town, some having Medical Board complaints and others being financially distressed. The opportunistic hospitals were also financially distressed before aquiring a "reliable stable" of physicians and their naive patients to manipulate into profitable self serving referral patterns. Ironically the NYT has a front page article today Dec. 1,2012 re: industry consolidation in Boise,Idaho. If the govt thinks that the huge not for profit hospital sector will behave ethically in treatment of patients or independent physicians, they should review US history regarding "robber barrons" of the oil, railroad and other industries in the first part of the 20th Century --Not nice guys...

Charles said...

I know of an industry that has local monopolies AND good quality AND low cost.

It is public utilities (Water, Electric). If we let healthcare systems get large (like Kaiser Permanente) and regulate them at either the state and/or federal level, like utilities, we can make sure people are taken care of while managing cost.

FERC and PUC hold rulemaking sessions with public input - it is a great model that could apply here as well.

C. McCormick, San Antonio TX

Paul Levy said...

Some people have suggested that such a form of regulation would make a lot of sense. Thus far, there's not much traction for it, but who knows?

Josh said...

There are in fact reports of MORE competition driving costs UP, at least as regards specialty hospitals, resulting in a "medical arms race" to acquire the latest technology to attract patients (think hybrid vascular suites and daVinci robotics, the latter a catastrophically expensive technology with no demonstrable improvement yet in outcomes).

Does this have any bearing on the current discussion?