Sunday, November 24, 2013

Competition matters on both sides of the Atlantic

There is often a lot to learn by comparing the US and UK health care systems, but as often as not we revert to Shaw’s “two nations separated by a common language” when looking for lessons. Let me give one example.

Although the UK has had a single payer, nationalized system for over six decades, there also exits a small but vibrant private sector system. In this sector, private insurance companies—supported by premiums paid by individuals or corporations (on behalf of employees)—contract for services from private hospitals and consultants (i.e., doctors.) The system operates in a similar fashion to the US private care system. Insurance companies negotiate with the provider groups as to the rates that will be paid for the various clinical services.

As in the US, there are some private provider groups that have sought to obtain geographic dominance in certain markets. One purpose of that dominance is to have monopoly-like leverage over the insurance companies to obtain super-normal profits.

In the US, when this kind of dominance occurs, it is—for the most part—ignored by public policy makers and regulatory officials. Indeed, it is explained away by assertion that such ACOs (as we now call them) are better able to coordinate care for their patients and thereby achieve efficiencies that will lead to lower costs. As best I can tell, no one with training in economics believes that such an offset is likely to be the result.

Recent rulings by the Competition Commission in the UK have given the lie to those kinds of hopes.  The CC found that dominant private health care networks, particularly by not exclusively those in major metropolitan areas, were able to extract monopoly rents from the insurance companies. The regulatory response: Requiring the divestiture of a sufficient number of hospitals to enable competition to emerge.  The specifics remain to be decided, and portions of the ruling are likely to be contested or appealed, but the logic of the CC will remain intact: Too much market concentration is bad for consumers.

I am struck by how this differs from the situation in the US.  Even Don Berwick, one of the most informed candidates for public office when it comes to health care, avoids the market power issue in his recent platform statement—notwithstanding how many times it has been documented that the dominance of one health care provider network in Massachusetts single-handedly accounts for a substantial portions of the state’s high health care costs.

The CC’s report should be required reading for US health care policy-makers. The UK has a lot to teach us if we can learn to understand our common language.


Anonymous said...

The situation in Boston is even more peculiar because it is essentially supported by your citizenry. Kind of like the serfs supporting the king, even though he taxes them to death for his court finery. One wonders when they will wake up.


Barry Carol said...

“Too much market concentration is bad for consumers.”

This should be obvious to anyone who has taken a basic economics course in college. Regulators are presumably aware of it but choose to ignore it. I have to conclude that they are way too willing to placate the hospital lobby at the public’s expense.

Forced divestitures to increase competition look like an obvious solution to me. Failing that, limiting what hospitals can charge to some reasonable percentage above Medicare rates for care that must be delivered under emergency conditions would be a step in the right direction.

LadyBits, NP ‏@Ladybitsnp said...

From Twitter:

Nice post. Hard to imagine anyone ever challenging man's greatest (provider network) & winning here in MA, but a girl can dream..

Medical Quack said...

Going to be interesting in April when a US United Healthcare executive takes over the the NHS, now there's a monopoly of a company with truckloads of subsidiaries..and many other investments where they own 51%. Now United's biggest shareholder is from Brazil when occurred when they bought the big HMO, Amil.

Who knows what the NHS will look like in a couple years as this big conglomerate will have an if you follow here they already are paying many doctors less than Medicare, planned that way via complex contracts.

LMD said...

Good post indeed, however, I do no believe that the salient point was badly missed by the above posts. The citizens seek health care where they (not the AG and state) feel they will receive the best care. They are not interested in economics and they use the market pressure of their wishes to gain entry to the Boston systems. Not just Partners, but BID, BMC and Tufts. The community hospitals are much harder to sell and are very busy finding ways to increase revenue streams and hike rates. The idea of capping rates makes more sense than anything, but unless we as a country are willing to take away folks freedom to choose; an additional tier of service will emerge for those willing or able to pay for the kind and place of their care. In the interim, if I were to awake from a dream or otherwise and find myself in certain community facilities; I would awake screaming as would non-local and Ladybits I am certain.

Paul Levy said...

Sorry if I miss one of your points, but the fact of the matter is that the community hospitals owned by the dominant provider also get higher rates than the community hospitals owned by the other provider groups. Likewise for the community-based doctors of the Partners system compared to the community-based MDs of the other systems. It's not just the tertiary hospitals downtown that benefit from the market dominance.

In short, the market power that exists is present for the entire ACO.

Anonymous said...

Oh no, LMD, I get the point. My point is that the powers that be let the Boston situation continue precisely because the citizenry supports it. You are correct that the citizens are 'not interested in economics, ' because they don't have to be, and they don't see that their wages are lower because of your high health care prices. But neither do the politicians explain this to them, do they?

nonlocal MD

LMD said...

Agreed, Paul. The Partners system is paid at a higher rate in Boston or out in the community and the concept that labeling these conglomerates ACOs has not convinced me that the result will be better health care or more economical healthcare. It does not really matter which system----Partners, Steward or any other hospital system in business to get hold of patients and the dollars which come with them. Tarting themselves up and calling themselves ACOs seems simply another way to create monopolies, higher market share and whatever name folks want to use to describe directing the revenue stream in their direction. Watching the
"food-fight" that heath care dominance in this state has become with systems buying up hospitals, physician practices and spreading into each other's neighborhoods like the tentacles of an octopus is disheartening. If the enemy were simply evil old Partners, we would not be having this problem. I may not always agree with you and must admit that the ragging on Partners does get old, I still think it's important for you to keep poking folks in the eye here in this state!

Anonymous said...

Market power is important but how market power is used is equally or even more important.

Is the success of an ACO, increasing or decreasing overall costs of healthcare in eastern mass?

I would argue that any other ACO, other than Partners, that took market share from Partners, would in most cases be reducing cost of care in eastern mass, since as Paul said above, Partners community and academic medical centers are much more costly than their regional competitors.

So even if, for instance, a duopoly developed, where it was Partners against almost everyone else in Eastern Mass (say a combination of BID, Tufts and its physicians network, Lahey and Steward), that while increasing the market power of the non-Partners hospitals, would still be better than the current circumstance, if they could take market share from Partners at lower cost to insurers and tax payers. [I am assuming that Mass state government would still be monitoring health care costs and would limit rate increases related to additional market power by the other side of the duopoly)

I am not advocating this. I am just proposing it as a thought experiment.

What most people don't understand is that Partners market share in Eastern Mass, if the Umass hospitals are excluded (Worcester market), and Childrens (specialty hospital) is excluded and Partners affiliates and planned merger partners are included is already close to 45% of revenue.

Note: I am looking at 2011 inpatient revenue in millions. I am including hospitals in the Partners network, and those with close affiliations including planned mergers

B&W - 1643
Faulkner 172
MGH 2113
North Shore 414
Newton Wellesley 386
Marthas V & Nantucket 56

Total Partners 4784

Planned Mergers

South Shore 411
Hallmark 270

Total 681

Affiliates - either dominated by Partners doctors network or close and deep alliances with Partners hospitals

Dana Farber 547
Milford 184
Cape Cod 543
Emerson 174

Total 1448

Grand Total

Partners - 4784
Planned Mergers - 681
Affiliates 1448

Total 6913

The total for everyone else in eastern Mass excluding Childrens and the UMass hospitals between worcester and 495 is 8338.

Note: Paul keeps saying Steward operates as an affiliate of Partners also. Steward had 1239 in revenue in 2011. If that is added to Partners market share it was 53% in 2011.

Anonymous said...

Many have advocated breaking up Partners.

But whether this is good or bad, again, depends on the effects on health care costs. If for instance, MGH and B&W each went their separate way, but both individually added market share to high cost community and academic medical center hospitals, this would be a bad outcome.

Partners might have less market power, but the individual hospitals might be powerful enough to continue to dominate. In fact it could make matters worse.

If B&W split off they could be given permission to build its own network. You would effectively to use a bad metaphor have metastasized the Partners cancer.

So in my view the test is simple. Not whether there is market power, but whether the market power results in higher or lower costs.

In most cases a patient moved from moved from MGH or B&W to any other academic medical center will cost less.

In all cases a patient moved from MGH or B&W to a community hospital will cost less.

In most cases a patient moved from a Parners community hospital to a non-Partners community hospital will cost less.

In reality those are the easy decisions. But similar analysis could be done for all of the networks. Whether their adding market share would increase or lower costs.

That is what is necessary. Looking at market power in isolation is a sterile debate.