Tuesday, July 01, 2014

Does separate bargaining mitigate market power?

One supposed attribute of the recent agreement between the Massachusetts Attorney General and Partners Healthcare System is a provision "allowing payers to split Partners into separate contracting entities for up to 10 years."

While this is offered as a remedy to PHS' market power, use of this kind of mechanism is by no mean proven.

Indeed, when there was a proposed acquisition by Inova Health Systems of Prince William Hospital in northern Virginia, the Federal Trade Commission along with the Virginia AG challenged the acquisition in May 2008.  Within a few weeks, the parties abandoned the transaction.

In reviewing that case, an economic analysis was later prepared by Gautam Gowrisankaran, Aviv Nevo and Robert Town, “Mergers When Prices Are Negotiated:  Evidence from the Hospital Industry." As noted in the abstract, "remedies based on separate bargaining do not alleviate the price increases" that would have resulted from the merger.

I'm not suggesting the Inova analysis necessarily holds for Massachusetts, but the question must be asked:  Did the Massachusetts Attorney General conduct a rigorous economic analysis in the Partners case, or did she just assume that this separate contracting provision would be meaningful? If the former, where's the analysis?  It should be available for public scrutiny.

By the way, here's the overall conclusion of the paper: "We find that a proposed hospital acquisition in Northern Virginia that was challenged by the Federal Trade Commission would have significantly raised hospital prices."  Where's the similar challenge here?  Why aren't state and federal officials working in concert in the PHS case?


Barry Carol said...

I think separate entity hospital contracting should be the rule everywhere going forward. Under the current system, hospitals generally require that insurers contract with all the hospitals in their system, at least in a particular state, or none of them. In Massachusetts, I think it would be quite helpful if insurers could decline to accept some of the Partners hospitals into their network unless they get reimbursement rates that are more in line with those paid to competing hospitals. At the least, I don’t see how it can cause any harm. If there is little or no experience with a proposed new approach, we won’t know whether or not it will work as intended until we try it. We should give it a chance.

Anonymous said...

But we shouldn't have to give it a chance on blind faith. How will we know if there's any kind of impact? Are we simply to believe what the hospital chain tells us? Or what a self-interested AG tell us? There's no transparency or discourse on any element of this deal - and that's a big issue.

Barry Carol said...

While not definitive, if there is a slowdown in PHS’ revenue growth rate, separate contracting could be a contributing factor. Another clue, also not definitive, would be a slowdown in the growth rate of health insurance premiums. Disclosure of actual contract reimbursement rates which could then be compared with other hospitals would be enormously informative for all stakeholders. At any rate, I don’t see any downside to trying separate hospital contracting if the alternative is the prior status quo.

Anonymous said...

@Barry: "Disclosure of actual contract reimbursement rates which could then be compared with other hospitals would be enormously informative for all stakeholders." This could be done right now.

All of the hospitals in town certainly know the differentials between their rates and partners'. Patients don't. Nor do they know anything about clinical outcomes and how those relate (or not) to payments.