Gaining market power on both the provider and payer sides of healthcare has been the name of the game in recent years. In fact, consolidation has become so pervasive that partners have been increasingly likely to attempt dubious mergers, according to a Health Affairs blog post spurred by a recent conference at New Haven, Conn.-based Yale Law School's Solomon Center for Health Law Policy.
For example, a physician merger attempted to consolidate 15 of 16 cardiologists in Reno, Nev., last year and another attempted to unite roughly 80 percent of primary care physicians in Nampa, Idaho.
What has surfaced from this M&A frenzy are two attractive arguments to defend consolidation, one based in sumo wrestling, and the other shifting the blame to the Affordable Care Act. However, neither of these theories can stand up to close scrutiny, according to Health Affairs.
Here's why.
Argument: The Sumo Wrester Theory
This theory, according to Health Affairs, attempts to prop up consolidation by suggesting that providers must consolidate if payers are, and vice versa. It suggests equally large opposing forces will create lower insurance premiums and higher quality care.
Defense: Unfortunately, such actions do not favor consumers in the end, according to the report. Economic theory shows bilateral monopolies allow output to fall below competitive levels, according to the blog. Even if a sumo-sized payer can bargain a low price with a sumo-sized provider, these savings are not always passed down to consumers.
This kind of environment, with a large payer and large provider, can also result in alliances designed to undermine competitors. For example, Pittsburgh-based Highmark teamed up with the largest local health system to shield Highmark from competition and damage the hospital rival, according to the blog.
Argument: "The Government Made Me Do It"
This argument posits that the ACA and Medicare payment reforms justify and incentivize integration and consolidation, according to the report.
Defense: While the ACA does incentivize providers to work together under bundled payment and shared savings initiatives, it also only works if market competition is healthy, the report notes. The blog quotes John J. Miles, who wrote a treatise on antitrust laws and the healthcare industry, "Difficult to see is how permitting provider mergers or other forms of integration that result in market power furthers the congressional goal of lower healthcare costs."
See the full post here.
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