Friday, June 22, 2012

RJR Nabisco had nothing on these guys

This article in the New York Times about squabbling and spurned suitors engaged in New York hospital mergers reads like Barbarians at the Gate.  This is what happens when you incent aggrandizement of hospitals by promoting accountable care organizations and then offer little oversight by antitrust authorities.

Either merger would create one of the largest health care systems in the city, with immense leverage under the new federal health care law. It could put pressure on outside medical practices, insurance companies and rival medical schools looking for hospitals in which to train their students. 


Barry Carol said...

If the healthcare provider side continues to consolidate into large systems that include employed physicians as well as labs, imaging centers, physical therapy centers, etc. and if the payment model moves away from fee for service in favor of global payments, the dynamic could change materially. Either the provider groups would start to perform the insurance function themselves or partner with an insurer with more expertise in estimating the cost to provide care for a large population. Instead of using their market power to extract high payments from insurers, they would have to submit bids to cover a population within its network at rates that might vary with age within certain limits but little else. There would have to be risk adjustment payments to compensate provider networks that wound up with above average risk populations. Risk adjustment payments would be financed by assessments on insurers, including provider groups performing their own insurance function that wound up with below average risk populations. Care provided out of network under emergency conditions or outside the member’s home region, while traveling, for example, could be reimbursed at Medicare rates or some small percentage above it by law.

At the end of the day, the winners would be those that could provide care at low cost and high quality. High cost providers would have to learn how to become more efficient, shrink their physical plant and employment footprint or go out of business altogether. Large size wouldn’t matter as much as long as there was adequate competition in each market.

Provider systems could operate a fee for service system internally that could be used to track resource utilization among physicians if desired.

Paul Levy said...

"Large size wouldn’t matter as much as long as there was adequate competition in each market." This is a big issue when there is insufficient antitrust enforcement, as suggested by the head of the Federal Trade Commission. I wonder how many of the large US cities -- or for that matter, how many of the small US towns -- have sufficient competition to ensure contestablity.

Also, although I agree with you in concept, Barry, there are high degrees of friction in the health care environment that are not common to other industries. For example, patient preference and history with one's doctors matters a lot.

Also, noncompatible information systems can make it troublesome to switch from one provider group to the next.

Barry Carol said...

Paul –

Those are very good points. I think the IT issue is probably fixable over the intermediate term. At least I hope so. The patient preference issue is an important one. However, I think, over time, patients will need to make a tighter connection between what care they want, how they want it delivered and what they’re willing to pay for. For example, if the narrow network that includes their doctors charges a premium that’s 50% or more above other competitors in the market would they be willing to pay the extra cost or would they decide that switching providers is the better option? I don’t know but transparent price signals would help us find out.

Anonymous said...

Let's not forget that in an urban market, where 1/3 + are undocumented, the volume through the emergency departments makes up large share of admissions....hard to encourage compliance when there's nothing to prevent patients from seeking care in the ED